Beijing's decision to allow international investment in TV production has generated a wave of excitement among foreign media executives. "It's a great step forward," proclaims Li Yifei, Viacom Inc.'s (VIA) managing director for China. "This is extremely encouraging," says Jamie Davis, president of News Corp. (NWS) China.
What's all the hubbub about? Beijing has long placed strict limits on the amount of programming foreign companies can sell to China's 3,000-plus state-owned TV stations. Under the new law, which takes effect on Nov. 28, foreigners will be allowed to own up to 49% of TV production companies in China and sell any shows they make to local broadcasters. Viacom has already announced it is teaming up with Shanghai Media Group to produce kids' programming early next year.
Sounds great. But don't expect media giants to get a big lift from their Chinese operations anytime soon. Broadcast media are often regarded as a mouthpiece for the Communist Party, and many in Beijing still regard foreign content as unwelcome cultural pollution. What's more, censorship has kept all but the most anodyne foreign shows off the air, leaving international companies free to sell little more than music videos, sports, and cartoons. Those censorship rules remain largely intact, so China's masses won't soon find either Frontline or Sex and the City -- or some local equivalent -- on their TVs.
Consider a recent step toward reform. Three years ago, Viacom, Star TV, and Turner Broadcasting System (TWX) were given limited broadcasting rights in Guangdong, the province neighboring Hong Kong. But so far, foreigners have managed to get their programming into just 9 million households as they struggle to seal deals with scores of local cable operators. Worse, no one expects such access to be extended beyond Guangdong anytime soon.
What the foreigners really want is to broadcast shows directly to Chinese viewers. But the new regulations don't lift the current prohibition on that, and they leave intact strict quotas on imported shows. So foreign companies such as Walt Disney (DIS), HBO (TWX), and MTV Networks (VIA) are left providing a few hours of programming per week to networks in return for a share of ad revenues. And the foreigners can forget about building their brands, since they're banned from displaying their logos during syndicated shows, and the new joint-venture production companies they're allowed to set up won't be able to use them either.
Beijing would do well to loosen up and allow more foreign participation in the media if it wants new viewers. The government aims to convert major cities to digital cable in time for the Beijing Olympics in 2008. That will require better programming. The 150 million households with cable today each pay about $1.50 a month for programming that's not much different from the free channels. Digital systems, though, probably won't be profitable at less than $10 per month. Chinese broadcasters recognize that to get viewers to pay that much they'll need foreigners' creative skills to help produce better shows. "The market really needs good-quality content, but sometimes we can't get enough," says Wei Ping, general manager for content and production at China International Television Corp. "We do need foreign broadcasters' help."
A more lucrative field for foreigners may be in media where government regulation is less heavy-handed. Phone company China Netcom (Group) Co. has won the right to broadcast 12 TV channels over the Internet and is distributing free set-top boxes to help woo subscribers to the service -- which doesn't face as many restrictions as regular TV. And third-generation cell-phone service may soon start offering an alternative as well. "China will have 216 million users with access to video downloads," warns one TV executive. If television viewers start tuning out in favor of their handsets, that will be a signal that the industry needs to change its channel.
By Frederik Balfour