The entertainment and media industries in China, including music, radio, film, television, games, newspapers, magazines, and book publishing, in all of their varied forms.

Xinhua: Trying to Save a Dying Monopoly

In the Hutong
Listening to NPR
1816 hrs

The Associated Press is reporting that the Chinese government has announced a ban on the distribution of news by foreign news agencies in China, except through Xinhua News Agency, the government-controlled local newswire. What this basically means is that Reuters, AP, UPI, Bloomberg, Agence France-Presse, Kyodo, and others like them cannot sell news content directly to China’s newspapers, magazines, television stations and websites.

Inevitably, there will be a lot of deep contemplation about what is driving China’s “media crackdown” coming out in the media. This is to be expected – after all, there is nothing the media hates more than the specter of censorship. Apart from the ideological issues, it’s just plain bad for business.

Before we get into a gigantic ideological uproar about how gosh darned wrong censorship is, let’s cool the engines and take a long hard look at what is likely behind this latest announcement.

Deja Vu All Over Again

First, let’s get something straight: while the AP article calls these “new measures,” that’s only about half right. In truth, ever since Reuters signed an agreement with Xinhua back in the 1950s, it has been explicit policy – if not actual law – that all of China’s media outlets are required to go through Xinhua in order to obtain foreign wire service content, and that said wire services could only sell to Xinhua.

All fine and good, of course, until said wire services begin seeing that content showing up in places that a) they are not getting paid for, and b) that do not credit the wire services for their content – all in violation of the agreements Xinhua signed. Said wire services regularly remonstrate with Xinhua and the government, to little or no avail.

So one can understand why on occasion said wire services start doing separate direct deals with other media when the political climate seems to allow that. At some point, Xinhua starts seeing their revenue dropping as a result, and they run to someone very senior in the government or Party to complain, after which a notice goes out reminding everyone that Xinhua is their sole agent in China, and that they have to get back in line.

These sorts of things happen periodically lately. The last one I remember was 1999 or so, but likely it has happened since.

The important thing to remember, however, is that what has been reissued is little more that a reiteration/clarification/amplification of a policy that is already in place.

Hong Kong? Phooey…

What is different about this current policy is the release of news and information in Hong Kong and Taiwan. Setting aside for a moment the fact that enforcing this in Taiwan would be…um…problematic, enforcing this in Hong Kong would be a real challenge. Despite Beijing’s ostensible jurisdiction in the SAR, somebody in Hong Kong (probably the Legislative Council) is going to start bellowing about how this is in some way a fundamental violation of the Basic Law, and this will likely turn into something of a political hot potato.

That is without even going into the question of enforcement. Hong Kong’s notoriously independent and largely unaccountable tabloid-heavy press can be counted on to flip the bird at Beijing on any measure set to limit the sources of legitimate news they can use. Hong Kong has been something of a media free-fire zone – because of legacy issues, because of Beijing’s desire to have a petri-dish for free press, and because Hong Kong’s role as a center for the media industry in Asia has been very good for the SAR and, frankly for China.

Any serious enforcement of this provision (scenes of People’s Armed Police raiding the offices of Apple Daily) would kill the goose with the added gravy of a global uproar. STAR would probably stay, but I can see a caravan of aircraft leaving Hong Kong for Singapore carrying with them the people and accouterment of a dozen or so major news organizations, taking with them Hong Kong’s dying hopes of a future as a regional media hub.

(I really can’t wait to see what Simon writes about this. I’ll bet he’s apoplectic.)

So the Hong Kong thing is liable to wind up in the bin of Really Bad Ideas. This is a classic case of what I like to call “regulatory overreach,” when a regulator gets overzealous in the drafting of some measure or another and consequently finds itself in hot water with other parts of the government. The result is usually a quiet recision of the offending clauses, and I’d bet that’s what will happen here.

Follow the Money

So why is this all happening?

The Tea-Leaf readers will look at this, nod their heads sagely, and in hushed tones suggest that this is a part of Hu Jintao’s ongoing effort to deepen his hold over the media as he continues his soft purge of Jiang Zemin supporters left in government. That might be true in part, but as with most things in China, that is at best only part of the real reason (and possibly only a political fig-leaf for the action.)

In reality, I suspect this is as much about money as politics.

The Xinhua News Agency has for a long time been the owner of a dying business model. The agency’s power was its monopoly over wire service distribution in China, but its ability to retain this monopoly has been slowly weakening as China’s media organizations build political power of their own, and as the sheer number of media outlets grows. There are nearly 10,000 publications in China, and some of the parent organizations – The People’s Daily Group in Beijing, The Wenhui-Xinmin Group in Shanghai, China Central Television, and a host of others – no longer feel the need to work through middlemen, and have (they believe) the political air cover to build their own relationships.

Add this to the growing number of Chinese who get their news from online media (many of whom reprint foreign wire service stories from other Chinese publications), and Xinhua is watching it’s biggest cash cow waste away in a dry pasture. Despite Xinhua’s efforts to diversify its business (with the purchase of AFX last year, the rechristened Xinhua Financial News became China’s global newswire), the core business is still its role as a domestic news service, and the most valuable content it (re)sells is what comes in from overseas.

The current policy announcement is thus clearly a Xinhua gambit to regain its revenue stream. The political justification for the measure is mostly a red herring – any news organization in China legitimate enough to deal directly with Xinhua would run a politically sensitive story at its own risk anyway, and the informal sources for outside information available to the media are manifold. Xinhua’s role as a critical filter for sensitive information may have been viable in the past, but it is no longer.

The fact that this was directed at the newswires, and the bold stretch into Hong Kong (the Taiwan thing was also a diversion) together suggest that the primary driver behind this is Xinhua’s revenue stream.

