Written by Ulrike Rohn.
In 2010, I published a book on the entry approaches of some of the largest western media companies into China. Based on expert interviews with representatives of Disney, Time Warner, News Corporation, Bertelsmann, and Viacom, and also based on company and trade press publications, I analysed the companies’ entry strategies between the late 1990s and 2008 in the light of Chinese market conditions. I was particularly interested in the economic environment provided by the Chinese media market, as well as in the legal and cultural barriers to successful market entry by foreign media companies.
Not surprisingly, my study back then found that legal barriers were the biggest obstacle to market entry. In a market that forbids both foreign ownership of media entities and foreign engagement in editorial activities, possible cultural barriers to the success of foreign media content was not a major concern of the foreign media companies. Lured by the huge potential of the Chinese media market, the companies were concerned mainly with how to find and exploit every available niche for legal market entry. Despite all the legal entry barriers, the activity level of the companies included in the study was striking. Each one aimed to have a good starting position for the day the doors to the Chinese media market would open further. Likewise, the companies hoped that the growing demand for media in China would translate into a need for foreign content, if the local industry were not be able to produce the content and quality demanded.
Now, at the end of 2014, the question is: What has changed since this first study? The answer is: a lot. Yet, the market conditions have not necessarily changed in the way the companies had anticipated or hoped for. China is still one of the largest and fastest-growing media markets in the world, and particularly attractive to media companies that are based in countries where the demand for media has stagnated. The opening of the market to foreign companies and content that the western media companies had wished for, however, has not happened yet. Legal barriers to market entry in China remain, by and large, unaltered since the first study. As an example, in spring 2014, the State Administration of Press, Publication, Radio, Film and Television of the People’s Republic of China (SAPPRFT) demanded that video-on-demand sites remove shows such as The Big Bang Theory and The Practice, on the grounds of their ‘inappropriate’ content. Likewise, CCTV was allowed to show The Game of Thrones only in a heavily censored version. Also, each satellite channel may import only one foreign TV format a year, to be broadcast outside prime time. News Corporation, which had already been in China for two decades and was eagerly awaiting further access to the local media market, became so frustrated with the ongoing tight control that it decided to withdraw. In 2010, it sold the controlling stake of its STAR China, which has landing rights for three satellite channels in Cantonese-speaking Guangdong. In 2014, it sold the remaining stakes. Copyright issues, another major concern expressed by foreign companies through the first study, also persist. In particular, TV format infringements are still a problem. While some things have not changed since the first study and now, what has changed?
Since the first study was conducted, Internet coverage has increased tremendously. This has led to the introduction of many new players in the market and a large number of online video platforms now serve as distribution channels for foreign content. Most notably, however, China has consolidated its media industry. Large and financially powerful media conglomerates, such as Shanghai Media & Entertainment Group, have emerged ‒ mostly as a result of large-scale mergers and acquisitions among media companies. In line with the consolidation of the industry, China strongly emphasises professionalisation of the industry. For example, to stimulate the demand for professional training of talents, cultural and creative companies are offered tax incentives for staff education expenses. A further sign of Chinese professionalisation is the introduction in 2014 of national standards for TV ratings research that are in line with general international standards. In fact, the lack of reliable data on audience demand was something many of the interviewed companies complained about during the first study.
Consolidation and professionalisation have increased production output by Chinese media companies, both in terms of quantity as well as quality. This is especially obvious in the TV business, where China produced dramas worth US$1.7 billion in 2013, compared to only US$790 million in 2007. And while many of CCTV’s programmes were previously produced in-house or by production companies with low budgets, CCTV now frequently outsources production to large production companies whose interest in the programmes’ success is enhanced now they retain ownership of the rights.
Having become stronger in their own country, Chinese media companies are increasingly looking for opportunities abroad. In 2014, Chinese film giant Huayi Brothers announced the launch of a subsidiary in the United States. Also in 2014, ITV Studios Global Entertainment signed a deal to distribute internationally the Chinese talent show Sing My Song, the first original Chinese format to be exported internationally. In the book publishing market, the Chinese Book Promotion Plan funds foreign publishers to translate Chines book titles as a way of overcoming the annual deficit in the book trade.
How have the western media companies reacted to the changes in the Chinese market? What are their strategies in terms of China now compared with previously? Companies still export their content to China wherever possible. In fact, China is the largest oversea market for Hollywood movies, and US productions dominate the Chinese box office. Between 2009 and 2013, Hollywood movies increased their income from the Chinese market by 25 per cent. Much of the foreign content in China nowadays is distributed via video-on-demand sites. Since 2014, the Ellen DeGeneres Show, for instance, can be watched on Sohu.com. It is the first daily talk show from the US. To ensure distribution of their content, western companies have entered strategic partnerships with, or invested in, such online platforms. Disney and Warner, for instance, have strategic partnerships with SMG’s BesTV, and News Corp has invested into Xunlei.com.
In fact, joint ventures and co-productions between Chinese and western media companies are now much more common. From the Chinese perspective, these ventures are a way to use the global distribution expertise and networks of their western counterparts. From the perspective of the Western media companies, joining hands with a Chinese counterpart is usually the only possible way to enter the market, but it also helps to better serve the Chinese audience, as local partners better understand local tastes. For instance, TV producer and distributor Endemol entered a partnership with Shanghai Media Group whereby Shanghai Media Group helps to localise formats from Endemol’s portfolio for the Chinese market, and Endemol distributes worldwide the programmes developed and produced through this partnership. Co-productions are also increasingly common in the movie industry. Iron Man 3, for instance, was a co-production between China-based DMG Entertainment and Disney’s Marvel Studios. Furthermore, Dream Works Animation has a joint venture with China Media Capital, called Oriental Dream Works, through which it produces Chinese-themed animation and action films for worldwide distribution. And in 2014, Disney signed a multi-year deal with SMG to co-produce Chinese films that target a global audience.
Western media companies that want to engage in the Chinese media market have realized that the best way to do so is not so much through the export of their products but through providing their Chinese counterparts what they want most: access to global distribution networks and expertise in the development, production and marketing of media products. It is not uncommon for representatives of SAPPRFT to meet with executives of foreign media companies for an information exchange. In 2012, for instance, delegates of what was then still called SARFT visited the US to learn about the latest technology and developments in terms of media convergence. Furthermore, SARFT representatives met with Bertelsmann’s executives to strengthen its cooperation with Chinese media organizations and to share its experience and expertise. Bertelsmann has also acquired stakes in small Chinese start-ups that offer promising digital business models. Likewise, Disney has joined hands with a Chinese investment holding and China’s Culture Ministry in offering an incubator to train local animation talent. As part of this initiative, Disney provides its expertise in storytelling and market research.
While many western media companies were still waiting to be allowed further access to the Chinese media market at the time my book was published (2010), they no longer expect the legal barriers to disappear any time soon. Companies have shifted the focus of their Chinese endeavours. Now, it is less about transfer of content and entry through ownership, and more about transfer of expertise and making available access to global distribution networks. Likewise, international activities with regard to the Chinese media market are increasingly less inbound-oriented. Instead, cooperation deals have led to reciprocal partnerships in which Chinese media entities help their western counterparts to better serve the Chinese audiences, and western media companies help their Chinese counterparts to further professionalise and to better serve markets outside China. Such win-win cooperation will help the Chinese media industry become one of the world’s largest production centres and increase the variety of entertainment media around the world.
Ulrike Rohn is a Faculty Member of Journalism and Communication, University of Tartu. Image credit: CC by Yeowatzup/Flickr.