MEDIA: Tencent NBA Win Sets Up CCTV Showdown

Bottom line: The broadcasting regulator needs to rethink the way it treats online video companies and create a uniform set of standards that apply to both to them and traditional TV stations.

Tencent ties up with NBA

Internet giant Tencent (HKEx: 700) made headlines last week with an exclusive deal to broadcast live NBA games over the Internet in China, literally scoring a major victory over its rivals in the hotly contested online video space. But having won that victory over its Internet peers, it’s probably only a matter of time before China’s traditional TV broadcasters call foul and complain that Tencent’s deal will compete with their own live broadcasts of hugely popular NBA basketball games.
China isn’t different from the rest of the world in this kind of conflict, as the lines quickly blur between program services offered by Internet companies like Tencent and Youku Tudou (NYSE: YOKU), and similar offerings from traditional broadcasters like CCTV. But China is more unique in its heavier regulation of TV, especially for program content, compared with much lighter oversight for programs delivered over the Internet.

This discrepancy has led to a growing conflict between traditional TV stations and Internet video companies, and the regulator is now trying to address the problem by gradually imposing new rules and restrictions on the latter group. But that approach is creating huge uncertainty for the online video sites, which are coming under heavier restrictions that limit their business scope.

The rapidly changing state of the market calls for a new approach by the regulator, the State Administration of Press, Publication, Radio, Film and Television (SAPPRFT). That approach should use an open and transparent process to develop a unified set of standards for both groups, creating a level playing field for everyone.

Tencent’s new deal with the NBA marked a big victory for its fledgling video service, providing a major boost that could help it challenge the online video industry’s top 3 players, Youku Tudou, Baidu’s (Nasdaq: BIDU) iQiyi and the video service operated by web portal Sohu (Nasdaq: SOHU). Under the 5-year deal Tencent will become the NBA’s exclusive online video partner, offering live streaming for all of the league’s games. (English article)

The broadcasting rights almost certainly followed a fierce bidding war between Tencent and the other major video sites, as each pursues such exclusive content to boost its service. But traditional TV operators were probably also watching with concern, since the Tencent package could easily compete with their own separate deals with the NBA.

The biggest concerns will come from dominant national broadcaster CCTV, which in 2012 signed its own multiyear deal with the NBA to offer live and tape-delayed games, and a weekly NBA-themed show. No terms were given for that deal, though many believe CCTV’s status as China’s only national broadcaster allowed it to pay far less than such a contract would have commanded in more competitive western markets.

By comparison, Tencent probably paid a big premium for its rights due to competition from other online video sites, though no terms were given in that deal either.

The 2 deals reflect the growing conflict in many Chinese sectors as a new generation of private firms emerges to challenge older state-run companies. In this case traditional TV broadcasters are mostly regional operators that operated under a state-granted monopoly, making them the only choice for most viewers, program makers and advertisers in their markets. The video site operators are all far younger and mostly private companies that operate in a highly competitive space, since all can offer national distribution and real-time streaming over the Internet.

As the online video sites began their rapid rise, the traditional broadcasters complained to SAPPRFT, saying they were subject to far more restrictions than the group of younger online firms. As a result, the regulator began a gradual crackdown against the video sites starting last spring, limiting the programs they could show and forcing them to scrap a new generation of set-top boxes that would allow them to offer their Internet-based services over traditional TVs.

The crackdown has cast a shadow over the online video sector’s future, since no one is certain when the next restrictions will come and how severe they might be. Youku Tudou reflects the broader state of uncertainty and associated concerns, with its shares down by more than half since the crackdown began.

Rather than take this kind of piecemeal approach, the SAPPRFT should consider completely overhauling the way it oversees the traditional TV and Internet video industries, and create it single set of rules that apply equally to both. Such a move would allow the broader sector to develop in a healthier way, allowing the market to decide who ultimately survives and who goes off the air.

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