Back to the Smoky Room

When you look at the broader scope of media regulations that have been promulgated over the last 17 months in China, it is fair to say that the primary concern driving the overall direction of media policy in China has been a concern for maintaining political stability.

But in some cases, it is not the only – or even the primary – driver. As is the case with so many policies in China, the drivers are often diverse and complex, and it is not uncommon for entities with both commercial interests and a political mission to jump on a broader policy trend for its own material gain. The media is one sector where these sorts of things happen with regularity, but it is not alone.

To view these moves purely in their political context makes good reading, but when you understand the more subtle and complex motives at play you find opportunities to address the challenges. I suspect that the wire services will wring their hands publicly about this for a while, then get down to the quiet business of finding a way to keep Xinhua happy while keeping their own businesses growing.

Update – A sharp-eyed reader notes that according to an article in the China Daily, the rules would in fact only apply to a Hong Kong or Taiwan wire service operating in China and would only cover the distribution of wire-service copy and photos in the PRC. The same reader suggests that this is a bit redundant, as mainland media doesn’t carry much content from HK news outlets anyway. Clearly, then, the concern is over Taiwan-based newswire services.

That makes MUCH more sense than a play to try to control media in Hong Kong

Update – The AP article linked above was kindly replaced by the WSJ with a much deeper piece by Andrew Browne that echoes our key point above – this is a commercial play by Xinhua, pure and simple. Andrew also noted that this is actually a step backwards in policy, since Xinhua has been quietly allowing foreign newswires direct access to Chinese media outlets since the WTO talks in 2001. Andrew should know – he ran Reuters in Beijing during the late ‘90s and into 2000.

Of course, the nice thing about a policy (as opposed to, say, a statute) is that it’s just like an oral agreement – not worth the paper it’s written on. (With apologies to Samuel Goldwyn.)

Clarification – An eagle-eyed fellow blogger reminds me that Xinhua did not buy AFX but made a small minority investment in XFN, which in turn owns AFX and Market News International, and is editorially independent from its shareholders. Apologies to all for that – I’ll do a Google search next time.

And We Think Media are Bad in China…

In the Hutong
Packing up the Office for The Grand Renovation
1639 hrs.

The coverage on the Katie Couric debut as anchor on the CBS Evening News should embarrass every medium (apart from CBS) that covered it like a big story over the last three months.

Credit CBS for creating a reality-distortion field around Ms. Couric that gave her debut as a prime time news anchor the importance of a major global event.

Too bad Miss Katie’s actual debut is turning into an anti-climax.

Here is the awful truth: slotting an overage cheerleader onto the evening news anchor slot at a declining network in a declining medium amounts to way too little, way too late. CBS News continues to exist on a life support system made up of its past (not insubstantial) glories. It can become the Tiffany Network again, but by giving its correspondents a bigger role, not by blowing its limited lucre on a talking head regardless of sex.

It’s the news. She’s a girl. Get over it.

Why Printed Phone Books are a Non-Starter in China

In the Hutong
Sorting through piles of paper
1449 hrs.

When I was a kid growing up, our idea of a really crude ethnic joke involved China and phone directories.

“Hey, how come there are Chinese phone books?”

“I dunno. Why?”

“Well, cause, there are so many Wings and Wongs that you’re liable to Wing the Wong number.”

Politically incorrect? Certainly. Juvenile? Absolutely? Is there a grain of truth here? Damn straight.

In fact, one of the things that kills the prospects for phone books in China is that, with only around 100 or so surnames, looking up a person by his or her name in the directory for a modest sized city (not to mention a place like Beijing) would likely give you a less-than-even chance of getting the right person on the first try. Add this to the problem that only a small percentage of China’s homes have a phone, and that most of us use mobile phones (where numbers can change every couple of years), and the value to the consumer of a white pages director is questionable.

And for your environmentalists out there – yes, the thought of circulating 125 million additional slabs of pulp every year must indeed cause you palpitations.

The problem is that the need for both a yellow pages and a white pages is growing as the number of phone users grows and small businesses grow. The logical answer is something electronic, and something that allows us to go beyond the simple listing paradigm.

Lyn Jeffery at Virtual China, a project of the Institute for the Future, calls our attention to the Xuntu digital map site and hints (but doesn’t quite say) that listing services are about to get a whole lot smarter, and the logical interface is not a ten-pound wad of paper but the mobile handset. Xuntu is actually a good start, but it needs to go further. We need listings that are comprehensive, geographically based, and subject to more advanced searching.

You’re looking for Mr. Wang. You know he lives in the Chaoyang District outside of 3rd Ring Road, and you know he’s a carpenter by trade. You should be able to input those facts in a search and come up with a narrower list than a normal white pages would give you. It should give fixed line, fax, and mobile listings, and you should be able to download a v-card. All of this would happen with a subscription.

For businesses, you should be able to call up a given area and get a complete listing of businesses by name, by type, or by proximity to you. You wouldn’t have to pay for a thing – advertising would support the entire effort.

This is not rocket science – it’s all doable now. However I think Lyn is right – we’ll probably need to wait for the operators to make a huge investment in 3G before they’re ready to think this creatively.

If they can’t get off their tails, though, this is a superb opportunity for a well-capitalized wireless value-added service provider.

Who Banned Roger Rabbit?

In the Hutong
Enjoying Local Cooling amidst the Global Warming
1123 hrs

The State Administration for Radio, Film, and Television (SARFT) has apparently issued an internal notice to television stations around the country that TV stations will be prohibited from showing foreign cartoons during prime hours of 58pm. I say “apparently” because there is nothing on SARFT’s website about this, and it was apparently a tip from Guizhou TV to Wang Shanshan at China Daily that has allowed us to find out about it at all.

