China's TV market

Foreigners tempted by 1+ billion viewers

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BEIJING--”There’s a joke about a thief who was asked why he robs banks, and he replied, ‘Because that’s where the money is.’ We’re interested in Asia, especially China, because that’s where most of the world’s viewers are,” said Time Warner Chairman Richard Parsons during a recent visit to Asia.

With 347 million households watching television for an average of three hours per day, according to CSM Media Research, international media owners and marketers are eager to tap the potential of that country’s TV industry. But with more than 2,000 channels on terrestrial and pay-TV platforms at city, provincial and national levels, it is a complex, challenging scenario.

Thanks to Chairman Mao, who grasped the power of television as a mouthpiece of the Communist party back in the 1950s, virtually everyone in China now has access to TV programming.

At the center of the industry, Beijing-based China Central Television (CCTV) has a dozen channels with national distribution focused on topics such as sports, movies and even agriculture. Through satellites and agreements with broadcasters like News Corp. and Time Warner, CCTV’s programming can even be seen in the U.S.

CCTV has evolved over the past decade from backward state-controlled behemoth into a savvy commercial entity. CCTV's annual auction in November to sell airtime for the following year is an event that attracts every multinational advertiser intent on marketing its products beyond China's first and second tier cities. Last year, Procter & Gamble was the highest bidder, investing more than $47 million on CCTV airtime for 2005.

But the popularity of the latest season of the “Super Girl” contest, seen by up to 400 million Chinese, highlighted the significant changes taking place in China’s TV market (AdAgeChina, Oct. 10). The show was created by Hunan Satellite Television--not CCTV--demonstrating advertisers have choices beyond the dominant state-run operator, and local viewers want more engaging content.

The Super Girl property represents “a big challenge” to CCTV’s dominance, said Quinn Taw, Beijing-based managing partner in China for MindShare and Maxus.

Homegrown media operators like Anhui Satellite and Shanghai Media Group have nearly national reach and are busy buying or creating drama series and entertainment shows like “Super Girl.” But Hunan Satellite is by far the most successful, with distribution that now extends to Taiwan and Hong Kong.

“They realized their mission was becoming a national player a long time ago, back in 1999, and developed a team dedicated to establishing distribution on local and regional cable and satellite channels all over the country, because there is no rule saying those operators must carry provincial channels,” said Matthew Brosenne, CSM's international business director in Beijing.

Last year, they even developed their own branding. Programming on Shandong’s satellite station is emotion-driven content, for example, while Chongqing highlights morality, Xinjiang is focused on singing and dancing, Shanghai’s Dragon TV is a news-oriented channel and Beijing’s provincial station shows mostly documentaries and lifestyle shows.

“The government wants to enhance competition and make the industry more market-driven. As a result, the provincial stations have become more aggressive over the past five years,” said Ringo Chan, Turner’s VP, Greater China in Hong Kong.

Now China’s government is promoting the development of digital TV. The technology has already been tested in more than 49 cities and is expected to be in place in the major cities by 2008, the all-important year when Beijing  hosts the Olympic Games.

But advancing technology creates a dilemma for the government. The country’s existing production facilities are not large or experienced enough to develop the quality programming required to justify subscription charges high enough to make digital TV financially viable, far more than the $3 per month average Chinese currently pay for multi-channel access.

However, the government is wary about easing restrictions that would allow foreign broadcasters like Turner, Viacom, News Corp.’s Star Group and Disney into China’s media industry. It wants to avoid letting foreign people and cultures dominate such an influential conduit to its citizens. The government also wants to protect the local production industry, whose technology, production quality and creativity lag foreign standards, and keep ad revenue in local hands.

So far, foreign broadcasters' channels are allowed mostly in major hotels catering to Western visitors and expatriate housing compounds.

Foreign media companies are eager for 24-hour access to TV households across China, but local media authorities are moving slowly. Last year, China announced that foreign companies could form production joint ventures with local media companies, particularly for children’s programming.

Viacom’s Nickelodeon division quickly inked an agreement with Shanghai Media Group to produce Chinese-language kids and youth programming. Other players like News Corp, National Geographic Channel and Discovery Channel followed with similar partnerships with Chinese companies.

None of these deals has received government approval, however, and in February 2005, the State Administration of Radio, Film and Television (SARFT) scaled back earlier promises. Under new rules, all content from joint ventures must be at least two-thirds oriented towards Chinese culture and production has to be pre-approved.

Two months ago, SARFT went further, banning new foreign channels from even limited distribution into China. SARFT is investigating News Corp.for alleged inappropriate distribution in Qinghai province. New Corp. declined to comment on the investigation.

Foreign broadcasters accept the changes with patient optimism. Access to China’s TV industry “will develop slowly but we have to build relations with the government and do things their way. You build there as the market lets you build,” said Mr. Parsons.

Marcel Fenez, who leads PriceWaterhouseCoopers’ entertainment and media practice in Asia/Pacific in Hong Kong, said “Foreigners don’t have a God-given right to be anywhere. I believe China will open the door to its media industry when it knows it can be globally competitive. It’s their door and we can’t kick it down.”

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