SPEAKING
FREELY Sex and the City (and
China's media
crackdown) By Pietro
Ventani
Speaking Freely is an Asia
Times Online feature that allows guest writers to
have their say. Please click hereif you are interested in
contributing.
HONG KONG - Diana
Chan (not her real name) is 25. She is a junior
account executive at a major advertising agency in
Shanghai. Every Tuesday, she leaves the office
early to rush back home and watch her favorite TV
show: Sex and the City on HBO. Wait a
minute: what is a show about a group of single
women obsessed with shoes and sex doing on China's
primetime TV schedule? Aren't China's TV censors
known for diligently filtering out any content
that is deemed unsuitable?
Welcome to the
grey area of China's media policy, a zone where
foreign media companies have developed ways to
navigate around tight regulations and get on the
local airwaves. But it looks like
the
party (with a small 'p', mind you) may be coming
to an end. In the last few months, Chinese
regulators have announced a number of measures
aimed to restrict the presence of foreign
channels. For example, just a few days ago, a
company associated with News Corporation was
reportedly under investigation for possible
illegal practices in distributing foreign
channels. While TV in China is a booming US$12
billion business that clearly could use the
foreign media's help in realizing its commercial
potential, the impact that foreign content may
have on society seems to have prompted the
government to put the brakes on the spreading of
foreign TV, at least for the foreseeable future.
As a consequence, the grey areas are becoming,
well, more black and white.
So far,
foreign media companies have had two basic ways to
participate in China's TV market: either through
licensing of content or through broadcasting. The
presence of import quotas and scarcity of cash
available from most TV stations to pay for program
licenses has prompted large foreign media
companies to aggressively pursue the broadcasting
option. Advertising expenditure in China has been
growing an average of 40% per annum over the last
five years, with 2004 ad spending estimated at
$23.3 billion and TV ads accounting for an
estimated 50% of the total. Companies such as
Viacom, News Corporation and Time Warner have
therefore been very keen to set up some form of
channel presence in the market as a way to tap
into the pool of investments available and, at the
same time, build up broadcasting assets in what is
already the largest TV market in the world in
terms of the number of viewers.
There is,
however, a problem: regulations do not allow
foreign channels into the country, and ownership
of local channels by foreign companies is strictly
prohibited. That is why, over the years, some
foreign media companies have become very
proficient in learning alternative ways to get on
local TV sets. It is important to note that these
media companies are unlikely to have done anything
illegal. Rather, they have learned how to fulfill
market needs and rely on local third partners to
do any necessary "spadework". This is a common
approach for foreign businesses in China, since
the opacity of regulations makes it easier to ask
for forgiveness than to ask for permission. Below
are some of the most common workarounds adopted to
distribute foreign channels into China.
Sino-Sat distribution While
foreign channels are not allowed in general,
certain types of buildings are exempt from this
prohibition and are allowed to set up satellite
dishes and receive international channels from an
approved list of broadcasters. The buildings in
question are research or educational centers,
hotels with at least three stars and the so-called
"foreign compounds". These are luxury apartments
that are meant to house foreigners living in China
for business or educational reasons. Over the last
decade, however, the number of apartment buildings
able to get foreign channels has mushroomed
regardless of the actual percentage of foreign
residents. Thanks to a dramatic growth in
residential property and the "grey-distribution"
of foreign channels to cable operators, thousands
of apartment buildings in the major cities enjoy a
variety of theoretically prohibited channels.
While the actual number is unknown, industry
experts estimate that up to 30 million households
may be able to receive some of the more popular
channels such as HBO or Discovery.
The
government-approved list includes 31 channels,
including most of the main commercial brands from
Asia, the US and Europe. Those channels are
uplinked onto the Sino-Sat satellite and made
available for downloading into China. Application
for inclusion onto the list is known to be complex
and lengthy, taking at least one to two years for
approval, which is not guaranteed. Once approved,
the channel is also required to pay a $100,000
annual fee - which has not been much of a
deterrent as dozens of international channels from
all over the world have queued up in hopes of
dipping their toes into the largest TV market on
earth. Remarkably, the consolidation of all
foreign channels into the same broadcasting
platform provides the Chinese government with a
very convenient censorship tool, as they can block
the broadcasting of all or selected channels in a
matter of seconds should the situation require. A
common experience of the traveler to China is the
sudden blackout of channels like the BBC or CNN
whenever sensitive topics or commentaries come up.
Landing rights Another way for
foreign media to get onto the air in China has
been to get permission to broadcast their channel
("landing rights") in a specific province. Once
the channel is legally allowed in this province,
an independent system of local agents can then
arrange rebroadcasting in other major TV markets
outside that province in order to piece together
more comprehensive geographical coverage which is
more enticing for advertisers. This is another
case of "grey distribution".