We Make It Up On Volume

The move is the latest effort by SARFT to attempt to buoy China’s own struggling animation industry, an effort that in the past has seen the regulator:

• Require all foreign animated programs to receive SARFT approval prior to broadcast;

• Compel TV stations to use local animation for at least 40% of their animated fare; and

• Build 15 animation incubators around the country.

The net result has been a lot more animation, but by no means better animation. Even China Daily hints at the real problem:

“After all it is creativity, rather than money, that has been lacking in animation in China,” said Xu Jiang, president of the China Academy of Art in Hangzhou, capital of East China’s Zhejiang Province, where dozens of animation production studios have been set up in recent years.

Produced in large quantities, domestic cartoons are sometimes sold at less than 1 per cent of their cost, according to the Xinhua News Agency.

Many local television stations are only willing to pay around 10 yuan (US$1.25) per minute for domestic animation, while buying foreign animations, like Japan’s “Slam Dunk,” for as much as 5,000 yuan (US$625) per minute, said the Xinhua report.

Domestic animations have to first of all become interesting if they are to be popular, according to Yang Yunxia, a Beijing fashion analyst with a four-year-old daughter. “Children are not going to fall in love with something simply because they have no other options,” she said.

Right. Let’s cut to the chase: most Chinese animated content sucks to the point that even kids won’t watch it.

This Is Why They Built Hollywood So Far From Washington

All of that government-driven effort, and all it has done is manage to crank out larger and larger quantities of dreck. It reminds me of looking out the back window in a friend’s apartment in Guangzhou in the early 1990s and seeing a field filled with Peugeot cars nobody wanted to buy. Or of driving past empty lots in Liaoning filled with steel beams of such abysmal quality that the mills couldn’t give them away.

Fast forward, and we’re now at a point where that same factory in Guangzhou is turning out Honda Accords that are rated higher in quality than the Accords coming out of Honda’s plant in Japan (I know – I own one) and China’s steel industry is turning out steel of sufficient quality to be used in automobile panels.

This didn’t happen because of government sponsored programs any more than China’s animation industry will be saved by neo-protectionism and subsidies.

IF the policy makers responsible for the health of the domestic animation industry in China are REALLY concerned about the domestic animation industry (as opposed to, say, being focused solely on securing their sinecures), they’ll recognize that finding ways to drive foreign investment and expertise into the industry are all that can save it at this point.

Who Needs Broadcast?

Something the nabobs have apparently forgotten is that broadcast television is by no means the only way kids can get their hands on foreign (read “decent”) animated content. In fact, for China’s urban kids, it’s probably the least favored of all possible ways of doing so.

Nearly any kid in a major city can get his or her hands on pirated DVDs of almost any animated film and a lot of television content. A growing number of them can get their fix online.

And more and more kids with computers are wandering away from the TV to the more engaging world of either games or other interactive content. Granted, this is a tiny percentage of the audience, but this is also the golden demographic that advertisers want to reach – China’s yuppie puppies.

SARFT may well try to squeeze IPTV and mobile TV, but it will be more difficult for them to do so as these outlets look to be primarily on-demand driven channels. It would take an outright ban on foreign content for keep these new channels from becoming a new way to watch foreign animation, and I’m not sure that SARFT is ready to fight the combined power of the broadcasters, the telcos, and the MII on this issue.

That’s All, Folks

The result will be the same. Instead of creating new markets for Chinese animation, SARFT will wind up chasing kids away or turning them off completely and in the meantime subsidizing a local industry that is incapable of creating content worthy of watching.

China’s broadcasters, who have typically taken the brown end of the stick with these policies, are the ones who will suffer the most. They will lose young viewers now and fail to establish television as a “must imbibe” medium for a critical demographic, hastening the decline of broadcast TV and, frankly, weakening a medium upon which the government relies to help maintain order.

Just a thought – how long is the Party prepared to countenance an industrial policy that weakens the very industry it is supposed to strengthen and at the same time loosens the Party’s grip on the nation?

The Last Word

Professor Liu Jun at the Beijing Film Academy is quoted by the China Daily as having told an industry gathering last year that “the development of the domestic animation industry is important for preserving ancient Chinese civilization because children and teenagers are supposed to learn traditional values from their favourite TV programs.”

I really hope Professor Liu has an exaggerated opinion of the importance of animation to your average Chinese kid. I can only hope he’s incredibly out of touch with reality.

Because if he’s not, and Chinese society has declined to a point where the nation is relying on cartoons to deliver traditional values, then the fault lies not with Mickey Mouse, Bugs Bunny, Pikachu or the Justice League, but with the parents, educators, and leaders who have failed in their duty to pass traditional values onto their children.

Killing Karaoke

Camped out in Beverly Hills
Typing in the dark as the troops sleep
2305 hrs.
No, We Don’t Take Requests

Karaoke used to be cool.

I’m talking 18 years ago when I was a furniture buyer for a U.S. importer living in Taiwan, Karaoke was a fun, exciting way to spend an evening, whether there were hostesses sitting with you and forcing you to drink overpriced brandy or not. What the hell – I wasn’t paying. Doing this was part of my job.

Then when I was working for a hot sportswear startup in the Mainland in the early 1990s, Karaoke was still cool. We’d sing everything from old Carpenters songs to Taiwanese pop to Cantopop to Cultural Revolution songs. And it was cool, and I got to be the singing monkey after a while, able to do the tough songs and the duets all in Chinese.

Then, when I was courting my wife and she took me out to dinner with her family, where she sang me love songs and her mother (an accomplished professional soprano) would sing songs from “The Red Detatchment of Women,” Karaoke was cool.

But then, I don’t know how, or exactly when, it just got old.

Maybe because sometime after 1995 we all started getting down to business and stopped going. Maybe because there were more choices of things to do after dinner. The last time I remember getting dragged out to Karaoke was by a vendor for the company I was working for in 1997 down in Hong Kong. Whatever it was, when I walked out of China-Hong Kong City that night (for the record, I left alone), I was relieved the evening was over.

