Logo Spat, Opportunity in Disguise?

BEIJING --- Much has been made in the international press about recent SARFT actions aimed at removing all foreign channel IDs from programming carried within the country on channel blocks or otherwise (please refer to 'SARFT Seeks Programming for National Network').

Essentially, SARFT has been seeking to secure quality content for China's only planned national cable network and is trying to do so in a fashion that doesn't make it look like the regulator for China's television industry is being forced to turn to foreign content suppliers.

SARFT has not been going to original program producers to secure content for its network but has instead been approaching those in the industry that it knows best, the foreign channel operators who carry the kind of programming SARFT wants for the network.

This has created a bit of a difficult situation for the channel operators. In most cases, these companies are not in the business of providing programming to third parties but rather work to secure programming for their own networks that they then resell to cable networks.
 
SARFT is turning to foreign channel operators that have been lobbying hard over the past number of years to get landing rights for their dedicated channels for distribution onto mainland cable networks.

As these channels are generally not allowed to be carried wholesale on cable networks in the mainland (with the well publicized exception of Guangdong province), channel operators have been using branded programming blocks as awareness tools ahead of the time in which they will finally be allowed in.

In advance of this opening up, channel operators have been working with mainland broadcasters to provide branded programming blocks for which they often receive advertising and branding opportunities for their channel.

Therefore, it does not make sense for these companies to sell programming carried on their channels to other channels even presuming they had the right to do so. However, on the other hand, most channel operators view any opportunity to work with SARFT as an opportunity to become further engaged in China's rather closed media market and usually are at great pains to grasp such an opportunity when it comes along.

According to a number of industry sources, the act of denying SARFT the programming it desires sans logo had caused some within the regulator to threaten to revive a long standing rule barring foreign channel IDs and logos on any programming carried on the Chinese airwaves.

This situation led one channel operator interviewed by CMM-I to quip that "perhaps now is actually a good time to step back and educate SARFT as to how global programming rights and channel branding and licensing actually works."

The threat does not seem to have materialized as the channel operators contacted by CMM-I for the most part seem unaware for the time being of any consequences and foreign logos and channel IDs are still common on foreign programming carried on Chinese television.

So what are we to make of all this? Could this be the start of another one of the periodic crackdowns on foreign programming? Or simply another tempest in a teacup?

Firstly, a little background on what exactly this SARFT national network that keeps getting mentioned in the press actually is:

The network in question is the cleverly named China Broadcasting Network (CBN) under the China Media Group, the country's largest media conglomerate owning China Central TV (CCTV) and major radio and film sector assets at the national level. The CBN operates a 3 million km cable TV system offering 46 channels, but has been stymied in its plans to offer services nationally as local cable operators do everything in their power to protect their last mile monopolies.

CMG officials have been quoted in the press as saying that local networks "have to link up with us no matter whether they are willing or not. But this linking up is not using the planned economy method, [it] will be based on commercial practices."
 
The planned use for the network has undergone a number of changes over the years. One of its original remits was as a potential hard-line content delivery platform for the nation's cable operators. The reasoning at the central level was that this could be a cheaper delivery vehicle to operators than traditional satellite based methods.
 
This model was quietly abandoned when it became clear that local operators had no taste for paying connectivity fees to SARFT, and that SARFT simply did not have the financial resources to roll out the network without guaranteed revenue from the local operators.
 
For this reason, CMG's major hurdle remains agreeing subscriber values and revenue share. The original valuation tried to base deals on total network assets, leading to gross overvaluations and protracted talks.
 
The situation CBN currently finds itself in is controlling a countrywide backbone cable network (see above) but with little if any connectivity into the homes of Chinese citizens. CBN has changed its business model some and come to the conclusion that if the local networks won't give it last mile access, CBN will act as a competing network…with better programming.
 
CBN is still a ways off in terms of commercial viability, however, we can say at this time that China's fist national cable network looks like it is finally on track to be lit over the coming years. CBN officials are out trying to secure programming for their network, albeit in a rather haphazard fashion.

Nonetheless, the will is there to take a substantial amount of foreign programming and place it on a Chinese cable network
 
Seen in this light, it looks as if our interviewee quoted earlier on might not be too far off the mark. As CBN looks to create a viable national network, foreign companies should take this opportunity to help company officials understand the international television market, and in doing so, create a larger market in China for themselves.