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Cellphone TV: is China ready for a revolution? (August 22, 2006) One of the hot talking points in China's media industries in recent months has been the diversification of television broadcasting. Over the last couple of years, Focus Media and Target Media have successfully pioneered public advertising television, enthusiasm for broadband video-on-demand and Internet protocol television has swept through the industry and mobile television on various forms of public transport is undergoing widespread trials and in some places has entered commercial operation. However, widely believed to be one of the hottest prospects for the future development of television is cellphone television, which many claim will revolutionise the television sector in China. Yet, with third generation mobile licences still mired in delays, long-standing prevarication on digital terrestrial television standards and regulatory barriers and confusion obstructing telecoms-television collaboration, cellphone television is set to be born into a chaotic world of Chinese television digitisation. In this Analysis, China Media Intelligence looks at the latest developments in the sector and asks whether China's television and media groups are ready for the reportedly imminent announcement of the country's digital terrestrial standard. Sections:
China's television sector is facing the latest wave of technological change that promises to revolutionise viewing and production in the country. In the 1990s, first cable television and then satellite television both revolutionised the television industry, opening up a new consumer landscape with multiple channels and cross-regional viewing. In the early 2000s, the emphasis has shifted to digitisation. with the digitisation. of cable networks proceeding up and down the country, even if at quite different rates in different places. The digitisation. of cable television networks is opening up new possibilities in television such as greater interactivity, more channels and new subscription channels. However, from the consumer's point of view, it is perhaps seen more as an upgrading of the old technology than as a fundamental revolution, even if technologically it is. Nonetheless digitisation. is also to enable two other major developments in Chinese television that will seem more revolutionary to the everyday viewer. One of these will be direct-to-home (DTH) digital satellite television, which was originally scheduled for launch last year, but like many areas of Chinese television digitisation. has been delayed (see China Media Intelligence, Volume 5, Issue 9 (26/8/05) and China Media Intelligence, Volume 6, Issue 2 (27/2/06)). Reports say it is still scheduled for launch later this year, although it was supposedly planned to launch in June or July and the State Administration for Radio Film and Television (SARFT) has been keeping customarily quiet on the issue. The revolution in this case comes from the fact that currently all regular satellite viewing in China is done via cable network relays and DTH viewing with a personal receiver is illegal. However, the other revolution that is set to hit the Chinese television sector is one that has excited far more interest and speculation among industry professionals, journalists, commentators and analysts. This is the prospect of cellphone television. The idea that people could start regularly watching television on their mobile handsets is very appealing to a whole range of people: viewers, mobile phone operators, mobile handset manufacturers and television executives. The excitement is also fueled by the fact that there are now more than 430 million mobile phone subscribers in China, showing the future potential for cellphone television. Recent estimates of the potential market for cellphone television also help stimulate interest in the sector. Strategy Analytics has forecast that even by the end of this year, global revenue from cellphone television products will be worth some US$5 billion and this should rise to US$30 billion by 2010. Telecoms sector analysts Norson have predicted 500,000 cellphone television subscribers or users in China by the end of this year with the market already being worth around Rmb13 million. Informa, on the other hand, have predicted 125 million cellphone television users worldwide by the end of 2010 with a market value for services of US$10 billion, compared to US$200 million at present. One recent Chinese market report forecast 25.6 million cellphone television users in China by the end of 2008 producing a market value for services of around Rmb9.2 billion. Two other technological television revolutions are occurring at the same time. One is the move towards Internet protocol television (IPTV) (see Analysis, China Media Intelligence, Volume 5, Issue 2 (28/2/05)), which combined with the rapid deployment of broadband in the country's main cities will help bring about the much talked-about, but so far little realised, 'three networks (television, telecoms and computers) convergence', at least once the regulatory obstacles have been overcome. The other technological television revolution afoot has been the launch of mobile television (yidong dianshi) which refers to the deployment of television screens with specially produced programming on trains, buses, metro systems, taxis, private sedans, boats and in the future possibly also planes (see Market Report , China Media Intelligence, Volume 4, Issue 15 (20/12/05)). IPTV attracted a lot of attention last year as investors queued up to invest in what is expected to be a major feature of China's future television