The great TV turn-off

Internet Protocol Television will not succeed in China until Beijing relaxes its control and allows broadcasters to create their own programming with foreign content, writes Sherman So

02 January, 2006
Published by The Standard

In Harbin, whose main tourist draw is an ice-sculpture contest, it shouldn’t be hard to sell the locals on the idea of a comfy sofa and the warm glow of a TV set for those many long nights when the mercury falls far below zero.

Or at least that’s what Shanghai Media Group, the No2 broadcaster in China, thought when it chose the frigid metropolis of the far northeast for the country’s first Internet Protocol Television experiment.

For 60 yuan (HK$57.67) a month, IPTV users can have access to 73 live channels and a video-on-demand library of 1,000 hours of movies and serials. But since May, of the 9.54 million official residents of Harbin, only 40,000 have signed up.

For industry watchers, the reason is simple. The technology may be great, they say, but who wants to pay extra for what they can already see for nothing, or next to nothing, on state TV.

IPTV is only the most visible of efforts by broadcasters and others to squeeze more money out of the vast TV audience. According to one estimate, China has one TV set for every three people.

Another idea with strong backing is Mobile TV, which aims to capture a non-prime time audience of commuters and diners via their cell phones.

And now Shanda, the mainland’s online games pioneer, has launched a service that bundles normal television programming with games and other Internet fare.

People familiar with the IPTV experiment say it won’t take off until the central government, which is determined to keep political control over television, lets broadcasters create programming for the new medium, or else beef it up with foreign content.

Others say the government has already made a tactical error by excluding telecoms carriers from IPTV. Much upgrading of the telecoms grid will be necessary to make the service viable, but there’s not much incentive for carriers without a stake in the business to make the investment.

“There are no compelling reasons to subscribe to IPTV, since most programs are available from regular television or cable,” said Thierry Raymaekers, managing director of marketing for Irdeto, a Dutch digital content protection firm that has worked with a number of mainland broadcasters. For its IPTV services, Shanghai Media Group must recycle programs from its library. “We are not even allowed to produce a new program to review recent computer games,” said an executive at the broadcaster, who declined to be identified.

Most Chinese households can already see about 60 channels by paying a mere 12 to 18 yuan per month to subscribe to a cable service. The programming is all government, all the time: CCTV, or Central China Television, the only nationally licensed broadcaster, has about 15 channels, and the rest belong to various provincial governments. At the central government level, everything is overseen by SARFT, the State Administration of Radio, Film and Television.

The fact that the state broadcasting establishment has received the mandate to introduce IPTV is one of the factors holding it back, believes Jeffrey Soong, chief executive of Broadband Network Systems, an IPTV solutions provider, based in Hong Kong, whose clients have included Chunghwa Telecom in Taiwan, Hanaro Telecom in Korea, Telekom Malaysia and, in the mainland, China Netcom and China Telecom.

Soong said IPTV would move much faster if, as in other places, implementation were left to the telecoms companies.

Currently, the world’s largest IPTV rollout is in Hong Kong, where PCCW, the city’s leading fixed-line phone network, has already signed up half a million subscribers for its NOW broadband TV service.

Putting telecoms carriers in charge “is the most natural arrangement, because the telcos then put up the majority of the investment needed for upgrading the network,” Soong said.

Because China Netcom and China Telecom, the main fixed-line operators, are not in the driver’s seat, neither has the motivation to upgrade its network for IPTV. “This limits IPTV to small trials in pockets of the fiber network where bandwidth is abundant,” Soong said.

Most of the IPTV services in operation use donated or borrowed equipment. “There is very little investment involved.”

Undeterred by the weak response in Harbin, Shanghai Media Group launched a similar service last month in Shanghai.

Soong said 60 yuan per month was too much to charge for IPTV in a city like Harbin, where average gross domestic product per capita is 14,830 yuan.

Prospects are better in Shanghai, where GDP per head is 46,586 yuan.

Some analysts believe broadcasters stand a better chance of success with Mobile TV, where convenience of delivery might be expected to trump complaints about the dreariness of the content.