Apart from the occasional humiliation at company parties or at home (for reasons unbeknownst to me, they always ask me to do my rendition of “La Bamba”), I’ve since avoided Karaoke, and I think I’m better for it.

I get the feeling a lot of my contemporaries feel the same. So when the central government starts talking about censoring Karaoke song selections, I don’t get all huffy about censorship – I merely breathe a sigh of relief. I know that over time fewer and fewer of my repasts will be disturbed by some half-drunk office manager warbling a sap-oozing ballad in a completely new key.

Electric Euthanasia

None of this is to say Karaoke will die. As tired as I and many others may be of Karaoke, it’s success is based on that least logical of beliefs that plague so many of us – that we actually sing better than others give us credit for, at least to ourselves, and we all want to be rock stars.

Karoke will morph. By restricting the songs that can be commercially played in Karaoke bars, the Chinese government is basically doing to those establishments what it has long done to cinemas – ensuring that the publicly delivered content is so bland that no official could ever get in trouble for allowing it to be played, and very few people see the point of paying for it. The results will be the same – Karaoke, like the movies, is being driven into the home.

Think of the trends that point to this:

1. The boom in the housing market that is moving a growing proportion of Chinese into homes that are actually suitable for entertaining guests.

2. The growth of digital home entertainment systems.

3. The explosion in downloadable content.

Want to Karaoke to whatever song you want? Set up your home system, download the file with your handset or your PC (or buy black-market Karaoke content from the guy who sells you pirated DVDs), and you’re off. Much more fun, much cheaper (in the long run), and far more flexible. Indeed, you don’t even need an expensive setup – within a year, you’ll be able to do it all on a mobile phone with an external pair of speakers.

The point is, all the new regulations will do is speed a process that is already taking place. This is anothe nail in the coffin of Karaoke as we know it, and a big step toward Karaoke becoming a pastime enjoyed in private.

Will Competition Save WVAS Providers in China?

Sleepless on the Kohala Coast
0200 hrs
The elusive but erudite Perry Wu makes the case in this weeks Tech Market Watch on China Tech News that Chinese wireless value added service (WVAS) companies would be better off selling soybeans than services. He has a fair point, one that I’ve repeated regularly: the companies providing value added services to mobile customers in China via China Mobile or China Unicom are at the mercy of the operators, who can change contract terms at any time, dump providers, or simply squeeze them out of business by dropping their margins to zero, failing to pay on time, arguing about usage numbers, or launching competing services.

Perry is right about that. Being a WVAS provider in China is basically a license to be stolen from.

Where I fear Perry may be wrong, though, is that he sees no way out of the quagmire. He sees WVAS providers as dinosaurs after the meteor impact: the Great Die-Out is coming.

There are, in fact, two things that, when taken together, can save the WVAS players. It won’t work for all of them, but it will allow them to continue to exist, consolidate, and build independent, profitable businesses, which is a good thing for reasons I’ll go into below.

It Takes More Than Two, Baby

Part of the problem is that there are only two mobile operators in China, one of which is so large (China Mobile) that the only reason it doesn’t sit on the other (China Unicom) and crush it out of existence is the old saying “better the devil you know than the devil you don’t.” China Unicom makes it possible for China Mobile to swear with deepest sincerity that it is NOT a monopoly. (The same reason, IMHO, that Bill Gates invested in Apple back in 1997 – he couldn’t afford NOT to have a credible commercial competitor.)

But as we rot hover on the brink of a decision about the granting of third generation mobile licenses in China, it seems possible, if not likely, that there will be at least one and possibly two more wireless mobile providers within a year two years in the not terribly distant future. Assuming the WVAS can hold on that long (and surely the better financed of them will), they will be in a much improved position at the bargaining table.

The investments and technical challenges implicit in a 3G rollout, not to mention the pressure of intensified competition, are likely to compel operators to focus their resources on building and running the network, not creating mobile media and services. It will also put pressure on the operators to offer more (if not better) services to match those of the competition. If competition is healthy, it will be good for the WVAS providers.

The problem, of course, is the MII’s studied indifference to committing to 3G licenses in the first place. This is not good news for the WVAS providers who have the smaller bank accounts – they are less able to wait out the bureaucrats (actually, the resolution of TD-SCDMA’s technical problems) and thus at somewhat greater risk than their better capitalized cousins who are supported by other healthy businesses.

I Want My KongZhong

Operator competition alone won’t be enough, although it is a necessary prerequisite. What really can save the WVAS’ pastrami is the users themselves. But the providers have to make that happen.

You see, the one thing none of these providers have done is create services with such power among consumers that users will insist on or indeed expect them to be available regardless and wouldn’t think of buying a phone without one. I’m not talking about generic services like SMS or WAP, but about services that have unique content that is elegantly delivered to targeted users that have (or create) deep connection and meaning with users.

(See? I never used “brand” once in that paragraph. And I’m better for it. Am I the only marketer on the planet who believes the word “brand” should be expunged from any credible business document?)

Back in the early days of cable TV, people went looking for the news channel, the movie channel, the sports channel, the public access channel. Whatever. Our movie channel in West Los Angeles was The “Z” Channel, so named because the channels on the selector box were all assigned letters of the alphabet, and under the letter Z was the channel with the movies.

But not long into the 1970s a bunch of young hotshots came up with a movie channel that they called “Home Box Office.” What made Home Box Office great was not its brand or its name, but the fact that the movies were better, the channel was better produced, and they really seemed to get why people liked movies. HBO became a “brand” because of these things, and now no self-respecting cable operator on the planet outside of the PRC would dare NOT offer HBO as a premium service.

What the WVAS providers need to do is to create their HBOs, their MTVs, their CNNs, their Discovery Channels. They need to create services that are so good and engender such passionate following no operator would dare leave it off of the menu.

