Local TV channels in Zhejiang band together

Alliance could start nationwide trend

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HANGZHOU--The three-way battle for ad revenue raging among China’s national TV network China Central Television (CCTV), innovative provincial broadcasters and city channels took a sharp turn late last month in Zhejiang, one of China’s most economically-advanced provinces.

Local broadcasters usually have the fewest resources to buy quality programming or negotiate major ad deals. But the Zhejiang city channels, reaching a market of 40 million Chinese, have created a strategy to work together to offer better programming for viewers as well as better value for advertisers.

"The clubbing together of the TV stations to purchase and develop programming makes absolute sense to me," said Philip Beck, Shanghai-based CEO of China Media Exchange, the holding company for Publicis Groupe's media divisions in the mainland. "It will help cut out some of the middleman's profit in the process and these savings can be reinvested into more programming."

In a direct attack on Zhejiang’s provincial TV network and a longer term threat to CCTV, the "Zhejiang 11,” as the alliance has been dubbed, is offering package deals for airtime in 11 affluent cities at a very competitive price compared to rates on Zhejiang’s provincial TV network.

Deals have been offered to new advertisers in Zhejiang province and to advertisers currently using only the provincial competitor by splitting the network into three tiers determined by the market, population and gross domestic product. Tier one includes Hangzhou, Ningbo and Wenzhou; tier two includes Jiaxing, Jinhua, Taizhou, Huzhou and Shaoxing and tier three consists of the cities Zhouzhan, Lishui and Quzhou.

While no special deals will be offered to clients currently using the TV stations at the city level, they are expected to negotiate for better deals in the future as a result of the alliance.

On the programming front, the group has banded together to purchase drama series for distribution across all the channels to leverage their collective purchasing power to get high quality content.

The local stations “have utilized their close proximity to local viewers and developed specialized self-produced program content to meet their viewers’ highly-specific tastes,” said Alex Abplanalp, Shanghai-based CEO of China Media Consulting Group. Until earlier this year, he was Zenith Media’s managing director for China.

Although provincial channels have occasionally worked together to combat the power of CCTV in China, the alliance marks the first time in the mainland that city channels have cooperated at this level.

Their plan is fraught with challenges. Cooperative commercial alliances between non-related station groups are difficult to sustain, particularly when there are so many cities involved with different TV viewership dynamics. The local stations can also expect a sharp response from  Zhejiang’s provincial channel, which will fight back with new programming, aggressive marketing and added-value options for advertisers.

While the alliance will be difficult to implement, media buyers say it is a significant development. China’s TV industry used to be dominated by CCTV. Now it has evolved into a system with dozens of successful smaller players skilled at developing branded content opportunities for advertisers, particularly those focused on urban consumers in well-off areas like Zhejiang province.

Even so, the local channels have “nothing to lose and everything to gain from cooperation,” said a senior executive at a media research company in Beijing, who asked not to be identified because his company also works with China’s provincial channels and CCTV.

“They have strong influence in very important consumer markets. If they can roll out the cooperation to advertising operations, “it could signal a very unique opportunity for advertisers to leverage a new method of engaging consumers across all urban areas of a province,” he added.

The local stations unveiled their alliance on Nov. 28 in Hangzhou at an event attended by over 300 executives from marketers and media agencies such as Zenith, OMD and Universal McCann. They are curious about the move, because it could start a nationwide trend, altering the balance of power between local, provincial and national media owners in a way that reduces media inflation, now above 10% annually in most markets.

While their success will be dependent “on the usual parameters of cost, programming and audience delivery,” agreed Mr. Abplanalp, there is “a lot of interest” in the package from advertisers now relying heavily on provincial TV, such as PepsiCo, Nike and Unilever. It clearly indicates how "red hot the competition is in the TV sector to boost revenue and increase market share.”

Even if the move does not turn into a national trend, it is significant because Zhejiang is home to more than 40 million relatively affluent consumers. The province's gross domestic product grows about 13% annually and seven of the 11 cities in the alliance rank in the top 10 in the highly developed Yangtze River Delta by per capita GDP.

It’s no coincidence that the “Zhejiang 11” stations announced their plan just one week after CCTV held its annual auction in Beijing to sell advertising inventory during its prime time programming as well as sponsorship of special packages.

“The timing of this is an important factor,” said Mr. Abplanalp, because the CCTV auction was the first battle in the TV war, gauging likely airtime demand and price sensitivity for 2007.

The results of the auction were stable but not spectacular, he observed, “suggesting absolute revenue increases for the TV market will be hard to come by. Winning share is therefore critical for the different levels of television, pitting national vs. provincial vs. local TV networks to boost revenues.”
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