Maverick China Research

China has 140 million Internet users and nearly 500 million mobile users. Despite those healthy figures, some executives say broadcasters are yet to capitalize on the potential of the mobile TV and online businesses. And they face new challenges in social networks such as MySpace. Ritesh Gupta reports

Broadcasters in China are yet to make significant inroads in the fields of IPTV and mobile TV as these new platforms struggle with regulatory and technology issues, plus doubts about their commercial viability. Moreover, these fledgling services face fierce competition from the internet in delivering information and entertainment.

One formidable rival is News Corporation's MySpace China social networking site, which had nearly 32,000 registered users just 12 days after launching on April 27. David Wolf, President and Chief Executive Officer of Beijing-based corporate advisory firm Wolf Group Asia, says MySpace China has "the biggest pockets (and) can out-spend and outmarket any player in the business."

MySpace China is committed to meeting the core needs of Chinese users as a locally owned, operated and managed venture co-founded by CEO Chuan Luo, a former Microsoft executive. It secured investment from IDG, MySpace Inc. and China Broadband Capital Partners LP.

There were just 612,000 IPTV users in China in the first quarter of 2007, according to Analysys International, an adviser to technology, media and telecom industries in China. While that represents a jump of 36.3% quarter-on-quarter, the figure is dwarfed by the 14.2 million subscribers of cable digital TV.

The first company to win an IPTV license in 2005, Shanghai Media Group, has about 300,000 subscribers. In-Stat China analyst Simon Sun Meng observes that's "not too many if you consider that there are over three million cable users in Shanghai and Shanghai who have not made the digital cable transition yet."

Wolf said, "Shanghai Telecom (Shanghai TV's partner) continues to build out the network and incrementally add programming and services, but it is still too early to tell whether they have the right formula."

Among others to be granted IPTV licenses are CCTV, China Radio International, and Jiangsu Telecom. "While there are several sites offering IPTV feeds, the business model for IPTV remains unclear at best," Wolf said. "This is true around the world - the problem in China is that the only entities licensed to create IPTV services at this stage are state broadcasters. That creates two problems. First, these large organizations are less well suited to create a new business out of a rapidly evolving set of technologies than smaller, entrepreneurial firms would be. Second, given that these organizations are traditional broadcasters, they have little incentive to make IPTV a success because it would essentially cannibalize their current, massively profitable businesses. For these reasons alone, as far as IPTV is concerned, for the moment it appears that China is destined to considerably lag the rest of the world in the development of IPTV."

However Zubin Gandevia, Managing Director and Executive Vice President, National Geographic Channel Asia, has a more positive outlook. "The progress has been very impressive for China's IPTV business launched by Shanghai Media Group via Shanghai Telecom. With the number of IPTV users in China increasing, Jiangsu Telecom's entry will definitely prove to be beneficial to further drive IPTV usage in China."

And some market analysts have made bullish predictions. ABI Research forecasts the IPTV take-up in mainland China will pass the 23 million-subscriber mark by 2012.

Dave Carini of Beijing-based Maverick China Research points to another brake on IPTV's expansion: "We think that SARFT will continue to promote DTV at the expense of IPTV services in the short term." Carini notes that China's internet companies are popular sources of multimedia content, including YouTube-style video clips, music streaming and a wide range of illegal P2P downloading networks.

The Chinese online advertisement market was valued at US$170 million in the first quarter of 2007, increasing 3.1% quarter-on-quarter and up 39.82% year-on-year, according to Analysys International. For the first time, Baidu edge out Sina.com with a share of 21%, with Sina.com at 19% and Sohu at 15%.

MTV Networks has beefed up its online presence in China after signing a content and advertising alliance with search engine Baidu.com last year. And MTVN China has staked its spot in the digital media space via deals with China Unicom and China Mobile.

In May, SINA Corporation, an online media company, teamed with China Telecom to launch a co-branded video sharing platform, SINA-Vnet Podcast. The site is hosted on SINA.com but internet users can also access the platform via China Telecom's portal Vnet.cn.

Earlier this year, SARFT issued the sixth mobile phone TV license to Beijing TV Station. Shanghai Media Group, CCTV.com, SMC, China Radio International and China National Radio are the other licensees.

Mobile TV broadcasting systems are still being trialed in China. SARFT only approved China Mobile Multimedia Broadcasting (CMMB) technology as the technical standard for the industry last October.

Kevin Li, an analyst with In-Stat China, said the mobile TV market is still in its infancy and the national standard is still not settled; there are four candidates: CMMB, T-MMB, DMB-TH, and CMB from Huawei. "In-Stat predicts that the standard issue will be addressed before the end of 2008, then mobile TV will get its market traction," said Li.

Last year In-Stat forecast mobile TV subscribers in China will grow to 94 million by 2009. However Carini comments, "China's TV broadcasters are not doing much in the mobile sector, and the current online offerings are made mostly of recycled content. At any internet cafe in China, one can see a large number of users watching television programs or movies--some legal, some pirated versions. Both are usually free, however. While online video is quite popular here in China, no one has come up with any large-scale service that is profitable."

Wolf agrees, noting, "Broadcasters are not really capitalizing on mobile and online yet. At the most they are experimenting and they are trying to figure out how to remain relevant to audiences who spend less and less time in front of televisions. Rest assured -- they recognize that online and wireless represent both a danger to their core businesses and an opportunity for them to expand their companies for a long term. But this kind of change is extraordinarily difficult."