Can they do it? I have my doubts. Leaving aside the issue of requisite skills and access to content, many of the WVAS providers are small and can’t afford the investment in development and marketing that building services with deep customer affinity would require. Even the ones that could afford the effort would require such a leap in skill and imagination as to make it difficult to imagine. But if, out of all of the competitors even a single provider manages to make the leap, it will change the game.

The really smart ones will not try to go it alone. They’ll hook up with partners that already have deep consumer affinity in their own rights and need help creating a mobile offering. Creating such unions among providers and partners willing to experiment a little to get the mix just right seems right now to be the best way forward, if not the only way.

It’s Either Wolf’s Way or Wu’s Highway

But here’s the point: they have to try. Because failure to try to build a service that brings the indisputable power of user demand to the bargaining table will effectively consign the entire sector to the recycling bin.

The clock is ticking. Every day these companies hold off on making the investment to build truly powerful mobile media properties brings them closer to the end.

Frankly, deep down in places we don’t like to talk about at parties, we NEED the independent WVAS providers. The operators have demonstrated genuinely world-class network planning, rollout, and management skills. They have been embarrassingly bad at the softer side of the business, and it doesn’t look like they’re getting any better.

If no compelling services, created by companies who are really good at such things, actually emerge over the next 24 months, 3G is doomed in China as anything more than a device to get more voice calls onto less bandwidth, and the mobile carriers will be watching their ARPUs fall through the basement as they struggle to grow among the bottom 2/3 of China’s income pyramid.

In a nation where mobile phones offer the power of the Internet to people who will never be able to afford a computer, and the promise of greater connectivity to the people who drive China’s global competitiveness, such an outcome would be a serious shame.

I’m rooting for the WVAS providers.

I only hope they wake up in time.

Nokia, SARFT, The Next Standards Battle, and the Future of a Medium

Camp Silicon Hutong
Somewhere on the Kohala Coast
0017 hrs

Nokia has been tossing a press release of sorts around China announcing that they are bringing DVB-H, the mobile television standard most favored by The Boys from Espoo, to China to test. They even have a single model of a phone that can actually use that standard for the eyebrow-raising price of RMB 6,000.

Welcome, DVB-H and Nokia. Glad you could join the party, especially since QUALCOMM has been here testing MediaFlo for at least two years, and the local team has managed to modify their Digital Multimedia Broadcast standard (DMB – I know, not the smartest acronym around, but go figure) to include wireless handheld devices.

If it has taken this long for Nokia to start testing, something is seriously wrong, especially since the word coming from the west end of Chang’an Avenue is that SARFT is about to crown DMB-T/H [grin] as the standard of choice for China. Nokia is basically showing up at the 11th hour.

Frankly, I think something much bigger is going on.

Gunfight at the T.V. Corral

Word around the campfire in Beijing is that China Mobile and China Unicom have actually been testing all of the standards for some time. What makes this particular standard decision different than, say, the decision on what 3G standard to use or what frequency allocation each standard will get is that this decision will NOT be made by the Ministry of Information Industries, or MII, the regulatory entity that oversees the telecommunications industry.

For complex political reasons I won’t go into here, the decision will be made by the State Administration for Radio, Film, and Television, or SARFT, because mobile television is seen by many senior government officials and Party cadres as a broadcast medium and thus under SARFT’s purview.

Now, I suspect the mobile handset manufacturing industry in China would like to see DVB-H or MediaFlo win, certainly not because of any deep love of either Nokia or QUALCOMM, but because these are international standards and phones made to use these standards are thus sellable overseas. If China can build a healthy market in DVB-H or MediaFlo phones, there are waiting markets overseas and the Chinese manufacturers would have enough economies of scale at home to be competitive abroad. In theory, at any rate. For carriers, the equipment is tested, in commercial use, and reliable, and thus good for business.

SARFT, on the other hand, likely favors the DMB standard because it has been reviewing it for terrestrial television broadcasts for some time, because it is a local standard (thus providing SARFT an opportunity to show its own overseers how it supports local innovation) and, frankly, because deep down inside they know that selecting it will cause a few cases of indigestion over at the MII.

Nokia – and the carriers – all know this. And it doesn’t make any of them very happy.

“Doc, Wyatt and I are Going to Check on the Horses. Wanna Come?”

So here is what I think is happening:

• The testing – from a technical standpoint, is done. That’s not what this is really about.

• Nokia applies for permission from SARFT for a test network, with a view of doing the test with (in all likelihood) China Mobile. SARFT won’t want to do it, but China Mobile will push very hard both at SARFT and the State Council to get Nokia permission, on the grounds that DVB-H deserves more than just a lab test.

• With such a test approved, it gets harder for SARFT to make an immediate decision about a standard. After all, testing is still taking place, right?

• The Test Network will be a “test” in name only. What it probably will be is a full commercial rollout in a limited geographic area. (After all, why announce a retail price for a handset if you’re just “testing” the network?) SARFT can’t cry foul on this because SARFT and entities under it use the “commercial test” method for technologies in television as well.

• Once the Test Network is up and running with customers paying for service, it gives the MII, China Mobile, and Nokia an opportunity to have greater influence in the final decision about a standard, and in the process of appealing SARFT’s selection at higher levels of government, like the NDRC or the State Council.

If this is the case (and mind you, I’m speculating here), Nokia is playing a dangerous game. It is not wise to interpose yourself between giants, and especially between organizations like the MII and SARFT. By fronting for its patrons in China, Nokia may well make itself some powerful entities. In a place where memories are long, the structure of the government is still evolving, and officials bounce around on a regular basis, that’s asking for trouble.

