In recent months, thousands of people in China’s north-east have signed up for TV services brought to their homes not by terrestrial broadcasts or cable networks, but through their telephone lines.

Such enthusiasm for “Internet Protocol Television”, or IPTV, is good news for service provider Shanghai Media Group, China’s second-largest broadcaster, and for its youthful president, Li Ruigang.

Since his appointment three years ago, Mr Li has laboured to reduce SMG’s dependence on advertising and to challenge Beijing-controlled China Central Television’s status as the country’s only truly national TV company.

“If I want to win greater coverage and more market share, I need to find new technology platforms,” Mr Li says. “IPTV can help me to start developing my business all around the country.”

Mr Li is far from being the only executive excited about using IPTV to deliver regular programmes, video-on-demand and services ranging from games to karaoke to China’s 400m TV sets.

Powerful operators China Telecom and China Netcom are equally eager to add media arms to their lucrative regional fixed-line telephone monopolies. And Shanda Interactive Entertainment, the Nasdaq-listed online games company, has put an IPTV-based set-top box at the heart of its ambitious plan to become “China’s Disney”.

But Mr Li has one key advantage: he holds the only IPTV licence so far issued by China’s State Administration of Radio, Film and Television (Sarft).

“We have spent a lot of time communicating with our regulators, making them understand how IPTV works and its significance for the future development of Chinese TV,” Mr Li says.

With Sarft apparently fending off challenges from other arms of government for control of IPTV regulation, the licence gives SMG a headstart in launching legitimate services.

Armed with it, Mr Li has hammered out deals with operators under which they will jointly offer IPTV services, with SMG not only supplying content but also involved in delivery.

In Harbin – the city in China’s north-east that is recovering from a toxic chemical spill that polluted the main river and left millions without water for five days – 40,000 subscribers signed up within six months for a Rmb60 ($7.40)-a-month service offered with China Netcom that has 73 channels and individualised content. At a stroke, SMG has won an audience outside its Shanghai heartland.

However, it is still too early to anoint Mr Li, 36, as the king of Chinese IPTV.

The former TV producer is quick to admit that expansion will need lots of hard negotiations with the telecoms companies and that pushing TV signals down their ADSL lines remains technically challenging.

Novelty value has helped drive subscriber growth in Harbin, he says, suggesting it might be hard to sustain. And even though SMG favours relatively low-cost set-top boxes, IPTV is expensive compared with standard cable services that offer scores of channels for less than Rmb15 a month.

IPTV services will soon also face competition from digital cable services being introduced as part of a radical overhaul of TV broadcasting.

Many internet websites – including SMG’s – already offer video content, and the “convergence” of electronic devices will make it increasingly easy for viewers to watch such programming on their TVs as well as their PCs.

And even if it is some time before other IPTV licences are issued, some of SMG’s rivals seem ready to move even before winning regulatory approval.

Shanda recently quietly began trial sales of a high-priced set-top box in eastern China. And local representatives of China Telecom in Harbin say it has been running its own IPTV service in the city for months, without any involvement by SMG.

For the broadcaster, the key to success will lie largely in the content it offers. However, regulators determined to protect “national cultural security” are reluctant to ease import quotas that make it much harder for SMG to schedule new films or TV shows than it is for pirates to sell them as DVDs on the streets of every Chinese city.

Still, Mr Li is far from dismayed by such challenges. “We have already faced a lot of difficulties,” he says. “But I still have very great confidence in the potential of the Chinese IPTV market.”

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