SARFT Comments: Media Clampdown Coming? 中国传媒业对外开放要放缓?

I’ve been writing about China’s media industry long enough now to know that a blossoming love affair with Hollywood might be too much too quickly, and new comments from the TV and film regulator appear to hint that a crackdown or at least a slowdown could be looming for this fast emerging relationship. If it comes, such a crackdown would hardly be a new thing, as China has twice before signaled it was preparing to open its media to foreign investment, only to quickly slam on the brakes after the big foreign players got too aggressive.

Beijing’s latest market-opening moves began to emerge as early as a year ago, when major Internet firms like video sharing sites like Youku (Nasdaq: YOKU) and Sohu (Nasdaq: SOHU) announced a series of landmark deals to offer movies and TV from the major Hollywood studios. (previous post) Even search leader Baidu (Nasdaq: BIDU), notorious in the past for allowing the exchange of pirated material on its site, joined the movement by signing a landmark deal with 3 major record labels last summer to offer legal copies of songs over a new music service. (previous post)

The opening sounds grew even louder in the fall, when a spate of IPOs by media firms culminated with news that state-owned stalwarts Xinhua and the People’s Daily would make public offerings for their Internet businesses. (previous post) The People’s Daily went on to list shares for its Internet subsidiary in Shanghai this spring, in a hugely popular move that valued the company even higher than the US giant New York Times (NYSE: NYT) publishing group.

All the activity culminated in the first half of this year, when China sharply boosted its strict quota of foreign films allowed into the country, and then DreamWorks Animation (NYSE: DWA) and Disney (NYSE: DIS) signed landmark deals to open animation studios in Shanghai and Beijing. (previous post)

The huge and sudden flurry of activity surprised many, myself included, as China had been notoriously closed to foreign media for most of the last decade despite several earlier signals that it might be prepared to open the market wider to foreign investment. That’s why it’s a little worrisome but certainly not too surprising to read new comments in the media that look slightly ominous from an official at the State Admistration of Radio, Film and Television (SARFT), the government agency the regulates the film and TV industries. (English article)

The comments themselves are rather narrow, citing a SARFT deputy director at a recent event as saying that his agency will strictly monitor Sino-foreign filmed co-productions to make sure they follow relevant rules, including that part of the film take place in China and that Chinese actors get leading roles. This particular announcement looks relatively benign, as it only applies to co-productions between foreign and Chinese filmmakers and isn’t really relevant to most of the major new developments in this latest media opening.

But the fact that officials are making such statements could reflect the very real fact that conservative elements in Beijing may be growing alarmed at the rapid rate of change in the sensitive media sector and may want to slow things down or even turn back the clock. Such a clampdown would hardly be a new thing, as Beijing made similar policy reversals after allowing foreign companies to own TV stations in China a decade ago, and also after allowing foreign media firms to set up joint ventures to produce movies and TV shows for the China market in the mid 2000s.

The fact that a major leadership change will soon take place in Beijing could make the situation even more sensitive, making a clampdown even more likely. At the end of the day, no one really knows what will happen, as I expect that even government officials are trying to figure out how they want to proceed in the months ahead.

My guess is that we could see a sharp slowdown in approval of new foreign media initiatives in China, though most of the deals already approved are unlikely to be voided. If that’s the case, the recent flurry of deals would still mark a big step for foreign media companies, which would be allowed to keep their latest hard-earned gains as they continue to eye further expansion in this market that is both difficult but also filled with potential.

Bottom line: New comments from SARFT indicate China may soon slow down or halt its recent opening to foreign media, though an outright crackdown on new investment seems unlikely.

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