Pay-TV: Signs Encouraging but no Need to Start Celebrating
At a speech given January 14, Chen Xiaoning, Board Chairman of the China Broadcast Network Company Ltd. under SARFT, discussed his view on the current and future state of pay-TV in China.
Mr. Chen made the bold announcement that pay-TV would be a widespread phenomenon in China five year from now. His announcement is a move usually reserved for large consulting and research firms as 5 years is far enough away that if they are right they are hailed as geniuses and if they are wrong, well, nobody will remember what they said anyway.
Over the last ten years bone fide pay-TV in China, along with a number of other goodies throughout the tech world including 3G mobile services and genuine video on demand, has always been "3-5 years away". So what are we to make of Mr. Chen's announcement? Is it simply another speech at an event by a high level political leader that seems to say something but really doesn't? Or is it an indicator that change is actually afoot in the broadcasting industry?
Like just about everything else in China, it's a little bit of both.
Let's start with the good news first. The fact of the matter is, things are actually changing throughout the broadcasting world in China.
The hard realization that a successful pay-TV platform involves providing the kinds of compelling content that cable users would pay more for seems to have finally been grasped by SARFT. However, domestic program producers have yet to produce this kind of contact. Although China's program producers often have technologically up to date (not to mention expensive) production equipment, Chinese programming generally falls short as witnessed by its poor sales internationally. At least until China's programming production industry improves its quality, this leaves foreign channels to fill the pay-TV gap.
Chinese authorities are cognizant of this and are becoming more experimental in the kinds of foreign broadcasting influence they let in. For example, it would have been unthinkable a few years ago for a foreign controlled 24 hour Chinese language news channel to be let into China in any form. However, now we have Phoenix controlled Infonews given the green light to be broadcast into 3 star and above hotels as well as 'foreigner compounds' in Guangdong Province.
Admittedly, this is not as much distribution as the predictable number of badly reported "X company cracks the China market" stories that were spawned in the wake of the announcement would lead one to believe. But still, it's a step towards providing the kind of programming that Chinese viewers would actually pay extra for, a consideration that previously never seemed to figure prominently in SARFT's vision of pay-TV.
Also, the number of pay-TV 'trials' that are running in a number of cities across China is increasing by more and more each year. In the suburbs throughout most major cities across China, viewers are happily (and without paying a dime) watching dedicated channels from such broadcasters as the Discovery Channel and National Geographic simply because they live in a 'trial' area.
While national distribution of dedicated foreign channels across Chinese cable networks is still banned, with landing rights being granted to more and more broadcasters for cable distribution in Guangdong, as well as the increasing number of trial areas, China is moving towards almost de-facto acceptance of dedicated channels on cable networks for foreign broadcasters.
And now, for the bad news.
The regulatory framework for foreign channel participation is still extremely murky. And while it is quite common in China for regulatory policy to lags actual industry practice, this is not a system without risk. One need only look back to the China Unicom developed China-China-Foreign investment scheme in which the telecom operator exploited a loophole in the regulations covering the ban of foreign investment in China's telecom sector to attract investors.
When the State Council declared the scheme 'irregular' (to declare it illegal would have meant possible jail terms for a number of Unicom officials), foreign investors were unceremoniously forced to uncouple their investments in Unicom. They got their money back but effectively provided China Unicom with interest free loans and technical expertise that assisted Unicom in rolling out its network. Although foreign broadcasters are not investing in the Chinese broadcasting industry per-se, they are investing time, money and effort in developing programming aimed at the China market. One would hate to see a Unicom type fiasco replay itself in the broadcasting sector.
In short, at the end of the day, who really knows how far off a genuine pay-TV industry in China is? No need to break out the Moet & Chandon yet, but there are definitely encouraging signs that would seem to indicate China is on that track. I predict it will get there five years from now.