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Chinese arithmetic

13 September 2010
Chinese arithmetic

The potential business opportunities in China are eye-watering with 400 million TV homes, 175 million cable TV homes and 240 million online video users.

“I think China consumers will demand the best of the best and so companies entering the market will not be able to come in with their leftovers, their old products and their old technology,” Harry Hui, president of Ash Studio and ex-chief commercial officer of Pepsico in China cautioned the audience at the China: Big Hurdles, Big Potential session sponsored by Irdeto.

Growth of online usage is booming and according to Hui advertising is starting to support the Chinese online video sharing sites. “We’ve seen a three-fold increase in advertising to these sites in the last 12 months,” said Hui.

Hui believes that the world’s second-biggest economy is stepping into a new phase: “Getting the right relationship in China is how China does business but I don’t think it is only about relationships going forward,” Hui said. “The acceleration of improvement is tremendous and companies have to keep up with that.”

The Chinese are doing everything “in fast-forward,” added Graham Kill, CEO of Irdeto. Kill has been living in Beijing for the last three years as part of the company’s plan to better understand and better serve the Asian region.

According to the panel, one of the biggest opportunities is in infrastructure; China has set ambitious plans for rolling out all-digital and triple-play cable TV networks. “There is a massive build-out of infrastructure across the country and it feels like it’s poised and ready for hyper-growth on the business front,” said Kill. “But at the moment it’s all sort of retarded by regulatory controls.”

Big US cable operator Liberty Global has a joint venture with Beijing Cable but the vice president of technology for Liberty’s venture capital arm Phil Colby cautioned that although the opportunity is massive, there are hurdles to investment. “Foreign ownership of the infrastructure is highly restricted, including cable infrastructure. We can’t own the cable the amplifiers and we are prohibited from being involved in the distribution of the video,” said Colby. “The regulation doesn’t make it difficult to bring the best technology in, but then what is the reward to us for bringing it in?”

China also puts controls the programming side. Last month Rupert Murdoch sold his majority stake in three Chinese TV channels, a move widely interpreted to mean that he has largely given up on China after years of unsuccessfully trying to build a business there. Rebecca Yang, the co-founder of ICPN, a production company that helps bring formats to China for companies like Endemol and FremantelMedia, says that having the commercial sponsors embedded in the formats like China’s Got Talent from the beginning helps to protect the programming from piracy, but she admits that it is still difficult to stop pirated formats from appearing on TV and online. “Broadcasters are reluctant to license formats,” said Yang. “They think once you show them how to make it that it is theirs.”

Duncan Clark who runs consultancy BDA China said that the opportunity in China is not so much driven by any changes in government policy but instead from technology. “China’s internet population will be double that of the USA by next year. So there is a strange dance going on between the Party and a system this is trying to adapt to a bottom-up technology change.”

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