China Rising

October 2007

The Chinese television industry has evolved by leaps and bounds over the past years. Although control of most media entities, especially broadcasters, remains firmly in state hands, a rapidly increasing number of media options are available to Chinese consumers today: a far different state from 20 years ago, when viewers had access to only the state broadcaster China Central Television (CCTV) and one local terrestrial channel.

Indeed, China’s media industry is bringing its viewers an increasing plethora of content genres ranging from animated specials to formats such as Hunan TV’s Super Voice Girls, China’s answer to Pop Idol. The show became one of the most-watched television events in the world, with about 400 million viewers tuning in to its final episode in the first season.

From a commercial standpoint, the Chinese media industry has recently witnessed superlative growth along with the rest of the economy to become the world’s fastest-growing media market. China now ranks as the world’s third-largest advertising market, and is expected to continue its double-digit growth in the coming years, becoming the world’s second-largest advertising market by 2010.

At the same time, much as in the rest of the world, an increasing range of content-consumption options outside the traditional broadcasting model is now available, including online video and user-generated content.

Online programming available to Chinese Internet users includes a wide offering, as all available content is hastily being reconfigured for new-media platforms. This ranges from official government propaganda and cultural output to homemade podcasts. There are also numerous gray-market, unlicensed IPTV service providers offering streaming and downloading services, often with pirated content or official content that was not cleared for IPTV distribution.

SURVEYING THE LANDSCAPE

Today there are around 360 TV channels in China, broadcasting across more than 2,000 stations. The number of stations is often given as around 3,000 both by official and nonofficial sources. This number includes many television signal-relay stations, which do not produce any channels of their own.

The broadcasters are delineated according to national, provincial, municipal and county levels. The country is divided into 22 provinces, five autonomous regions and four municipalities, each of which has at least one television station. Each province is allowed to broadcast one local channel via satellite, which allows for very wide coverage. These are called super stations and can be received in other provinces. A total of 51 satellite channels have become available since provincial operators began launching them in 1990. Currently, basic-cable packages around the country consist of CCTV, China Education Television (CETV), local channels and a selection of super stations.

Much like the rest of the industry, the state broadcaster CCTV has experienced fast growth in the last 20 years. Until the end of the 1980s, CCTV only delivered one channel, which ended programming at midnight. The broadcaster now runs 16 channels and one high-definition offering, with most broadcasting 24 hours a day.

To compete with CCTV, provincial broadcasters have tried to expand their offerings by developing innovative entertainment programs. Over the last few years, reality shows, some inspired by overseas programs, have become an increasingly successful genre commercially.

The media production sector in China is fairly robust, and is becoming more so every year. China’s overall production output has grown significantly over the last few years, and there are currently nearly 3,000 TV-production companies throughout China, up from roughly 400 in 2000. The booming production sector has allowed international brands to gain a foothold in the market through local co-productions, among them National Geographic Channels International, which last year worked with CCTV on Inside the Forbidden City. Originally shot as a 12-part series for CCTV, Inside the Forbidden City was re-versioned as a two-parter by NGCI and broadcast on its global network.

The Walt Disney Company has also been involved in the Chinese production sector. The studio produced The Magic Gourd on the mainland, and the feature film went on to bring in $1 million in its first week in mainland theaters alone. As of the end of August, the film had generated $2.8 million in box-office revenues in China. The film is a contemporary adaptation of a classic Chinese novel written by Zhang Tianyi, and it features a mix of live-action segments and animated special effects from the Hong Kong-based Centro Digital.

A TASTE FOR DRAMA

From a production standpoint, television dramas are by far the most popular programming genre for the local broadcast sector. According to Li Jingsheng, the head of the TV drama department at the State Administration of Radio, Film and TV (SARFT), the regulatory body for the media industry, China is now the world’s largest producer of TV dramas with an output of 12,000 episodes in 2005 and an increase of 1,000 episodes annually.

Some of that content is beginning to make its way out of the country. Last year, Sony Pictures Television International picked up the Asian distribution rights to CCTV’s 50×1-hour drama series The Stories of the Han Dynasty. At the time, it was the first-ever international licensing deal with a U.S. studio for China International Television Corporation (CITVC), the distribution division of CCTV, which also licensed the epic drama series to the Asian American–targeted AZN Television in the U.S.

The quota system for international content on Chinese TV outlets varies from broadcaster to broadcaster. In the case of most provincial-level broadcasters, they are allotted a quota of 20 hours per year of foreign TV drama programming that they may import. The exceptions are Beijing TV, Shanghai TV and Hunan TV, which may import up to 50 hours annually. These quotas may be traded among the TV stations and commonly are. For broadcast slots, no foreign animation may be carried from 5 p.m. to 7 p.m., while made-for-TV movies or theatrical features may not be shown from 8 p.m. to 10 p.m. At the same time, all foreign content imported into China is subject to censorship approval by SARFT.

SARFT has set limits on international programming both as a way to restrict the influence of foreign content on Chinese airwaves, and also to encourage the development of local media producers.