landscape. Mobile television is no less interesting but less attractive to investors. Nonetheless, cellphone television has the potential to outbid any of its rival revolutionaries for the attention of investors, analysts and industry professionals both in China and overseas. If recent reports turn out to be true, August 2006 could become a landmark month in the history of Chinese television digitisation. SARFT officials have been widely reported to be ready to publish the country's long-awaited digital terrestrial television standard (see Television story). The standard was originally scheduled for publication more than three years ago but problems with the development of homegrown technologies and rivalry between the developers of alternative technologies have held up the final decision, much to the frustration of television executives and equipment manufacturers alike. The decision on China's digital terrestrial standard is crucial for the development of cellphone television in the country as it will also identify the technical standard for handheld television. Does this then mean that China is on the brink of a cellphone television revolution? There have to be some doubts. Cellphone television services are already available in China on a limited and localised largely trial basis and following the publication of the digital terrestrial standard there will surely be a boost in market development activity. However, there are still some big question marks hanging over the immediate future of cellphone television services. Not least among these are regulatory issues (see below), but one also has to ask how far China's broadcasters and their parent groups are ready for the golden opportunities that cellphone television is perceived to offer. Background and countdown to cellphone television in China China's move towards cellphone television is a complex one that progresses on several fronts simultaneously, at times mutually supporting and at others in competition with each other. To begin with, there are basically three platforms through which cellphone television might eventually be available to Chinese consumers. These are: 1) through the mobile network using third generation (3G) or so-called 2.5G GPRS and CDMA1x technologies, 2) via digital terrestrial broadcasting and 3) via satellite terrestrial broadcasting. China Mobile (GPRS) and China Unicom (CDMA1x) have been offering cellphone television via their 2.5G networks for several months. In August 2004, China Mobile offered a trial service covering the Athens Olympics to users in several cities and provinces including Hubei, Sichuan and Shanghai. At the beginning of 2005, China Mobile linked up with the Shanghai Media Group (SMG), then the only holder of a licence to promote their cellphone television 'Dream-vision-world' (mengshijie) service. This service was then offered nationally in September last year and claimed some 170,000 subscribers by the end of the year, 20,000 of these in Shanghai. The service, however, was not unitary throughout the country. Shanghai viewers enjoyed both 12 channels of live broadcasting and video-on-demand (VOD) services focused on news and sport programming. However, there are problems with mobile network-based cellphone television. The service is limited by network bandwidth, the broadcast quality is unreliable and unstable, the number of subscribers is ultimately limited and the service tends to be expensive. If we add on to that the uncertainty and confusion caused by seemingly endless delays in deciding upon China's 3G platform and the allocation of operating licences, then the limitations on the commercial development, as well as the technological development of the platform become clear. Certainly China's 3G operators - whoever they may turn out in the end to be - will be looking to attract subscribers with exciting multimedia services. However, it remains doubtful as to how successful a fully-fledged broadcasting service could be. Digital satellite broadcasting may ultimately offer a more attractive alternative than mobile network-based cellphone television. SARFT has said that the country's digital satellite broadcasting service will be launched later this year using DVB-S technology so that existing analogue cable networks will not need updating for the new digital services. However, it seems unlikely that SARFT will see digital satellite television playing any part in China's cellphone television future. The crux of the issue therefore surrounds the digital terrestrial standard, which SARFT officials have acknowledged will also constitute the cellphone television broadcasting standard. It is now widely expected that the Chinese-developed DMB-TH (Digital Multimedia Broadcasting for Terrestrial/Handheld) will be adopted as the national standard, possibly later this month. The main advantages of digital terrestrial broadcasting over 3G are in cost, speed and picture quality which mean there is little limitation on the number of users. What it lacks are the ability to individualise services and interactivity. If or when the standard is published, the DMB-T/H standard will become a compulsory standard for all Chinese digital terrestrial television services. The rival standards that could be adopted include, in theory at least, both the European DVB-T/H and the US ATSC as well as Qualcomm's Mediaflo handheld standards. However, it has been clear for some time now, given the continuing delays, that SARFT favours a homegrown standard that will save the country's equipment manufacturers millions in intellectual property rights (IPR) fees. The contesting Chinese technologies, in addition to DMB-T/H, which has