MEDIA: Beijing’s Cable TV Consolidation Stalls, Companies Take Charge

Bottom line:  The formation of a joint venture between six leading cable operators looks designed to jump start Beijing’s stalled attempt to create a national player that can compete with the big telcos.

Five regions in cable TV joint venture

After years of snail’s-pace progress at consolidating the nation’s fragmented cable TV operators, a group of leading players is finally taking matters into their own hands with announcement of what could be a breakthrough joint venture. I’ve followed this story for a while now, and, along with everyone else, have been impatiently waiting for a state-supported national cable operator, called China Broadcasting Network Co., to take shape and provide a strong interesting alternative to the nation’s three big telcos for network-based services.

But such a development has moved forward at a pace even slower than molasses, mostly due to the huge bureaucracy involved. That mostly involves the interference of local interests, which are loathe to give up control over municipal and provincial cable TV networks, which they run as personal regional propaganda machines. As a result, all of the nation’s cable TV networks are dying a slow but certain death, as they get overtaken not only by the telcos but also by a rising generation of private sector Internet TV services like Youku and iQiyi.

Unwilling to wait any longer for Beijing’s impetus at consolidation, six leading companies have just announced plans to form their own cable TV joint venture. (English article) Those include the leading operators in Beijing and Shanghai, namely Gehua (Shanghai: 600037) and Oriental Cable, respectively. Others in the venture include the cable operators in Shandong and Hubei provinces, as well as in the separately administered city of Chongqing.

The initiative appears to be spearheaded by China Cable Network, which is closely affiliated with the TV regulator that, along with Gehua, also provides cable TV services in Beijing. China Cable will hold 35 percent of the venture and Chongqing cable 20 percent, while each of the other four partners will hold 11.25 percent. Total initial investment in the venture is relatively modest at 200 million yuan ($30 million), though obviously that amount could be boosted if the venture gains any traction.

From an infrastructure perspective, the venture shouldn’t really have to put too much money into actual networks. That’s because most of these municipalities and provinces are relatively wealthy, and have already done extensive work to upgrade their networks to offer services like digital programming, on-demand services and fixed-line broadband. The problem is that all of these companies are still confined to specific geographic areas, and therefore lack the national scale to offer competitive products to the big telcos and private video services.

Unifying Networks

The new company will be called China Broadcasting Broadband, and will initially focus on creating unified networks among its six partners that can offer comparable levels and types of services, according to one analyst who covers the sector. He notes that only five out of 31 provincial cable operators are involved so far, and adds that the absence of the other 26 is somewhat notable. That absence, he adds, indicates just how desperate the companies are to jump start the central government’s stalled initiative.

From my perspective, this particular initiative does seem to reflect a certain level of exasperation in Beijing, and also among the biggest of the provincial cable operators. As I’ve said above, local interests in the smaller provinces are almost certainly the major road blocks preventing the formation of a national cable operator from moving ahead. Thus this new initiative is designed to get around those road blocks.

Personally speaking, I think this new idea looks much better than the original one, since the hodgepodge of provincial networks now existing throughout China probably vary widely based on the wealth of individual areas. By pulling out the wealthiest provinces and cities, this new venture can form a foundation for rolling out a unified platform in China’s most affluent regions first, which should be the most profitable as well.

When the other more backward regions see how well this venture is doing, presuming it does well, they will become more convinced to join by contributing their own network capacity. By doing this as a joint venture, the deal structure will also allow provinces to maintain ultimate physical control of their networks, even if they ultimately end up providing most or all of their network capacity into programming and services offered by the joint venture.

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