So far, the
only province for which the government has allowed
such landing rights is Guangdong, the affluent
region around the Pearl River Delta neighboring
Hong Kong. Seven Hong Kong-based channels have
obtained such permits so far. Given Guangdong's
population of more than 100 million with the
highest per-capita income in China, owning a
channel able to broadcast in Guangdong is arguably
already valuable. However, the real windfall from
landing rights is the opportunity of reaching most
of the major TV markets in China through
grey-distribution and, one day should regulations
allow it, being able to broadcast directly all
over China. Hong Kong-based Phoenix TV was the
first to receive landing rights in Hong Kong and
has, since then, developed into one of the top
brands on China's TV and a very profitable
company, reporting $137 million in revenues for
2004, a 56% increase over the previous year. The
channel is 37.4% owned by News Corporation,
possibly the most aggressive foreign player in
this area. News Corporation also holds another
channel with landing rights: Xing Kong Wei Shi
(Starry Sky) and owns or co-owns another four
channels distributed through Sino-Sat. The other
five channels with landing rights in Guangdong are
owned by Hong Kong terrestrial broadcasters ATV
and TVB, and Li Ka Shing's Tom.com, owner of CETV.
Virtual Channel Some foreign
media have pursued a more complex but, possibly,
more direct approach. Chinese regulations have
allowed and even encouraged the formation of
sino-foreign joint ventures, typically in the area
of TV production. Those companies create and/or
acquire programming that is then packaged into a
"time-block" on a specific channel. Such
programming blocks are then syndicated across a
number of affiliated channels in various TV
markets and broadcast as much as possible in a
synchronized fashion. The joint venture provides
the programming to the affiliates in exchange for
airtime that is then sold to advertisers.
A variation on this distribution model is
when the foreign media company, through a
majority-owned advertising company, leases a block
of airtime on a satellite channel in a certain
province. The block is then syndicated across
other provinces that can pick up the signal
through the satellite. In either version, if
perfectly executed, the model provides the foreign
company with a "virtual channel" across key TV
markets that they can program, market and sell as
if they had their own broadcasting operation. The
devil is, nonetheless, in the details and the
execution of such models has been rife with
problems ranging from difficult relationships with
local partners, unruly affiliates that decide to
pull the block off the air without notice or, a
common practice with successful TV programs,
replacing the advertising placed by the syndicator
with their own commercials. Walt Disney Co, for
example, has spent more than seven years and
considerable resources before establishing a
now-profitable "Little Dragon Club" block on 26 TV
stations across the country. While the horror
stories from both media companies and advertisers
abound, some large companies have been extremely
active in pursuing this distribution model.
Viacom, for example, has announced, just in the
last 18 months, three such partnerships - perhaps
trying to diversify its risks and maximizing its
chance of reaching the widest possible market
coverage in the shortest possible amount of time.
With 360 million cable households and
deep-pocketed advertisers, the China TV market has
all the characteristics to become one of the
greatest world markets for content. Besides,
undercapitalized and poorly managed local TV
stations can hardly satisfy the demands of
audiences and advertisers, and would therefore
welcome partnership with foreign media companies.
Such companies could provide not only content, but
also crucial expertise in management, programming
and marketing, not to mention an existing
relationship with global advertisers.
Regrettably, the Chinese media industry
continues to be one of the least permeable sectors
for foreigners. Mindful of the need to retain full
control over content, the Chinese authorities have
largely succeeded in leaving media out of the WTO
discussions. The only mention of content in the
WTO agreements was China's commitment to gradually
increase the number of foreign movies allowed for
cinema distribution to 50 titles a year; a
concession hardly relevant for the foreign media
industry. Nevertheless, the rules designed to keep
out foreign content were not always clear and
absolute, and a number of "workaround" approaches
were identified. Today most major global media
companies have a presence in China, and some have
constantly striven to widen their reach through a
variety of strategies such as the ones discussed
above.
Chinese authorities have been aware
of such strategies for years and seemed to be
inclined to turn a blind eye. For one, all the
major players in the industry are still very close
to the central government and, therefore,
guarantee compliance with any wishes of the
authorities. Phoenix TV, for example, is
controlled by former army colonel Liu Chengle and
the Bank Of China. Moreover, the government has
made clear the importance of developing the TV
industry as a way to spur local innovation in
digital and media-related technologies. After last
year's failed launch of a pay TV platform, which
saw a dismal pickup of subscribers due to the lack
of content worth paying for, the authorities have
seemingly realized that the TV business can't be
commercially viable without content relevant to
viewers and advertisers.