been developed principally by researchers at Tsinghua University in Beijing, are Shanghai Jiaotong University's ADTB-T standard, which is based on the ATSC standard and so-called TiMi (Terrestrial Interactive Multiservice Infrastructure), which was developed by SARFT's own Academy of Broadcasting Science. In mobile digital television trials to date, about 60 percent of the broadcasters involved have adopted the DMB-T standard, including Guangzhou, Qingdao, Changsha and Wuxi. Most of the other trials have adopted the European DVB-T standard. Assuming that DMB-T/H is adopted in the very near future, it therefore seems likely that this will form the backbone of China's cellphone television operations. However, there are practical, commercial and technical reasons why it will be difficult for China's television operators to work on their own. Even if the broadcasting is essentially the business of the television industry cellphone television is not likely to be feasible without the collaboration of the telecoms operators. First and foremost some kind of revenue model has to be agreed between the television and telecoms industries that will enable both sides to make money out of the business. This is likely to include the telecoms operators being first in line for providing customer services, account management, billing and so on. However, in China's rapidly evolving media world, personalisation, individualisation and audience/viewer/consumer interactivity are all becoming indispensable features of the television landscape and given that with cellphone television the most likely way to enable interactivity will be via the mobile telephone network, this will require further collaboration. These are just the basics. Clearly their are many multifaceted details that require further collaboration. However, the key point is that this is not a simple matter of telecoms vs. television and separation of the two sectors is no straightforward matter. DMB-based cellphone television trials are already in operation. In October 2004, SARFT authorised Shanghai Oriental Pearl - part of SMG - to set up an L wave band trial. At the same time, the Shanghai authorities cleared DMB for commercial operation in the city. In March last year, Shanghai Oriental Pearl launched its first trial operation and in November Oriental Pearl and SMG set up a joint venture company, the Shanghai Oriental Dragon Mobile Information Co. Ltd. (also known as Dragon Mobile or DMTV), with a registered capital of Rmb20 million, to roll out cellphone television services in the city, with Oriental Pearl having the controlling stake. Over the first half of this year the company has been working to set up around 30 relay stations that, according to company sources, will provide 95 percent outdoor and 80 percent indoor coverage throughout the city. Other major cities in the more economically developed parts of the country, including in Guangdong, Beijing, Sichuan, Shandong and Zhejiang are also working on their own trials. Media groups: new media, new challenges The development of cellphone television in Shanghai paints a relatively rosy picture of how the technology might start to fulfill some of its potential. However, it is not insignificant that these leading trials are taking place in Shanghai (and other major, economically developed cities) and that Shanghai Oriental Pearl and SMG are key players. These have both been leading players in the modernisation and professionalisation of Chinese broadcasting and television industries. Stockmarket listed Shanghai Oriental Pearl - as well as its parent group - is also one of the country's wealthiest media companies, which means that the company enjoys good financial stability necessary for experimenting in new media. However, new media do bring new challenges for China's state-owned media groups, each generally operating its own locally or regionally-defined monopoly, and how they react to and deal with these challenges. In fact, one of the principle challenges that media groups have to deal with is financial. Since 2004, traditional media operators have seen their share of the advertising market cut drastically. Hardest hit has been the newspaper sector (see e.g. Market Report, China Media Intelligence, Volume 5, Issue 4 (20/4/05)), but broadcasting has also felt the effects. Industry executives say that the television sector has seen their share of the overall advertising market drop from a traditional 80 percent down to around 45 percent in the last couple of years. If they speak frankly, many industry executives will also acknowledge that this collapse is at least in part due to the inability that large media groups have demonstrated to keep up with the times, to deal with their own weaknesses and adapt to a rapidly changing Chinese media environment. This reveals several aspects of the challenge from new media. First of all, it shows that there is serious new competition. While traditional media advertising revenues have been falling, new media markets have been recovering and booming (see e.g. Market Report, China Media Intelligence, Volume 6, Issue 5 (27/5/06) on SMS advertising or Market Report, China Media Intelligence, Volume 4, Issue 11 (29/11/04)). This means that the traditional media groups are having to get used to lower revenues. However, although new media can often compete strongly on price with traditional media, in the television sector in particular research and development of new media related technologies such as cellphone television, mobile television and IPTV, require costly long term investment, even if in the long run . What is more, this comes at a time when there are