If I’m wrong, if there is nothing more to this than in the current release and Nokia is truly appealing to SARFT on its own behalf, then Nokia is far less China-savvy than even I had thought. Apart from the fact that this request should have been made a long time ago, it should have come from a local company, not a foreign enterprise. That would have made it much harder for SARFT to say no, and it would have put DVB-H on a more balanced footing with DMB.

Nokia’s China people know this. And that’s why this all seems so strange.

The Shots Heard Round The World

While seemingly esoteric, this fight has a profound importance that transcends the realm of the propeller-heads in the mobile phone business.

Sometime over the last year, something quite amazing happened. In the largest television market on the planet, with over 350 million TV households, the number of mobile phone subscribers surpassed the number of homes with televisions. At the same time, quietly, a small cottage industry has been growing around delivering both general and highly targeted marketing to multimedia-enabled mobile devices.

Meanwhile, a growing number of very large advertisers in China – and their agencies – are losing their patience with the rising advertising rates and the falling returns on spot television ads on Chinese television. They’re unhappy with having to fight harder for better air time, with the TV industry’s continued inability to deliver a ratings system anyone could swear by, and with growing evidence that Chinese are spending less time watching broadcast TV and more time on their computers and on the go.

The more visionary of those advertisers and agencies are taking a long, hard look at mobile TV (MoTV), China’s increasingly mobile population, and the ability to get more and more meaningful viewer information and feedback through mobile. This, understandably, worries the folks in the TV business. Even if they wind up supplying the content to mobile TV, they’re going to have to share their ad revenues with the carriers, and they’ll at best be in a weakened position when it comes to setting their rates.

We’re talking about potentially millions and eventually billions of RMB moving out of broadcast TV and into MoTV, more than enough to support the medium and to use China to make a global case for MoTV.

If a decision is made by SARFT – or someone who could override SARFT – to select a standard that is market-ready (like DVB-H or MediaFlo), MoTV could become a reality quite quickly, meaning that the shift of dollars would start taking place comparatively soon. If the decision was made to go with DMB – which still needs development work before it is commercially ready – the market would require many more years before MoTV became more than a blip for advertisers.

What is at stake, then, is the future shape of the Chinese Media Environment, and the flow of millions if not billions of U.S. dollars, completely disregarding any monies to be earned by royalties on technology, which could also run into nine or ten figures.

That’s a high stakes fight. And The Boys From Espoo are now squarely in the middle of it.

Good luck, Nokia. You’ll need it.

Musings on Cinema Sinica: Ending the Director-Centric Culture of Chollywood

The Silicon Hutong Corner
Starbucks China World Trade Centre
1355 hrs.

Over the last year, not a month has gone by when someone serious is not asking me about the future of Chinese cinema, and what is keeping the increasingly fecund industry from serious global commercial success.

There are a lot of reasons, but part of the reason I think is this rather illogical fascination with directors. Now, don’t get me wrong, directors are important. They are the guys who take a script, a slab of cash, and a bunch of people (cast and crew) they may or may not have had a lot of say about and are left with the task of turning it all into magic. Despite the relative power a director wields, the responsibility is immense.

But observers of Chinese cinema have developed this fascination about the director that borders on the obsessive, engaging in pseudo-esoteric discussions about comparative styles, the evolution of Chinese direction from one “generation” of directors to the next, etc.

Which is all fine, except that this focus on the director-as-artist-in-celluloid has led to a growing profusion of films that are…well…a tad self-indulgent.

Which is also fine, except when people don’t go to see those films (because they’re arty-farty, neo-Gallic, and not appealing to the masses who want escape for their money) and the government’s reaction is to slap restrictions on the foreign films because they’re being told that the foreigners are absorbing all the loose change in the market and not leaving anything for the locals.

Steve Schwankert (formerly Variety‘s man in Beijing, now AdAge’s man in Beijing) was talking to me today about how much he’s looking forward to seeing Pirates of the Caribbean: Dead Man’s Chest after watching the trailer.

“[Producer Jerry] Bruckheimer is great at saying ‘we’re going to do this, it’s going to be lots of fun, and we’re going to make scads of money,” noted the Schwank. “I don’t want to see a movie that the director was hot for. I want him to make a movie that I’m hot for.”

Chinese directors, please note Steve’s formula for cinema success (and another Steve’s formula for computer and consumer electronics success): start with the user experience you want to deliver, then do the industrial design, then figure out the nuts and bolts. Because if you do that, you’re totally focused on pleasing the audience, not “creating a vision” or “making a statement” or “composing an opus.”

You want to make a picture that is any of these things, then fine. Take it to film festivals, win your trophies, sell it to Fox 2000, and run out the DVD and listen to the respectful way film school professors talk about your work.

But don’t do it and expect millions of Chinese to flock to the theaters to watch.

And really – don’t sit down, as some of you do, with the senior officials from the film bureau or SARFT or the Party Publicity Committee or the State Council Information Office and blame your non-performance at the box office on the foreigners. Get off your posterior and make flicks the Chinese people will flock to watch.

If you’re half as good as your press coverage suggests you are (and I give you the benefit of the doubt – China produces some excellent directors), you can kick Hollywood’s ass for less money than they spend on so-called “low budget” flicks.

And for us cinemaniacs, it’s high time to take the limelight off of the directors and start understanding that there are other human ingredients in a successful film, and figuring out who those folks are and calling attention to them. Who are the great producers? The great screenwriters? The brilliant cinematographers, art directors, costume designers?

Because the idea that a director does it alone is a myth. The great directors, from Speilberg on down, all have a chosen coterie of craftspeople they work with on every film, because they know that they need the whole team to make them great.

China’s directors – regardless of generation – would be well advised to emulate that, and to encourage (and compensate) great craftspeople, and if they can’t find them in China, bring them in from Hollywood to teach their craft to the locals.