In terms of international channel offerings, foreign services are not allowed to be on Chinese cable networks except in special cases in Guangdong, where there is a significant spillover issue, with networks being carried in from neighboring Hong Kong. There is no indication that this situation will change. Foreign channels are limited to select hotels and foreign compounds. International cable and satellite networks wishing to secure this access must pay for carriage on the Chinese-owned satellite SinoSat and split their local revenues with the CCTV subsidiary CITVC, which acts as the sole distribution agent for global channel players. Among the companies that have been granted access to the market is the Hong Kong-based STAR, the Asian arm of News Corporation. STAR operates nine channels in China, including the entertainment service Xing Kong, STAR Movies and the music offering Channel [V] Mainland China.

KEEPING CURRENT

Not only has the development of local TV-content productions been fast-paced, but broadcasting technology is also a rapid-growth industry. Although there have been growing pains, for the most part the country’s cable networks have been upgraded and are now capable of digital transmission, and pay-TV services have been officially launched after a long delay. According to a timetable laid out by SARFT, all citizens are expected to have access to digital-TV programs by 2015, when analog signals are due to be switched off. China is well ahead of its own plan, with nearly all major, and most secondary, Chinese cities having already fully completed the upgrade of their networks for digital transmission. By 2006, 4.4 million Chinese households had access to digital TV. China is utilizing its digital infrastructure as a means of rolling out pay TV and other tiered services across the country. However, although the digital platform is in place ahead of schedule, pay-TV subscriber numbers have been far below SARFT estimates. Two years ago, SARFT predicted more than one million pay-TV subscribers by the end of 2003, but by mid-year in 2006, industry estimates put the total number of pay-TV subscribers at around one million throughout the entire country.

New-media broadcast services such as IPTV have also recently gotten their start in China. However, they are legally only allowed to be operated by Chinese broadcasters. In fact, there are currently only four IPTV service license holders: Shanghai Media Group (SMG), CCTV, China Radio International and Guangzhou’s Southern Broadcasting Corporation (SBC). At the time of writing, only SMG has a commercially viable IPTV service up and running. SMG’s IPTV offering, BesTV, is currently providing services to 300,000 subscribers throughout China. The service offering includes live TV, video on demand and time-shifting, which allows for pausing and rewinding previously broadcast programs for up to 48 hours.

GAINING ACCESS

Restrictions on imported content are certainly a hurdle, but some distributors have managed to secure local slots for their content. CCTV has picked up a fair amount of foreign fare for its bouquet of offerings, including Entertainment Rights’s Postman Pat, BBC Worldwide’s Charlie and Lola, Disney-ABC International Television’s High School Musical and Desperate Housewives, and content from Scripps Networks’ DIY Network.

Some companies have opted for creating programming blocks that are sold on a license basis and provide some exposure for a channel brand. This allows international companies to compensate for the relatively low price that the Chinese TV stations are ready to pay for their programs by selling advertising time during their time blocks.

Distributors hoping to export to the Chinese market should understand that due to the restrictions on airtime (and thus the potential revenue from advertising), as well as the financial situation of many broadcasters, television drama prices in China are significantly lower than in many smaller Asian markets.

Meanwhile, localization of international content for Chinese audiences is increasingly being used as a means to get around the restrictions on direct importation of programming. Therefore, formats have become increasingly important in the market; although in some cases, broadcasters have pirated titles instead of paying for the license fees. In general, the larger Chinese broadcasters such as CCTV, SMG and Hunan TV are now paying format copyright fees to international rights holders as they increasingly realize that production assistance and a production bible are integral to developing a successful format. However, the emergence of hybrid formats loosely based on the originals in territories that are not paying license fees is also encouraging China to go it alone, with local producers adapting international ideas in line with China’s cultural conditions. The lack of a firm structure for protecting format ideas internationally has contributed to this situation.

WAITING FOR THE GAMES TO BEGIN

In 2008, the Olympic Games will be of prime importance to China’s broadcast sector. Not only will it be China’s biggest-ever international production challenge, involving resources from stations all over the country, it will be shot entirely in HD for the first time.

One of China’s 2008 Olympic mottos is “the Digital Olympics,” and this national ambition is driving the rollout of platforms to deliver content via the Internet and mobile devices, including mass mobile TV. Indeed, Beijing is using the Olympic prerogative to catch up with and possibly surpass Shanghai in terms of its digital communications infrastructure.

The Olympics will be the dominant theme pushed by the government, with channels dedicated to drama, movies, news and current affairs, documentaries, children’s programming, music, cultural fare, lifestyle and education all likely to run heavily Olympic-weighted schedules throughout the year. This political-meets-commercial policy will be in addition to the blanket coverage of actual Olympic events across the sports channels.

The Olympics will also be the major theme affecting China’s international media relations in 2008. While the games will offer a chance for China to engage the market through co-productions, they will also flood the country with foreign journalists under special Olympic visa regulations, opening China to the highest level of direct foreign-media criticism in its modern history.