Roundtable entertains big ideas
By Jian Er

China is taking centre stage in the world of entertainment.

This was the consensus of top executives from the world's largest music companies, television production houses and Internet content providers who participated yesterday in the 4th China Daily CEO Roundtable (CDRT) themed "Entertaining the Nation" in Hong Kong.

Although they griped about lack of protection for intellectual property rights and the slow pace of market liberalization, the Roundtable agreed that the potential of the China market was almost limitless. And the biggest show of them all is going to be the 2008 Beijing Olympic, said Stephen Marcopoto, president and managing director of Turner Broadcasting System Asia Pacific Inc.

In his opening remarks, Marcopoto said China's media and entertainment industry, though it currently accounted for less than 2 per cent of the country's GDP, is set to grow to a dramatic scale in the coming years. Marcopoto oversees all programming, network, development, advertising and distribution sales, marketing and promotion for Turner Broadcasting and its networks and Internet services, including the CNN news group, Cartoon Network, TCM and CETV in the Asia Pacific region.

Citing a recent report by PricewaterhouseCoopers, Marcopoto said the overall size of the global entertainment and media industry will grow from US$229 billion in 2004 to US$365 billion in 2008. The average 9.8 per cent annual growth rate is mainly driven by China and by the country's heavy investment in both communications and media infrastructure.

More specifically, the entertainment industry will see robust expansion across-the-board. China's Internet and broadband sector, for instance, had about 75 million Internet users and it is projected to soar to 260 million by 2008, which is roughly the size of the entire US population and among which are 75 million broadband users.

Satellite services, buoyed by new technology, are projected to more than double their current base of 30 million users in the next four years. Digital TV, booming in major Chinese cities, will have 30 million subscribers by 2008. Theme parks and video gaming, in vogue for the new generation, are also expected to undergo similar expansion in the near future.

Charles Chau Suk Poon, managing director of MTV Networks (North Asia), echoed these sentiments and pointed out that "although the media sector is still highly regulated in China, there is no signs of slowdown in our growth."

He said the country's media and entertainment market is estimated at US$18 billion in value in 2004, which represents about 1.5 to 2 per cent of China's more than US$1 trillion GDP. Of that, US$6 billion is related to media advertising, US$2.5 billion of which is TV advertising; and the remaining US$12 billion goes to direct consumer media and entertainment such as CDs and VCDs.

"Although China's overall economic size is still not among the largest in the world, with that size of market, it's not a small business for us at all," Chau says, adding the entertainment industry was actually acting as a creative economy.

As the company manages its business in Asia-Pacific area, the highest growth market is definitely China, Chau says. Using the company's experience for example, Chau says that MTV Networks, which entered China's market in 1996, have grown from one representative office to a 100-staff company with three major offices in Beijing, Shanghai and Guangzhou.

The company now has five TV programmes syndicated throughout China, including a 24-hour MTV programme in all foreign compounds and hotels.

Its revenue growth has maintained high double-digit annual growth for the past seven years, and is not showing any signs of growth slowing. Chau said that the company's revenue would be in the US$ eight-digit zone in 2005 and will become profitable early next year.

Disney, the US entertainment behemoth, is focusing its worldwide expansion on China as growth in the developed US market is expected to be limited, said Jun Tang, vice president of China Affairs, The Walt Disney Company.

"After rapid growth in the last 20 years, we expect the entertainment industry in the US and Europe will soon reach a developed point in its growth cycle," says Tang.

"We believe that future growth in this industry lies in developing markets, especially China."

Given China's 1.3 billion population, its entertainment industry could generate almost US$2 trillion in economic output if China reaches similar levels of entertainment penetration as seen in the US today. "So this potential represents enormous growth."

During the discussion yesterday, piracy was the most critical issue to be addressed for the healthy development of the media and entertainment industry in China, said all representatives.

China has developed a satisfactory system of copyright laws and is determined to protect intellectual property rights. However, more stringent enforcement of laws and education about intellectual property rights among Chinese people are needed to protect intellectual copyright owners and developers, says Walt Disney's Tang.

"It is not only important for foreign investors but also critical for the development of local Chinese media industry," Tang said.

Richard Denekamp, president of Sony Music (Asia) Inc shares similar thoughts. Just take the Karaoke industry for example, he said. China has more than 30,000 Karaoke houses and the sector involves about US$12 to 16 billion of royalty fees, but Sony Music gets few royalties from the sector.

Andrew Leung Chung Chu, chairman and executive director of ERA Information & Entertainment Ltd, says that piracy has always been a primary concern as his company suffers from piracy in China.

"My observation is that we have to be patient as Chinese government has beefed up efforts to crack down on piracy in recent years," Leung said, adding the issue will be addressed though at a very slow pace as it involves a lot of interests and economic issues at all government levels.

In addition to piracy, MTV Network's Chau says that a lack of talent in the country is the biggest challenge the company faces at this stage.

"In five years, we will grow to a 500-strong company. Whether China is able to sustain high internal growth, it is most important for us to attract and motivate people," he said.

But the country might not have sufficient entertainment professionals, because most of the people in this industry worked in government sectors and they have no experience in creating a tailor-made programme or managing entertainment companies.

Walt Disney's Jun Tang said that the challenge of entertainment talent might partly be attributed to the fact that the entertainment industry has rarely been treated as a real business in China. "How can we find talents in the sector if it is not a real business in the country?"

He said China has made a lot of effort to reform the entertainment industry in recent years such as liberalizing distribution channels, allowing Sino-foreign motion picture co-production and setting up joint ventures in renovating and building theaters.

Those are very positive steps, but the country has a long way to go in order to develop the entertainment industry into a vibrant sector, Tang says.

It is crucial that China must realize that entertainment is an industry and it should be managed a business in order to fully realize significant economic benefits.

For instance, China recently called on provincial TV broadcasters to set up children TV channels. This is the right move as 300 million children need quality programmes, but setting up 30-plus children's channels all at once is not market practice, Tang said.

"Mutually beneficial co-operation should be encouraged and facilitated between foreign companies, the Chinese Government and entrepreneurial community, to help China develop a healthy and robust domestic entertainment industry," he said.

Furthermore, the country has not yet established a national distribution system, and protectionism within the regions is still very strong.

"Nevertheless, we believe it is going to break and the above issues will be addressed, but it will not happen overnight," Tang and many representatives said.

Ted Sun, acting chief executive officer of Netease.com, pointed out that a lack of effective online payment was an obstacle for expanding Internet business such as video gaming and online auction in China.

He says that Chinese consumers are still not accustomed to using credit cards and Netease has to rely on the country's two mobile phone service providers to run its online business, which also explains why the company still has a large number of free online services.

Speaking about entertainment business in China, MTV Network's Chau says that focusing on key cities is vital.

China is a significant, huge market with more than 300 million TV households and 3,000 TV channels countrywide. "If you wish to set a firm foothold in the country quickly, focus on the tier one cities like Shanghai, Beijing and Guangzhou," he says.

He explains that television media groups in Beijing, Shanghai and Guangzhou combined snapped up US$1.7 billion, or nearly 70 per cent of total TV advertising spending last year.

Chau said "creating compelling content for local consumers is equally crucial in China as localization plays a key role for doing entertainment business."

MTV Networks now produces and shoots all of its five Chinese programmes "100 per cent locally in China."

"If we don't localize the programmes and they are only with Chinese titles, there is no success here," he said.

Tang said Disney always attached high importance to local flavour and introduced shows in a way Chinese audience accepts.

 

 
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