Production JV's Produce New Opportunity
China's broadcasting industry regulator the State Administration of Radio, Film and TV (SARFT) released a new set of regulations in late December 2003 allowing foreign direct investment into China's television production industry for the first time.
Previously, foreign parties seeking to produce in China were only able to do so under three sets of circumstances. The companies could enter into a joint production, whereby both parties contribute capital; an assisted production, where the foreign side provides capital and the Chinese side provides logistics and 'know how'; or a commissioned production where the Chinese side produces on behalf of the foreign party. Additionally, each permit for joint production was treated as a 'one-off' by SARFT and the approval process had to start all over again for each new production: A cumbersome and time consuming business.
The new rules allow for foreign minority investment in joint venture production companies. Foreign equity ownership is capped at 49 percent. With the relaxation of the investment rules, foreign companies will now be able to have a greater say in how any production capital provided to the Chinese party is allocated. As widely predicted, the new rules stipulate that news program production remains strictly off-limits for foreign invested production companies.
The opening move comes as China is actively attempting to raise the quality level of entertainment and education programming as it begins the ambitious roll-out of pay-TV services across the country. By the end of last year, nearly every major Chinese city's cable network had been upgraded and is now technically able to offer tiered programming platforms as well as other pay-TV services such as video on demand.
This explosion in available airtime has meant exacerbating China's already serious content gap. Industry estimates put the annual content shortfall at more than six million hours on existing channels. Although China's production industry continues to advance, the number of pay-TV channels being launched means a further massive increase in channel capacity.
Consumer response to the roll-out of the pay-TV services has been muted at best. For example, Beijing's cable network operator Gehua has extended free pay-TV trials that were supposed to end in December for another three months due to low trial subscription numbers. This is despite the fact that the equipment is basically being given away and users are not yet charged a monthly fee.
Simply put, China has not yet been able to develop compelling pay-TV content that is able to clearly differentiate the premium channels from over 2,000 free channels.
Allowing foreign funds, but not equity control, into the TV program production industry is seen by SARFT as a way to help raise the quality level of Chinese programming and push the development of pay-TV channels forward.
Although the regulations were released in December, SARFT has yet to approve any foreign invested production companies. According to SARFT officials, there have already been a 'small number' of foreign companies that have applied for the right to invest, but all cases continue to be 'under review'.
As in most cases of Chinese legal reform, the short term effects are likely to be overestimated. Although the regulations have relaxed, SARFT has in no way given up control over what influence foreign companies can have in the Chinese media market.
However, it has put in place a mechanism to channel much needed international investment into the domestic production industry and provided the first opportunity for foreign companies to build production assets inside the country. For broadcasters such as Star TV, CETV and MTV with channel transmission licenses in Guangdong province, the news represents the chance to take another step forward in their efforts to operate inside China.