other pressures for cable digitisation. and to set up new digital channels. Consequently, keeping up with new technological developments and opportunities is a costly process that also requires good long term planning. New media sectors also open up traditional media groups to new challenges in terms of their competition. It is worth noting, first of all, that although the television sector is highly competitive, in many ways the regional, politically-defined organisation and structure of the sector has protected television stations and media groups from what some would call real competition. Recent developments in the sector such as those that have seen provincial stations challenge CCTV at a national level are introducing new kinds of competition to the industry, but it remains the case that even if there is competition between television stations - e.g. a provincial capital broadcaster against the provincial broadcaster - these stations are likely to be members of the same media group. As media competition expands and diversifies so that television stations are not only competing with each other, but also with telecoms operators, broadband Internet content providers, online newspapers, magazines, online gaming providers and so on, the nature of that competition is also changing. Importantly, the new competitors come from increasingly diverse backgrounds including private sector companies, foreign media corporations and powerful telecoms companies. Many of these operators, particularly the new media companies, have also lived through difficult times and had to fight for survival in difficult market circumstances. In terms of organisation and structure many of them are modern, commercially oriented companies with incentive-driven shareholding and management structures, competitive open recruitment and well-rewarded careers on offer. Some of these characteristics are also to be found in traditional media groups. However, this is more likely in groups such as SMG, the Southern Media Group, Hunan Television or one of the other successful, wealthy and influential market leaders. Leaving these high profile and high visibility media groups aside, one still finds many large media groups characterised by inefficiency, duplication of work, overstaffing, noncompetitive recruitment, cumbersome bureaucracy and management structures, rigid hierarchies and uncompetitive salaries. In a world of limited or circumscribed competition, many of these characteristics can survive unaddressed. However, as television enters the new media age, the imperative for reform will become ever stronger. Not all the challenges facing media groups, however, are of their own making. One of the most important, and difficult, challenges to be addressed is that of the regulatory regime. With a regulatory ban on telecoms operators moving into television and vice versa, the development of new convergent media technologies from cellphone television to broadband VOD and IPTV constantly comes up against the same regulatory brick wall and despite being pounded regularly from both sides, that wall is for the time being still looking obstinately firm. Consequently the challenge for both telecoms and television operators is how to become involved in the other's realm of operation without appearing to do so. For the time being, the solution has been through divisions of labour and collaboration. Hence, in this case we are facing a scenario in which telecoms operators busy themselves with organising subscribers with handsets ready to receive services while television stations devote their attention to making programmes. Yet such a simplistic theoretical division can only work on paper. IN reality any such collaboration involves complex coordination and discussion between the parties involved, to the point where the line between collaboration and participation becomes very hard to draw. Of course, Chinese companies across different media sectors have become experts in formulating ingenious ways to circumvent these kinds of regulations, to operate in regulatory grey areas or to judge when and how far it is possible to ignore the regulations without drawing attention to the fact. Nonetheless, this adds an unnecessary layer of difficulty to an already complex set of scenarios, a layer that foreign media operators generally do not have to worry about, at least in overseas markets. Conclusion: is China ready for cellphone television? From the preceding discussion it is clear that the short answer to this question has to be: no. That is not to say that the country should wait or that cellphone television is doomed to failure. On the contrary, looking at the positive side, China has a burgeoning population of keen mobile phone users who are increasingly on the move, increasingly media savvy, increasingly turning to new media for their news, information and entertainment and, particularly among the younger generations, have a high fashion consciousness for new products, services and modes of interaction and communication. However, for the time being, this enormous market potential is not matched by preparedness among the key players: telecoms operators, television companies and media groups or regulatory authorities. In some ways, much of the blame for this lies with the latter who have presided over the shambolic efforts to agree upon a national digital terrestrial standard. SARFT would pass the buck on to the technicians responsible for developing China's indigenous digital terrestrial and handheld standard saying that they had made the justifiable political and commercial decision to support a homegrown technological platform over foreign alternatives