By Gordon Chu | October 13, 2009

China’s Multi-Billion Dollar Bet: TV

Recent news came out from China stating that they plan to spend billions of dollars in the next few years to develop media and entertainment companies to that of global media conglomerates such as News Corporation and Time Warner.

With top-level guidelines set by China’s State Council, the overall plan envisions the creation of entertainment, news, and culture companies that depend less on government backing, and more on private investments both local and abroad. In short, China will finally open up doors to foreign investments and control.

A bit of background on the China media market – for years, the market has been tightly controlled by the Chinese government. With influence both on the content creation process as well as on distribution, the Chinese government really has had full-reign and control on the entire media market in China. With CCTV on-hand and a number of large provincial players (i.e. Shanghai Media Group, Beijing TV, etc.) that are also state-run, international media companies such as Time Warner or News Corporation have had many difficulties effectively penetrating the Chinese market.

However, with this announcement, China is taking the first step towards evolving their media industry.

What Does This All Mean

From my first reaction, this bit of news meant one thing – China recognized the need to change. If we take a look at the rest of the world and how media and television has evolved, China is the only country that really has maintained the same business model of government control for years.

This might be great news for the government, but is a double-edged sword when it comes to commercial viability for the television industry. With advancements in Internet and access to other programming, the Chinese audience has been able to circumvent a lot of that government control and simply chose another platform to consume their media. With less viewers and a more fragmented marketplace, the flow of ad dollars are eroding and we can see how advertisers are flocking to online marketing as a way to reach their target audience.

Now we have this open invitation for foreign investment into Chinese media companies. I should note that I do not think this is going to result in a flood of these big media conglomerates in China – we should all heed Rupert Murdoch’s conquest into China years back (Chinese government stopped his attempt to go around the system and buy distribution) and understand that a similar fate would probably result the second time around. What this does mean is more of a walk-before-we-run approach in that dollars will be coming in forms of partnerships with these Chinese companies. Take, for example, the joint venture formed by Gehua Cultural Development Group (state-owned media company) and Live Nation, the world’s largest concert promotion company back in 2005 where Gehua has first right of refusal for any live event promotion in the China territory.

In other words, while this plan does not necessarily mean hard dollars invested for higher stakes into Chinese media companies, it does mean new business opportunities that private equity and investment groups can pursue and leverage in the China market.

What Does This Mean for Content Providers

For media companies such as METAN, this news is great news in both short and long-term goals. In terms of content, I do believe that these changes will necessarily loosen content control. After all, if the whole goal is to institute a commercially-viable business model to revamp the sagging television industry in China, content will ultimately need to change accordingly. Note, I will say that this will not mean a rampant and radical deviation from today’s norm – in fact, I would not be surprised if there was a ramp-up of government scrutiny with the programs on-air.

What this does mean more money for higher production and quality of programming. It will mean access to appropriate programming never been available to China before and an overall facelift of today’s current shows.

In terms of distribution, I do believe that these changes will eventually see a consolidation of media companies in the market. This means better distribution, better control, and ultimately flexibility and options for advertisers. And with a more consolidated market, competition for better quality content will arise leading to a closer resemblance to the television landscape here in the US.

What Does This Mean for Advertisers

For advertisers, this should be sweet music to their ears after years of playing by the rules of Chinese media companies.

After speaking with numerous brands about their experience in China, I’ve heard my fair share of horror stories with Chinese television. Not knowing whether the ads would be placed next to the news or in a soap opera, brands were literally at the mercy of the terms dictated by the Chinese media companies. The simple fact was with only one station with a national footprint, CCTV, brands were competing for ad space on the network – the law of supply and demand. Not enough ad space for a growing number of brands.

With dollars flowing into Chinese media companies over the next several years, we can expect to see more options open up for advertisers beyond that of CCTV. SMG (Shanghai Media Group) and BTV (Beijing TV) are two very prominent media conglomerates in their own rights who are right on the heels of CCTV to bring brands new platforms to advertise on. Not to say we need should discount the gravitas of CCTV – in fact, I’m particularly interested in seeing how they will arise and evolve their business model to compete for their share of the market.

We can also expect for advertisers new programming strategies beyond that of current TV today. With the likes of branded content (see Ugly Wudi) and digital interactivity, not only will programs be privy to new viewers and viewer experience, but brands will benefit the same.

Conclusion

The way I see it, this plan to open doors for foreign investments is not so much the money (let’s not kid ourselves – money still has a lot to do with it), but for an overhaul of the media industry in China.

For years, the Chinese television market has seen deep erosion in the way business has been done – a complete contradiction with the rest of Chinese economy which has experienced unprecedented growth. The bottom-line is China is ready and willing to create a more efficient media market. They are open to new business models and programming strategies in order to make this ‘work’. For content providers, the new media landscape will mean better programming, better distribution, and better future for Chinese viewers. For the brands, this new media landscape will mean better programming, new advertising vehicles, and a better more effective way to reach a growing Chinese consumer market. For myself and METAN, this only means more and better opportunities. A win-win situation in this multi-billion dollar bet.

Gordon Chu is the VP of Business Development at METAN Development Group. For comments/questions, email gchu@metanmedia.com.