CIOL:China Wall no barrier for web TV

China Wall no barrier for web TV

Foreign media gets a break to enter Chinese Internet market

Tuesday, October 17, 2006

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SHANGHAI: China's first foray into Web TV is a chance for foreign players like News Corp. to grab a slice of the world's second-largest Internet market, but winning official approval in a tightly-controlled market will be tough.

Chinese regulations have so far limited foreign companies to small pockets of the country's satellite TV market. But firms are now eyeing Internet Protocol Television -- TV sent via broadband Internet -- as a new way to cash in on 1.3 billion pairs of eyes.

"IPTV, like digital cable, may be a way for foreign companies to gain real nationwide access in China," said Vivek Couto, executive director of research firm Media Partners Asia.

"But since IPTV is linear broadcasting through a set-top box, (foreign companies) face the same restrictions they do in cable and free-to-air, at least over the next two years."

News Corp.'s Star TV channel, National Geographic and China Entertainment Television -- part of tycoon Li Ka-shing's flagship Tom Group -- are jostling to work with a new IPTV service in Shanghai, an industry source said.

Shanghai Media Group (SMG), which was the first company to receive a licence from Beijing to run IPTV, and a unit of the country's largest fixed-line operator, China Telecom, formally launched the service last month.

China-focused broadcaster Phoenix TV, part-owned by Rupert Murdoch's News Corp., has also agreed in principle to cooperate with the service after years of trying unsuccessfully to break into Shanghai, China's richest city, the source added.

U.S. Discovery channel, part-owned by Discovery Holding Co. and already a cable TV content partner with SMG, is also likely to expand cooperation into IPTV to earn more content distribution fees, a source close to SMG said.

BREAK EVEN

SMG hopes the service, called BesTV, will reach 80,000 to 100,000 households in Shanghai by the end of this year, said BesTV Chief Operating Officer Li Huaiyu. Shanghai, China's financial hub, has some 14 million residents.

Li estimates the service's break-even ARPU (average revenue per user) at 60 yuan ($7.60), much higher than average monthly ARPU of around 20 yuan for cable pay-TV in China.

Media Partners Asia estimates pay-TV subscriptions in China will be worth $1.25 billion by 2015, compared with $48 million last year. The research firm forecasts almost 2 million IPTV subscribers by 2010 and 4.76 million by 2015.

This compares with a combined total of some 38 million broadband subscribers at the first half of 2006 shared between China Netcom and China Telecom, according to Reuters calculations.

CONTENT IS THE KEY

Content will be the key factor in determining whether new services take off in the highly-regulated market.

The Chinese government, fearful of social unrest, regularly censors the country's media for politically sensitive content and is likely to continue doing so for now, analysts said.

With existing pay-channels mostly offering content that is already freely available on cable TV, IPTV services will have to do more to grab the attention of young surfers who tend to spend more time online than in front of the box.

"Traditional TV is still quite strong, but it faces challenges such as the Internet. People don't watch as much TV as they used to," BesTV's Li said, adding that viewers mostly want to watch news, entertainment and drama series.

Beijing's tight control of domestic media content has been a sore point for foreign and domestic firms alike.

Although News Corp., Time Warner Inc. and Viacom Inc. all have TV channels in the country launched over the last few years, each has been limited to mass broadcasting rights in south China's affluent Guangdong province bordering Hong Kong.

The Walt Disney Co. applied for its own limited broadcasting rights about four years ago, but has yet to receive permission for a Chinese version of the Disney channel.

And competition from domestic rivals is likely to be stiff.

Faced with slowing growth in China's telecoms market -- the world's biggest with more than 360 million fixed-line and 420 million mobile users -- China Telecom and China Netcom are eager to develop non-voice services.

Netcom's parent company is already working with local TV stations in northern China to develop an IPTV service.

One temporary solution to the content conundrum may be for services to offer IPTV subscribers only politically neutral entertainment and arts programming, to appease sensitive Beijing politicians and Shanghai businessmen, the industry source said.

But perhaps the biggest challenge IPTV faces in China is piracy. Illegal satellite dishes are common and pirated copies of newly released movies retail for about 8 yuan (about $1), often before the movies themselves are released commercially in China.

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