Global media magnates have flocked to China. Sumner Redstone, Chairman and CEO of Viacom, Rupert Murdoch, Chairman of News Corp., and other top executives of leading media conglomerates have visited China this year.
Almost all major global media groups have established a certain presence in the Chinese market. Time Warner acquired Hong Kong CETV for US$100 million earlier this year; CNN established its own program production center in Hong Kong; and News Corp. has introduced Phoenix Satellite TV Channel onto the mainland, and distributes 70 percent of the 22 overseas channels allowed in Chinese hotels above the level of three stars.
According to China's pledges made to the WTO, non-news foreign programs will eventually be permitted to broadcast in the country. People are paying close attention to global media magnates' business expansion in China.
Media Industry
Newspaper stands in Beijing have never before been so well stocked. Statistics show that at least 200 newspapers, three fold over those in Hong Kong, are competing for readers on the capital's news market.
The media industry is experiencing a similar boom elsewhere in China. Currently, the country has more than 2,000 newspapers, 8,000 periodicals, 290 radio stations and 420 TV stations. The Internet, called the fourth media, has also been developing rapidly. China has 10 backbone Internet networks, 3,600 businesses directly involved in Internet services, over 10 million computers connected to the Web, nearly 30 million netizens, 700,000 domain names and more than 260,000 Chinese Web sites. By 2005, more than 40 million computers will be connected to the Internet and the number of netizens will reach 200 million. "In 10 to 20 years, the influence of the fourth media will eclipse that of newspapers, radio and television," said Zhou Guangzhao, Chairman of China Association for Science and Technology (CAST).
Profits of the media industry are also on the rise. Last year, the advertising revenue of the industry approached 80 billion yuan, and some experts have predicted that potential profits are even greater. Some even believe the media industry, which was the last to adopt rules of the market, may offer the last opportunity for sudden and huge profits in China. "Returns of the media industry are higher than the average of other domestic industries. This is because the Chinese media industry, pushed into the market for less than 10 years, is still not fully commercialized," said Yu Guoming, Director of the Institute of Mass Communications Research at the Renmin University of China.
The fast expansion and huge market potential have convinced many that China will, in future, have one of the largest media industries in the world. Such optimism has led to an influx of foreign and domestic funds, as well as a massive restructuring of the industry nationwide.
Capital Influx
Since 1995, most Chinese media organizations, once wholly funded by the state, have become mostly financially self-reliant. A dilemma has been also haunting the industry since then. On one hand, regulations ban the entry of non-media funds into the industry because the media operation is still monopolized by the state. Operational rights are not transferable and non-media entities are not allowed to apply for media licenses. On the other hand, media organizations must seek funding from the non-media industry in order to develop. Surveys show that 82 percent of Chinese media organizations are desperate for funds. Given this, there has been a rising outcry on the lowering of the threshold for market entry.
Despite the bans, "outside funds" have been permeating into the media industry in many ways. Although such funds only account for 2 percent of the total capital of the industry, their entry is believed to be able to bring in new operational and management models, and raise the market level of the media industry.
A large chunk of "outside funds" has come from listed companies and enterprises holding stakes in listed companies, which can conveniently raise funds from the capital market.
For a long time, there have been ambiguities concerning whether media organizations can go public or not. Recently, the China Securities Regulatory Commission has given a positive answer, as it has included the media and cultural industry in the 13 industries mentioned in the newly released Directory of Industry Categories of Listed Companies. In the directory, the media and cultural industry is defined as publishing, audio and video production, radio, television, film, arts and information transmission.
Although no single media organization has directly been listed, quite a few enterprises associated with media organizations have already gone public. Some listed companies have also entered the media industry as shareholders.
For example, the Economic Observer, a news weekly launched last April, is sponsored by the Shandong Sanlian Group, the controlling shareholder of Zhengzhou General Merchandise and Stationary Corp., a public company. The group plans to invest 80 million yuan into the weekly within three years, and hopes to transform it into a daily newspaper in the near future. The Beijing Times, launched last May, is a joint operation of the and Beida Jade Bird Group, which has poured 50 million yuan into the newspaper. This is another major investment made by the company since it purchased Sohu shares from Intel.
Chengdu Commercial Daily became listed by acquiring Borui Media. Hunan TV & Broadcast Intermediary Co. Ltd., which issued new shares in November 2000, began four newspapers and one financial news channel this year. Shanghai Qiangsheng Group also plans to invest 160 million yuan to launch the Shanghai Qiangsheng Media Start-up Investment Co. The company will begin publishing financial newspapers and magazines, and gradually expand into the production of cultural TV programs and broadband services. Shanghai Ba-Shi, together with Shanghai Business News, has also founded the joint venture Shanghai Business News Cultural Development Co. Ltd.
