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February 27, 2005
Is It All That Rosy for Media Investments?
Attendees at a China business conference this past month showed some interest in media related investment. Let’s start off with TV and Radio, as these sectors of the industry are the most visible and influential to the majority of Chinese. Recent changes in Chinese law encourage the injection of foreign capital into TV and radio, albeit with a number of restrictive conditions.
The Administration of Sino-foreign Equity and Cooperative Joint Ventures that Produce and Operate Radio and Television Programmes Tentative Provisions, despite the unfortunately lengthy title, are nicely clarified here with delightful brevity. [Registration required.]
As therein explained, foreign private equity firms are implicitly prohibited from TV and radio investment. However, foreign firms specializing in the radio and TV business may hold up to 49% of a joint venture with Chinese firms possessing required the media permits. The foreign investor must contribute foreign exchange – no form other than cash is acceptable. Regarding the form of the Chinese investment, there is no similar constraint. In other words, the foreigner should hear it unequivocally stated: “Show us the money, baby!”
[The Provisions may be found here in Chinese. More on developments in Chinese media law may be found here.]
One might easily forget that, while just about anything goes on Chinese TV nowadays, a permit may be revoked – at times with speed that stuns. A-Mei, a Taiwanese singer who vocalized her support for Chen Shui-bian’s election to Taiwan’s Presidency by singing the Nationalist anthem, was immediately banned from performing in China. (As of 2004, she is now once again allowed to perform.) The editor personally knows musicians whose performance permits were revoked for no reason stated.
Why, then, given investment restrictions and political involvement of the one-party system, would foreigners show an interest in investing in the Chinese TV and radio industries?
Most likely, it has to do with revenue growth. According to this document, TV advertising revenue has increased from US$300m to US$2.7bn in the past decade. Without looking critically at the exact numbers – and I assume that they aren’t far from the truth, even given just the massive state-of-the-art complex Central China TV (CCTV) has been building in Beijing – they occurred during the meltdown of internet ad revenue in the West that the industry hoped would save it from a poverty of growth.
What then are the trends in advertising a China investor needs to know?
In “Ten Major Trends in Chinese Advertising,” a Chinese analyst discusses future developments in the industry. (If enough readers show sufficient interest, I will translate the document in its entirety and post it.)
1. Increased state supervision over “problem” advertising.
2. Simplification of procedures relating to increasing foreign investment.
3. Growing competition for increased customer spending among national and provincial media outlets.
4. Development of SMS (cellphone messaging) as a major business opportunity.
5. Maturity of online gaming platforms as major advertising channels.
6. “TV Anywhere” and the proliferation of advertising into all aspects of social life.
7. Multinational advertising agencies, in cooperation with local firms, to develop markets in second-tier cities.
8. Advancement of advertising into the digital television realm.
9. Growth of public relations firms as risk reduction vehicles.
10. Development of regulation should help ensure industry standardization, but the administrative wherewithal for uniform implementation may be lacking.
In other words, the analyst foresees only growth and development with minimal intrusion of the government. Naturally, an investor wishes to be somewhat defensive. Ok, call me skeptical – I tend to believe that skepticism is a healthy reaction. So, let’s ask the question: “Is it all that rosy?”
More on this at a future date.
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