There was,
therefore, a widespread perception that the
government was comfortable enough with the degree
of control they already had and that they would
continue their tacit approval approach or,
possibly, relax the regulations concerning foreign
media. Instead, the exact opposite has happened,
and in the last 12 months a surprising crackdown
has hit both local and foreign TV companies.
First, a warning was issued to a number of cable
operators across China regarding the broadcasting
of foreign channels outside of authorized areas,
then the number of production joint ventures for
each foreign media company was limited to one, a
measure possibly aimed at companies setting up
multiple Joint Ventures such as Viacom. Just in
the last two months, a barrage of new rules
emerged:
No more new foreign channels will be allowed
on Sino-Sat
An explicit ban on the leasing or joint
operation of TV channels to or with foreign
companies was announced
Pre-approval of any program produced by a
Sino-foreign production joint venture is now
required
Most recently, even possible
sanctions against specific foreign companies have
been announced. The Asian Wall Street Journal
reported on August 22 an alleged investigation of
Beijing Hotkey media, a company associated with
News Corporation and responsible for managing its
relationships with cable affiliates. Some industry
experts have suggested that the tightened rules
were a response to the behavior of specific media
companies that had, perhaps, pushed the former
regulations too far. Both Viacom and News
Corporation have been very active in China and, in
many ways, achieved some success. News
Corporation's channel Xin Kong Wei Shi, for
example, has become a very high-profile brand
among younger, more affluent urban viewers across
China in just a few years. That was in spite of
being, in theory, limited to distribution in the
province of Guangdong and "foreign compounds".
Why the crackdown? It is
unlikely that the change in policies is simply the
result of the government's displeasure with the
practices of certain foreign media companies. The
authorities have been aware of such practices for
years and the new measures are clearly aimed at
closing the loopholes, rather than simply
providing a warning. Moreover, the language of
official media and government officials on those
issues consistently refers to the need to reduce
the negative influence that Western content is
believed to have on the population, especially in
those parts of the country where some form of
dissent is more likely to develop. Only a decade
ago, foreign content was limited to Beijing,
Shanghai and Guangdong, the southern province
where the majority of people has been enjoying the
spillover of TV signal from Hong Kong for decades.
Those areas have benefited the most from the
dramatic economic growth since the economic
reforms began and have, therefore, relatively less
qualms with the government.
However, due
to the needs of local TV stations and advertisers,
foreign TV channels have gradually became more
available in other provinces as well; and therein
lies the problem that the government probably
wanted to address. Awash with economic growth and
increasing geopolitical clout, the only immediate
threat to China's one-party political leadership
is the growing discontent of the hundreds of
millions of citizens who have yet to participate
in the "China Dream".
News of communal
unrest, especially in the rural areas, has become
more frequent and hundreds of such accidents are
said to be taking place every week across China.
According to the official Xinhua news agency, in
2003 alone, 58,000 of such acts were reported. The
problem stems from a growing difference in the
standard of living among different areas and
provinces. According to the World Bank, China's
income disparity among households has almost
doubled since 1980 and more than 200 million
people are believed to live below the poverty
line. Under the pressure of corrupt local
officials and greedy, well-connected businessmen,
a sizable part of the country feels increasingly
not represented in Beijing and their anger often
mutates into violence.
The concern among
China's policymakers is starting to grow. No major
meeting or policy statement goes by without a
mention of "social harmony" being the priority of
the government. The Chinese leaders, notoriously
diligent pupils of history, know very well that
imperial dynasties have fallen as a result of
movements that started as simple "rural unrest".
They also know that the answer to the plight of
these less fortunate citizens lies in the ability
to create sustainable development and jobs, rather
than in blocking off The Sopranos.
Nonetheless, given the magnitude of the
problem, they have decided that the further
spreading of foreign content across China is not
helpful and they have proceeded to restrain it, at
least for the time being. They clearly do not
trust their own citizens enough to permit them to
be exposed to media whose content they do not
fully control, a perception which also explains
the recent further tightening of rules regarding
Internet sites and text messaging. It is arguable
whether broadcasting Mr Smith Goes to
Washington would inspire Mr Li to go to
Beijing; nonetheless, strict controls on content
are something that both Chinese citizens and
foreign media companies will need to live with for
a long period of time. Perhaps in the future,
further tightening, or relaxation, of rules on the
foreign media will become a proxy for the degree
of confidence the Chinese authorities have in
their ability to manage dissent among their own
people.
Pietro Ventani is the
managing director of NPV Partners, a Hong
Kong-based management consulting firm. He is
co-authoring a book on innovation in China and can
be reached at pietro@npv-partners.com.
(Copyright (c) 2005 Pietro Ventani)
Speaking Freely is an Asia Times
Online feature that allows guest writers to have
their say. Please click hereif you are interested in
contributing.
