Insights into China

Two recent reports from Beijing-based media research firm CMM-Intelligence offer insights into the impact of the WTO ruling and the growth of online video in China. Television Asia Plus looks at some of the top-line findings

While many might have seen the WTO ruling that China must end its monopoly import system for foreign entertainment products as good news, CMM-I’s recent report concludes that the ruling will not help Hollywood in China.

The report, entitled The WTO Ruling on Importing Entertainment Products into China – What Does It Mean for You? says that the US entertainment industry must assess what it failed to accomplish in what it describes as an ‘adversarial’ dispute.

In its assessment of the August 12 2009 WTO ruling that China must end its monopoly import system for foreign entertainment products, CMM-I say the action will fail to open significantly greater opportunities for global entertainment companies.

Published by CMM-Intelligence and written by some of China’s most experienced media analysts, the report cites ample opportunities and precedent for China to circumvent the ruling and major market barriers that remain unaddressed. The report concludes that not only will the WTO ruling fail to deliver on its expected results, it may also backfire on the industry.

“In the wake of the ruling the media industries must assess what they have failed to accomplish in their nearly three year-long effort with the WTO,” the report states. “An even more troubling prospect exists: will China seek to build barriers even as they comply with the letter of the ruling, thus negating its value – or worse?”

The report takes to task the Bush Administration’s United States Trade Representative for filing the original action in 2007, and Washington-based lobbyists for continuing a confrontational approach that has yet to yield significant results.

“The most significant effect of this action will be to solidify the adversarial nature of China’s relationship with the US entertainment business,” said report co-author David Wolf, a sixteen-year veteran of the Chinese media industry. “The day is coming when Hollywood and its media allies will have to decide whether to change their approach or abandon China altogether.”

Examining the ruling in the context of China’s regulatory and policy environment as well as market conditions on the ground, the paper examines the issues that stand in the way of a meaningful ruling, and explores the implications for leaders of the film, music, and publishing industries. The paper concludes with strategic recommendations for the leaders of entertainment companies worldwide.

CMM-Intelligence has also recently looked into the growth of online video sites in China, outlining the challenges, as well as the opportunities afforded by this rising medium.

The report, entitled China’s Online Video Sites – Competitive Landscape, Regulation, Monetization, and the Changing Habits of China’s Consumers, takes a unique look at one of China’s most dynamic media sectors.

CMM-I found that online video ranks as the fifth most popular online diversion for China’s internet population and is China’s fastest growing entertainment medium. According to statistics published by the China National Network Information Center (CNNIC), the government affiliated organization that administers China’s Internet, more than 65 percent of China’s 338 million Internet users spent a portion of their time watching videos online as of July 2009.

The estimated 222 million, and increasingly growing, number of Chinese who are watching these videos have a vast choice of online sources for their viewing pleasure. The State Administration for Radio, Film and TV (SARFT), the primary regulator for online video, estimated that Internet users could stream online video from more than 1,000 websites in China by fall 2009 (but only some 400 sites were licensed).

The report says there is some debate as to how fast the online video audience will continue to grow, given that enjoying online video requires a capable computer, a high-speed connection and, equally important, considerable free time. Nonetheless, the current annual growth rate of 21 percent, while probably not sustainable in the long term, should decline slowly, suggesting something in the order of 300 million users around the end of 2011.

The report reviews the broader challenges and opportunities faced by all companies in the online video sector, and in so doing defines the factors necessary for success, thus facilitating better analysis of each enterprise.

Inspired by the example of YouTube, Chinese entrepreneurs and broadcasters have created hundreds of online video sites, all vying for the attention of a young, educated, increasingly prosperous, and massive audience. Facing even greater opportunities – and more daunting challenges – than their overseas counterparts, are China’s online video sites set to displace the state-controlled television establishment and become the vector for China’s global soft power, or are they set to be crushed under the wheels of the nation’s rigid media policies?

One international broadcaster to make a foray into China’s online space is Discovery Networks Asia-Pacific which mid-2009 teamed with China’s largest global Chinese search engine to launch Chinese website discovery.baidu.com – the first website of its kind to be launched in China.

Baidu is the fastest growing Chinese online platform and has already captured a 73.2 percent market share for search requests. In 2008, approximately 246 million users in China utilized search engines, with the total number of requests for web page searches exceeding 150 billion. In 2009 it is estimated that the number of search engine users in China will exceed 300 million.

Ren Xuyang, Baidu’s vice president of marketing and business development, said, “Baidu’s mission is to help people obtain information and find what they need in the easiest and quickest way, while Discovery is a leading provider of high-quality factual content. By combining the strengths and resources of both Baidu and Discovery, we can integrate content from a traditional medium such as television with dynamic platforms such as new media, to satisfy the needs and demands of online users while continuing to explore newer and better ways for knowledge distribution.”

Baidu is responsible for the construction, operation, management and updating of the website while Discovery is the exclusive content provider for the website, which is customized and translated for the Chinese market. The content offerings are ad-supported with Baidu and Discovery sharing the responsibility and revenue from third party advertising sales. Both parties continue to develop projects that will facilitate the sharing of knowledge and information, to provide users – including middle and primary schools in China – with a reputable and credible source of information and support the increasing demand for online content.

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