Microsoft’s Set-Top Legacy

ARTICLE: “Bill Gates’ Legacy: Microsoft’s Top 10 Flops,”by Mary Jo Foley, Microsoft Watch, July 16, 2006

We are bombarded with bad news (or good news, depending on your viewpoint) pouring out of Redmond these days. Gates is leaving. Ballmer is staying. The executive suite is emptying. The stock price is falling. VISTA is delayed. Office 2007 is delayed.

As such, it seems almost gratuitous to call to the attention of the world the failures of the world’s software giant. Mary Jo Foley, who makes a good living watching Microsoft, points out that some of Gates’ most visionary efforts have fallen on their faces.

One that she missed was Microsoft Venus, the China-only set-top-box that was going to enable millions of Chinese who had TVs but not PCs to use their televisions to get online. This was one of those ideas that looked really good on paper, but that clearly wasn’t subjected to the kind of critical thinking that should have killed it before it grew.

Microsoft managed to drum up support from Beijing, Shanghai, and Guangzhou, whose city governments offered to cut Internet access fees by 50% for Venus users. Over 30 Chinese companies jumped onto the bandwagon, starting development efforts, including Lenovo (then still called “Legend”) and TCL, who were supposed to have products out by January 2000.

The product died an ignominious death less than a year later, never having made it out of the lab. The high cost of the units (RMB 3,000 apiece), the fact that using them preempted watching TV, the problem with screen resolution that killed WebTV, and political opposition from groups within and around the State Administration for Radio, Film and Television (SARFT) and the Ministry of Information Industries (MII) all contributed. In the end, however, what slaughtered Venus was Microsoft’s failure to understand the sheer scale of the task of creating an ecosystem that would support it. Venus wasn’t too hard for Microsoft. China was.

Interesting. They seem to be figuring China out. Too bad about the software.

I Smell Something, and It is Not the Kampongs

The Silicon Hutong Suite
Royal Orchid Sheraton Bangkok
0915 hrs local

So, interesting news yesterday and today about His Global Diggerness Rupert Murdoch chatting with his old buddies at Phoenix about maybe, just maybe, dumping his shareholdings.

And then another interesting piece about Edward Tian possibly leaving China Netcom.

Okay, I know we’re still in rumor phase here, but let’s do some addition:

1. In September, Rupert tells an assembled crowd of industry people in New York that he’s hit a wall in China, following SARFT’s issuance of a series of circulars last summer that basically reminded all and sundry foreigners that they can’t do business in China the way they want to.

2. Not long later, in an unrelated move, Rupert signals his growing appreciation for things Online when he turns up the highest bidder for, a Web 2.0 play that is generating tons of buzz if not profits.

3. Rupert starts talking about dumping his major TV play in China, Phoenix.

4. The Edward Tian-leaving-Netcom Rumor Story on CNBC mentions Rupert’s name prominently as the financier of Tian’s new venture.

Is all of this starting to add up to a tectonic strategy shift for News Corp in China?

Stay tuned…

Pisney Dixar?

Back in the Hutong
Nursing a really gross case of Sinusitis.
1420 hrs.

Amid all of the coverage coming out of the U.S. on Disney’s annexation of animation studio Pixar is speculation about how the musical chairs issue among the executives will play out, what will happen if the next film is a flop, how long before Jobs becomes kommandant of Mouseschwitz, and whether the colors of the Disney logo will change to rainbow.

You know, the usual sorts of things reporters write about when 500 other reporters have covered the story before them, their editors are banging on them to run something, and they need to come up with a different angle just to be different.

It’s a genuine shame our perspective-challenged media hasn’t yet asked the newly combined company “so, guys, what about the quarter of the planet that neither of you has much impact on?”

It’s probably a good thing, too, because some embarrassing answers would come out.

The truth is, none of the executives involved in this merger a) understand China, b) have business that are doing all that well here, and c) appear to even care very much if China exists except when they’re traveling in the region. Recall that:

  • Pixar has no presence in China. None. Zero. Nada. Zip. Of course, to the guys in Emeryville, the phrase “far east” probably makes them think about Stockton, or Merced.
  • Apple (peripherally involved) who just replaced their local leadership AGAIN, has so consistently lost brilliant opportunities in China over the past 15 years that I wonder if ANYONE in business, government, or the media take them at all seriously. Now remember – I say this as a near-fanatic Mac user and evangelist. We have 3 Macs and 2 iPods and swear by The Gospel According to Stephen. But Apple China is a tiny operation, there is no Apple store in China, and no Mac ads anywhere. This is, of course, despite having an OS that handles Chinese characters (and installs in Chinese) brilliantly, a loyal following, and people with the ability to spend. Jobs doesn’t get China. Full stop.
  • Disney? Some good progress recently, but Bob Iger proved himself a pretty broken China hand when, after having just opened Disneyland Hong Kong alongside Chinese Vice-President Zeng Qinghong, he told Keith Bradsher of the New York Times that unless the Chinese government started granting Disney some TV access, there would be no Disneyland Shanghai. Nice job, Bob. I’m sure that scared the hell out of the guys in Beijing. You tough guy, you.

So forgive us, dear American cousins, for not managing much more than a passing glance at this latest megamerger.

China’s Record Labels Make Warner, EMI, UMG, and Sony Look Positively Progressive

In the Hutong
Avoiding the Motorcades
1009 Hrs.

Baidu has apparently signed agreements with no less than 16 local recording labels to give away for free online the songs of about 100 performers.

Uh, hello?

Did anybody consult the performers about this?

Supposedly Baidu did this as a slap at the big global players. In the end, though, this is going to backfire, because eventually the artists are going to realize that they’re getting the short end of this deal and tell the local recording companies where they can stick their little agreement. Well, maybe not ALL artists, but any that are commercially viable and thus worth keeping are not going to be happy. And if the music is all from artists who nobody knows or cares about, none of this will be very much help to Baidu anyway.

