Digital Upgrade, Programming Sales Opportunities

BEIJING --- There has been a rather large amount of hoopla in the press about the roll-out of digital television across China these days. Various cable networks around the country (indeed, the China Media Monitor has been listing 3-4 network upgrades each month throughout this year) are touting the completion of digital upgrades for their HFC networks allowing for increased channel capacity as well as the transmission of digital programming. 

Press reports indicate an explosion of sorts for the digitization of China's CATV networks. Each report comes complete with rosy subscriber predictions pulled straight out of a central planning manual which bases output projections on speeches by central leaders. In this case SARFT.

For example, SARFT has recently announced that Sichuan Province, which by and large has already upgraded its network to digital, will have by end of year 2005 6 million digital TV subscribers with 100 percent of cable subscribers migrated to digital in the Sichuan capital city of Chengdu.

From the network side, SARFT has been relatively ahead of schedule in terms of the digital roll-out. As noted in the CMM-I 2003-2004 China Media Yearbook, SARFT's timeline is as follows:

SARFT Digital Timeline
2002 Finish testing the technical standards for terrestrial transmission
2002 Publicize national standards for digital cable TV transmission
2003 Adoption of national digital TV standards
2003 Publicize national digital TV standards
2005 Launch digital TV broadcasts in selected cities
2008 Transmit Beijing Olympic Games in HDTV
2008 Launch digital TV commercial broadcasts in major cities
2015 Switch-off analogue system nationwide

However, from the subscriber side, growth is still being hampered by a number of factors.

The networks themselves seem relatively unable to articulate the value proposition for the product they are rolling out. Without exception, sales departments at the networks with digital transmission capability contacted by CMM-I are not able to come up with compelling arguments as to why a cable subscriber should pay (relatively speaking) a fairly large amount of cash for a set-top box to receive digital signals. Although a clearer picture signal is certainly available, sales agents cannot point to any significant increase in content to justify the upgrade.

Let's take Beijing as an example. Beijing is currently one third of the way through its digital cable network trial. The trial is set to end at the end of November. Currently, users must pay a RMB800 deposit (although many press reports incorrectly have the price listed at RMB600) to receive a set-top box capable of receiving digital signals. After installation, which is free during the trial phase, subscribers can then receive the usual channel bouquet available to Beijing Cable subscribers with 6 additional 'digital TV' channels from CCTV including a football, music, Beijing opera, movie, drama and city sport channel with programming culled from already existing CCTV content.

Following the end of the trial, users must decide to either return their set-top box for a refund on the deposit, or sign up for an additional year. Gehua, the company that administers Beijing's main cable network, is telling subscribers that there will be additional digital TV channels available following the trial, but is unable to name what those channels may be.

Accurate subscriber numbers are hard to come by, but CMM-I believes once the trial period is over and users must pay an additional monthly fee to receive the programming, those subscriber numbers will drop significantly.

This provides a significant opportunity for those companies hoping to increase programming content sales to China.

For the most part, digitization trials throughout the country have been proceeding smoothly from a technical perspective. Starting at the end of this year and the beginning of next, channel operators must begin to concentrate on software side of the equation.

Presently, subscribers only need to pay the deposit for the set-top box and do not need to pay an additional fee for the digital channels. Although the additional monthly fee for the service has not yet been fixed, that most cable networks are considering a fee of around RMB30 per month extra. It will be difficult for cable networks to convince subscribers to hold onto their set-top boxes and not return them for the deposit without an increase in compelling content to hold their interest.

The fact of the matter is, as noted in previous China Media Monitors, China's production industry is not yet able to fulfill all of the content requirements for the increase in new channels that digitization has made possible, and will need to turn elsewhere for at least some of that content.

If CCTV's digital channels are to survive in the marketplace, they will need to come up with better content than is currently being used in the trial phase.

Foreign content providers can now make the argument to the CITVC Programming Department, which is the main avenue for foreign content to make its way onto CCTV channels, that they can make the programming available to help push CCTV's digital channels forward in the race to sign up new subscribers.

The month of October is a good month to begin initial discussion concerning the provision of content for use on CCTV's digital channels given meeting opportunities available at MIPCOM (where CCTV-6, the movie channel, will be in attendance) as well as the Sichuan Television Festival at the end of this month where all major departments of CCTV will be in attendance.