Size Matters
The landscape of China's media industry has been changing dramatically in recent years due to the prevailing concept of "the bigger, the better."
Since the launch in January 1996 of the Guangzhou Daily Press Group, the first of its kind in China, a number of newspaper groups, including the Nanfang Daily Press Group, Yangcheng Evening News Press Group and Wenhui Xinmin Press Group, have been established.
Similar restructuring has been also proceeding in the radio and television sector. In December 2000, Hunan Radio, Film and Television Group, China's first provincial-level radio and television heavyweight, was founded. The group consists of seven TV channels including Hunan Satellite Television and Hunan Economic News Channel, four radio channels including Hunan Radio Station's News Channel and transport channel, and a number of studios. Assets of the group have exceeded 3 billion yuan.
On April 19 this year, Shanghai Culture, Radio, Film and Television Group was founded. Local radio and television groups have also emerged in Guangdong, Zhejiang, Shangdong and other provinces.
Local media groups have become viable rivals of China Central Television (CCTV) in the competition for viewers and advertising. During this year's auction of ad time, the Evening News time slot on Hunan Satellite TV was sold for 40.88 million yuan, the highest price ever paid in China for a news program slot. CCTV is also expected to soon merge with China Central Radio and China Radio International, to form a national media conglomerate.
So will all these mergers produce greater returns as expected? Wang Ran, CEO of China E-Capital, said, "There is nothing wrong with restructuring media resources. But whether it can be successful depends on the system. If it is merely a simple binding-up under the old system as a result of administrative orders, it is nothing more than an attempt to combine 1,000 sampans to make a cruiser."
"The media industry's marketization level is still low in China. The country still doesn't have a media group in the real sense," lamented an industry insider.
Trans-media Cooperation
Many people believe that Chinese media organizations should not only expand in size, but also in scope, to compete with their overseas counterparts. The future of the Chinese media industry is in the hands of media groups that control the print media (newspapers, magazines, books and outdoor billboards), video and audio media (television, radio and film) and the Internet. The merger of AOL and Time Warner has set a perfect example of such a combination.
The Chinese media industry has caught up with such international trends. Hunan TV & Broadcast Intermediary Co. Ltd., a subsidiary of Hunan Radio, Film and Television Group, is an amalgamation of the video, audio, print and network media. Borui Media has begun expanding from print media into the network media and the production of IT television programs. CCID, an IT newspaper group comprising China Computer News and another 15 IT newspapers, is penetrating into the network media and television media.
Industry insiders predict that trans-media mergers will reduce operational costs, increase the viability of media entities and create diversified profit-generating channels. Sources revealed that China is planning to work out policies, laws and regulations concerning trans-regional and trans-media merger and acquisition.
The most high-profile trans-media merger in China is that of Sina.com and the Hong Kong-based Sun Television Cybernetworks Holdings Ltd., which is owned by Wu Zheng and his wife Yang Lan, who is also a well-known TV hostess. Soon after the merger, the couple joined hands with Duan Yongji, another famous Chinese entrepreneur, to form a new media company, Sun Stone.
Sun Stone will be headquartered in Hong Kong, with its domestic operation center located in Beijing. The company will primarily explore business in three areas: providing content and customer services based on cable television and other multimedia content transmission platforms; exercising management over the Sina-Sun Group; and setting up a "media investment fund" to establish an incubator for new media startups.
"Trans-media merger is the ultimate result of media industrialization," said Wang. "It is significant because, first of all, it will enable the share of resources and create an interactive effect among different media. Secondly, a multimedia platform will be able to provide comprehensive and customized marketing solutions." But he also gave the admonition that a merger is not a simple combination of different media. "A valueless medium won't automatically gain value after the merger. Too much trans-media cooperation before each single medium becomes good enough will likely produce bubbles," he said.
Media Community
The Development Planning Committee of Beijing's Xuanwu District recently unveiled an ambitious plan to construct an international media industry community in the district within five years. The planned "International Media Avenue," featuring modern buildings equipped with intelligent and digital facilities, is designed to house newspapers, publishing houses, film and television studios, network companies, and other related businesses.
The avenue runs 3.2 km from Xuanwumen to the South Second Ring Road, and is just 2 km west of Tiananmen Square. The "media community," with a planned construction area of 4 million square meters, will be built on 116 hectares of land along the avenue. The project will cost an estimated 28 billion yuan.
In addition to office buildings, the "media community" will also have commercial facilities, recreational facilities, upscale hotels, apartment buildings, international schools, and international hospitals. Major buildings will include the 120,000-square-meter International News Center, the 360,000-square-meter Zhuangsheng Cultural Plaza, the International Media Exhibition Center, International Film and Television Tower, Oriental Arts Building, IT Communications Plaza, and the China Press Industry Building.
(Beijing Review December 4, 2001)