August 29, 2005
Media Executives Court China, but Still Run Into Obstacles
By GERALDINE FABRIKANT
In June, Yu Youjun, the executive deputy governor of Hunan Province, came to lunch accompanied by 16 dignitaries at the home in Beverly Hills of Sumner M. Redstone, the Viacom chairman.
Viacom, like many other American media companies, is already active in China. Its MTV network is carried in 10 million homes in Guangdong Province. Two-hour blocks of Nickelodeon programming like “CatDog” and “Wild Thornberries” are beamed on the government-run CCTV to more than 120 million homes.
Over a meal prepared by Wolfgang Puck, Mr. Redstone and Mr. Yu, who had requested the meeting, discussed co-productions by MTV International and Chinese companies, Mr. Redstone recalled.
“He talked about comedy and dramatic mini-series for Chinese audiences and even brought up the possibility of a theme park,” Mr. Redstone said.
But the long-held optimism of Western media companies about venturing into the Chinese market has suffered several setbacks recently. At the beginning of the month, as part of an effort to tighten control over cultural products, China’s Propaganda Department, the Ministry of Culture and four other regulators published new rules that further restricted what foreign filmmakers and television companies can do in China. Last week, the News Corporation’s plan for a new television channel to be co-owned with a Chinese company was quashed by the government.
Yesterday, Time magazine reported on its Web site that the News Corporation had circumvented Chinese rules by distributing programming, including the National Geographic Channel and an MTV-style music channel, to local cable companies without getting government permission. The report, which quotes a former News Corporation employee named Jiang Hua, said the company received money from several Chinese cable operators through a shell company, Beijing Hotkey Internet.
It is not known whether those accusations have anything to do with the breakdown of the programming deal. A News Corporation spokesman declined to comment on the matter yesterday.
A larger question facing Western media companies is how long the newly tightened restrictions will hold. Pessimists in media organizations worry whether the latest crackdown reflects a longer-term shift under a more cautious Chinese president, Hu Jintao. Optimists suggest that the recent moves are just the latest in a long series of episodic, sometimes short-lived efforts by the Chinese Communist Party to preserve social control.
Over the longer term, access to the China media is crucial to American companies like Time Warner and Walt Disney, in addition to Viacom and the News Corporation. Growth at these giant conglomerates has slowed and their stock prices have been under pressure. If they can export their feature films, cable and TV programs, or even co-produce new shows with Chinese companies, the returns could be substantial.
“I don’t think China will become a significant part of our growth for three to five years,” a top-level media executive said. “But the positioning we do now will be important for the future.”
Mr. Redstone, who is still awaiting final approval for a deal to make children’s programs with a Chinese production company in which Viacom would have an equity stake, expressed cautious optimism that over all, United States companies could continue to make progress in China.
“The Chinese government is more skeptical about American media companies,” he said, “but I have been going to China for eight years and I don’t think it will affect Viacom. In China, it is always two steps forward and one step back.”
Mr. Redstone is not alone in making visits to China to solidify relationships. Time Warner’s chairman, Richard D. Parsons, was recently in China, as was Disney’s president, Robert A. Iger. Rupert Murdoch, head of the News Corporation, has long courted Chinese government officials and is now married to a Chinese woman, Wendi Deng, who has played a role in negotiations there on the company’s behalf.
Several media executives pointed out that China is preparing for a notable event for its media market – the 2008 Olympics in Beijing – and for that reason cannot go backward for long. Among other benefits it may produce, the Olympics will generate a tremendous amount of advertising, and any cable networks that are already up and running could benefit substantially, according to several media experts.
For now, the focus of the recent restrictions has been on equity ownership of media properties in China, and less on the availability of American programs, although there are also restrictions on the number of American movies.
That may also explain why the Chinese put a stop to the News Corporation’s plan to develop a television channel where it held a 50 percent stake, although the programming would have been locally produced. A spokesman said that “the company’s Chinese presence is continuing to grow.” Currently, News Corporation holdings include a Mandarin-language entertainment channel, Xing Kong Wei Shi, and a minority stake in Phoenix Satellite Television Holdings, a publicly traded satellite TV company.
Even as government rules toughen, it would be difficult to slow the influx of American cultural influences. Cartoon characters owned by Disney are already popular in China. About 1,100 stores have Disney counters that sell merchandise based on notable Disney toys. Disney’s Mickey Mouse Magazine has strong sales in China and ABC, a Disney unit, has sold “Desperate Housewives” to Chinese television companies.
A handful of American feature films are distributed each year in China, where the appetite for films is growing. United States companies are exploring a wide variety of strategies for entering the Chinese market, including ventures with Chinese directors in which American stories are adapted to Chinese themes.
For a company like Viacom, the Chinese market is particularly attractive because it includes a growing middle class and a very young population.
Viacom has said that so far, MTV International, the parent company of MTV, Nickelodeon and other networks, is making a profit in China, although it did not disclose how much. The profit comes mostly from advertising sales, but also includes some affiliate fees. Viacom also distributes programming that appears on Chinese-owned networks.
As for its Paramount Pictures unit, the company said that it did make some money from the sale of television programming in China, but that the amount was not material.
For its part, Time Warner continues to invest in China’s movie theaters. It has completed 8 multiplexes, and has 12 more scheduled for completion by the end of next year.
Time Warner also has a minority stake in CETV, a 24-hour Chinese entertainment TV channel that is distributed over cable and satellite. It reaches 23 million homes across China. The majority stake is owned by the Tom Group, which is associated with Hutchinson Whampoa, the Hong Kong company controlled by the entrepreneur Li Ka-shing.
Perhaps the company with the biggest capital investment and the biggest opportunity for near-term results is Disney.
Hu Jintao’s early days as chairman of the Chinese Communist Party fostered a perception among some analysts that he might be more tolerant of a diversity of political views than his predecessor, Jiang Zemin, and that an early beneficiary could be Disney.
When pro-democracy protests shook Hong Kong in 2003 and 2004, Mr. Hu responded with a series of moves that made it much easier for Chinese citizens to obtain visas for Hong Kong, and by eliminating a requirement that most Chinese visitors to the territory travel in supervised groups. That could send throngs of tourists to Hong Kong Disneyland when it opens on Sept. 12.
And there is another factor that helps as well as hurts Western media companies in China: the thriving market in pirated television shows and movies. Another media executive, who did not want to be identified because of the delicate state of the company’s negotiations in China, said that “even if the Chinese tried to keep foreign cultural icons out, piracy would make them available.”
Keith Bradsher contributed reporting from Hong Kong for this article.