Cable companies race for China's television audience

While China's Internet users surpassed the U.S. population in 2009 and its boxoffice leaped 44%, cable television companies are scrambling to keep eyeballs focused on the biggest audience of all. China has 395 million TV households, reaching more than 95% of its 1.3 billion population. Additionally, the State Administration of Radio Film and Television says there are 163 million cable TV households and 63 million of those were digital by the end of 2009.

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With such a large potential audience, the race is on to beat cable to meeting China's pent up entertainment demand. Mobile TV, Internet TV and IPTV companies, in particular, are all jockeying for position in this high-stakes race.

But analysts say cable TV is still most likely to reach new Chinese consumers first with content that breaks the mold of the country's typically sterile programming.

For now, however, cable lacks the variety and the interactivity of the Internet, and the rollout of digital television here -- with its limited interactivity -- has proven tougher than expected. SARFT's latest projected date for China's complete switch from analog is 2015.

The greatest challenge to DTV in China is inexperience, both among customers and the companies trying to reach them. "The audience is used to getting everything free and the cable companies have little idea about marketing," says Vivek Couto of Media Partners Asia in Hong Kong. "Viewers ask, 'Why would I pay?' "

The other hurdles facing DTV are more easily overcome, and it's only a matter of time, according to Couto: "The driver of DTV in China will be local sports and movies. The cost of the boxes is coming down. With Beijing pushing convergence, there will be consolidation."

Adds Mark Natkin of Marbridge Consulting in Beijing: "Whoever can develop a working converged network first wields tremendous power in delivering the message of the state on video, and operating a for-profit business at the same time."

Meanwhile, cable operators who want to offer VOD will have to invest 200 billion yuan ($29.3 billion) over the next five years, says Fang Meiqin of BDA China in Beijing. "Reaching users pressing 'play' on VOD is the goal, but cable operators are taking their time."

Fang concedes that SARFT is reluctant to open the IPTV market to telecoms, but may have little choice after the State Council's January guidance. Whether or not IPTV ever catches up to DTV, both platforms are a strong reminder that content remains king.

"Chinese are no more foolish than viewers anywhere," says Kim Gordon, a British TV producer who also teaches creative producing courses as a consultant to Shanghai Media Group and Hunan Satellite TV. "They can tell instantly when a show is no good. There's little creative content, so companies can't charge more, which means they can't invest in better programming. That cycle must be broken."