in order to save the country and its companies billions of dollars in future IPR payments. It is difficult to know where exactly the blame lies, with the developers or the administrators, but the result is the same: China's television industry, equipment manufacturers and in this case also telecoms operators have all been left waiting to know which technology they should deploy. Consequently, the first thing that China needs for the successful deployment of cellphone television in the country is an immediate announcement of the national digital terrestrial standard. It appears that this is imminent. However, assuming that the standard is DMB-T/H, that still leaves a substantial number of trial projects that adopted the European DVB standard with a major and costly conversion project on their hands. It also leaves the question as to what happens to the alternative platforms that Chinese researchers have spent years developing. One cannot help but think that this decision could have been made much earlier so that time and resources focused on developing the one national standard. However, the publication of the national standard is not the end of the story. It is in many ways only the beginning. After this fundamental piece of clarification, there will be substantial tasks of coordination and unification of the sector. Yet, once again, the regulatory authorities, in the guises of SARFT and the Ministry of Information Industries (MII) are found lacking. Network convergence, broadband Internet and VOD, cellphone television, IPTV and other new media formats have been coming for years and consequently so has the current problem of contending interests between China's telecoms and television industries. Even if it may have been convenient to maintain the division between the two sectors up until now, it is no longer feasible without seriously impairing the ability of domestic media, telecoms and IT sectors to keep up with the rest of the world. The authorities should therefore have spent recent years formulating a clear, workable and forward-looking plan for how convergence will be managed in the future, but for the time-being there is no sign that this has been done. Consequently, the second thing that China needs for the successful deployment of cellphone television - not to mention IPTV and other technologies - in the country is for the division between telecoms and television sectors to be scrapped and replaced with a clear, strong set of rules for collaboration and competition in an increasingly converged media sector in which old categories and concepts struggle to make sense. Part of this definition of the future will also have to clarify the likely relationship between 3G - coping with another major regulatory hiccup and delays - and DMB-H based cellphone television. The competitive nature of the telecoms industry and its long-standing rivalry and mutual jealousy with the television industry may mean that the telecoms companies try to plough ahead with 3G cellphone television in competition with the television sector. This could be the worst case scenario for all concerned, the telecoms operators, television operators and consumers. What is needed is forward-looking collaboration and careful negotiation of revenue sharing models, technological coordination and planning throughout the cellphone television supply chain from equipment manufacturers through to the consumer. China's traditional media groups also have some serious thinking to do about how they move into the new media era. The new sectors are too dynamic, too competitive and too well-adapted to the market for old state quasi-monopolies to keep on with all of their old ways. New media companies set up by old media groups need to embrace not only the technology but the structures, organisation, management styles, incentives, enthusiasm and creativity of the new media market place. There has been a tendency in the past for the bulk - in terms of inefficiency, financial security and bureaucratic inertia - of the parent group to protect newly set up companies from the realities of the market, but in this way the new companies easily replicate the old ways. With the new media sectors in particular this has to be carefully guarded against. There is also a strong need for long-term planning and investment. New technologies are costly and investment mistakes - regulatory indecisiveness aside - can be even costlier. Media groups therefore need to be thinking well ahead and preparing for the future not the present. Given the current state of affairs, it is therefore unlikely that China's cellphone television market will be fully operational in the near future. Clearly some kind of service will be available for the Olympics in 2008, but this is likely to function as a major testing ground for the technology rather than constituting the first major service that operators make available. There is such a level of uncertainty, confusion and lack of clarity in the relevant sectors at present, that it is hard to see anything starting to seriously shape up as a model for the future within anything less than a year and if past practice is anything to go by, it could be considerably longer. However, assuming a degree of commitment and enthusiasm from the key players, even if not from the regulatory authorities, the likely scenario is that the next three to five years will constitute an exploratory and experimental period in which as many glitches as possible will be removed from the system and some kind of clear division of labour, order of collaboration and revenue-making model will emerge.
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