“The viewing patterns are much different for Mobile TV,” Raymaekers said. “It’s not the traditional 7-to-10pm prime time. For example, in Korea, the peak times for mobile are early morning and early evening, when people are travelling to and from work, or noon, when they are taking their lunch breaks.”

In Korea, which pioneered the Mobile TV concept, there now are 270,000 subscribers who pay US$10 (HK$78) per month each. Operators say user numbers are increasing by 2,000 to 3,000 per day.

No special infrastructure is required to offer the service.

“Mobile TV uses the existing television broadcast network. There’s no need to use the telecoms network,” Raymaekers said. With a few enhancements, existing terrestrial television towers can be used to broadcast Mobile TV signals.

Guangdong Television, in partnership with domestic equipment supplier Ricsson, is preparing to launch the service by May 1 in Guangdong province, where there are some 56 million mobile phone subscribers.

The content will be mainly Guangdong Television’s existing news and music programs, though some special content is being prepared. Everything will be short. Don’t expect anyone to be watching movies over the phone.

Raymaekers said Mobile TV trials are under way in Shanghai and Beijing, as well, while CCTV and SARFT are evaluating the feasibility of a nationwide satellite-based Mobile TV service.

“They are talking with Loral and Lockheed Martin about ordering special satellites,” he said.

Raymaekers said the government had yet to allocate a specific broadcast spectrum to Mobile TV, though this was not necessarily a negative sign since Chinese regulators tend not to become involved until a product becomes commercially successful.

Mobile TV will require special receivers. Fifteen already exist, running the gamut from mobile phones to personal digital assistants and portable media players, manufactured by the likes of Motorola, Samsung, LG, NEC and smaller Chinese players like Amoi.

Raymaekers said the companies behind the Guangdong experiment, whose target is 300,000 users in the first phase, had lined up a supply of up to 100,000 handsets.

The wild card in the value-added TV deck is Shanda, the mainland’s leading Internet game operator, whose ambitions extend to the field of home entertainment in general.

It uses a range of set-top devices, known as EZ Station, EZ Mini and EZ Pod, to link television with the Internet. Besides the usual TV menu, subscribers can get movies, music, karaoke, games, news, financial data, e-commerce applications and educational content.

Dick Wei, China Internet analyst at JPMorgan, who has tried the service using the remote-control EZ Pod, said he was impressed with the overall performance. “You can browse news from [Internet portal] Sina, watch a movie or play simple games. At the push of a button, you can switch back to regular TV programs. There are 5,000 movies to choose from, including some Korean hits,” he said.

Shanda launched the service on December 1. It has ordered more than 150,000 EZ Pods, which it developed in concert with semiconductor giant Intel, and expects to sell 500,000 during the first 12 months. The gizmo will retail for about 458 yuan, while the service, which is on free trial at the moment, will probably cost subscribers 60 to 80 yuan per month.

What Shanda has going for it is diversity of content, but this could bring it into conflict with the regulatory authorities. It possesses an Internet content provider’s license, but no IPTV license, though Soong of Broadband Network Systems said this probably won’t become an issue with regulators until the service becomes successful.

If Shanda does succeed, and IPTV and Mobile TV do not, mainstream broadcasters will have to answer for having underestimated the audience’s desire for something different.

“In China, television used to be exclusively propaganda. Audiences were not willing to pay. Only recently have broadcasters begun to gain revenues from advertising, allowing them to produce more entertaining shows,” Raymaekers said.

Of the US$23 billion spent on all forms of advertising in the mainland in 2004, US$18 billion wound up in the pockets of TV stations, according to CTR, a market research firm.

While some days it may look as if the government is doing everything in its power to prevent IPTV from becoming a success, no one doubts that the concept has high-level official backing.

“From our observations, the government supports IPTV because it is high-tech. All the advanced places have it, eg. Japan, Korea, Taiwan and Hong Kong. It stands for improved living standards,” Soong said.

He believes the government has another agenda, too. “The media industry is excluded from foreign competition under the WTO agreement. But the foreign media companies have been banging on the door for a long time. The government wants to prepare the local industry for the eventual rivalry.”