The Internet fundamentally weakens the labels. Despite his close cooperation with the big recording labels, one thing Steve Jobs realized very early in the iTunes saga is that the silent power behind the online media revolution is the artists themselves. Every single move in the iTunes business model is implicitly designed to reward and empower the artists.

In China, you don’t have anything like the Supreme Court and the associated body of intellectual property law and precedent to protect artists. So the artists are going to have to protect themselves.

All of a sudden, the performers signed to contracts with TR Music and its fellow members of Baidu’s Pan Music Alliance look like the IPR equivalent of sharecroppers. And I’ll bet they don’t sit still for it for long.

Technology. The power to make a good deal with your label, or simply to tell your label to get stuffed and go direct yourself.

Hong Kong Cinema: Eject! Eject! Eject!

Vision Blurring in the Hutong
Praying for Rain, Snow, or Wind
0115 hrs.

A barely noticed article in the SCMP on Halloween noted that production in Hong Kong’s film industry in 2006 will drop to a mere 40 films, down from 62 in 2004 and 50 this year.

While the article suggests the cause of Hong Kong’s decline is a surge in South Korea’s film industry, given that the reportage came out of a conference in South Korea, I’m inclined to read a bit of self-congratulation in that analysis. The truth is probably a lot simpler and, in many ways, less comfortable for the Hong Kong industry.

The ugly, unspoken truth about Hong Kong cinema is that when it comes to developing new markets for it’s product the industry has spent the last three decades resting on its collective laurels.

Since the mid-1970s, U.S., Korean, Japanese, Mainland, and even Indian film studios have been working to build global markets and develop “crossover” movies that will draw international audiences. Hong Kong, meanwhile, has only been too happy to continue to crank out productions with strong local appeal but an almost conscious disregard of international tastes. Films from the mainland, the U.S., and elsewhere began creeping into Hong Kong’s shrinking number of theaters and the territory was (finally) wired with cable, shrinking the local market. The better directors and stars have at least partially decamped to the U.S. and the mainland, where they find not only better financing regimes, craftspeople, and facilities, but also a global stage for their work.

Hong Kong cinema fell into its navel 20 years ago and hasn’t lifted its head out since. It’s sad, but it stands as a warning to any company that pins its future on Hong Kong somehow remaining more than just another Chinese city, albeit a well-developed one.

Disney: “No TV Access, No Shanghai Disneyland.” China: ???

In the Hutong
Battling Sleep

In yet another example of the ham-handed arrogance with which Disney has managed its relations with China over the past two decades, Robert Iger, annointed Crown Prince of the Magic Kingdom told Keith Bradsher at the New York Times that unless the Chinese government granted Disney access to Chinese audiences through television, there would be no Shanghai Disneyland.

That probably makes the people in Hong Kong happy. Shanghai Disneyland could not help but compete with Hong Kong, and a third Disneyland would likely threaten the viability of all three parks in the near term. And it probably upsets the Shanghai government something awful.

But what is particularly striking is Iger’s belief that he can use so crude a lever to get what he wants from the Chinese government. He’s going to find his reception in Beijing to be a hell of a lot less cordial than he had hoped.

Who knows? Maybe the gambit will pay off. Maybe the government wants a Disneyland so bad it can taste it.

If not, though, and if the authorities are true to form, they will treat his comments as nothing less than crude public blackmail, and Disney will move to the back of the line for any consideration from SARFT. Because neither SARFT nor China can be seen responding to this kind of corporate thuggery. There would be no end to the practitioners if it did, and that would create a dangerous perception of weakness.

A Big Picture in Need of Magnification

In the Hutong
Under Clearing Skies
22:58 hrs.

I just finished Edward Jay Epstein’s new book, The Big Picture: The New Logic of Money and Power in Hollywood. I figured it would be a timely read, immersed as I am scribbling a tome about television in China. And I liked the book, frankly, because I thought it was a good 10,000 foot overview of the industry as it stands today. For that reason, it’s a good primer and so for those needing a primer on Hollywood (i.e., if you’ve never been in, on the periphery of, or spent a lot of time studying the industry), it’s worth the read.

But in critiquing my own writing, part of me was reading the book a little more critically that I would normally, especially for something that for me was a recreational read. In the desperate hope of avoiding such issues myself, there are some things bothering me about The Big Picture.

Epstein never seems to want to get too close to his subject matter. Even though his list of sources cites several interviews conducted over a period of 16 years, the book feels exceedingly detached from Hollywood. In fact, the book had the feel like it was written from his Manhattan apartment surrounded by a stack of books, magazine clips, and videotapes.

The tone of the book leaves a lot to be desired as well. Epstein correctly approaches his topic as an outsider (all the better to explain to outsiders.) The problem is that he approaches it as an outsider having a difficult time managing his latent hostility, as one of those literary New Yorkers who have always been a tad perplexed (and secretly jealous) that the movie industry has managed to wrest dollars and eyeballs away from the printed word. His derision, I will grant, is subtle, but it is no less acidic – and slightly distracting – for it.

I don’t begrudge a writer his biases. Lord knows old Hunter S. Thompson had them, and he stands high in my pantheon. But at least people like Thompson come right out and say “hey, this is who I am, this is where I’m coming from, and it’s going to bias my writing, but it would be both stifling and intellectually dishonest to do anything different.”

Epstein doesn’t, and the problem is his work suffers for it. He clearly spent as little time on the left coast as possible, and as little time delving into the the guts of the business. He never rises above the level of critic, and for that reason his book – which at around 350 pages could have afforded to be a lot longer – suffers.

First, when he uses examples to illustrate different points, he uses the SAME examples over and over again. He refers to the terms of Arnold Schwarznegger’s $29.92 million above-the-line fee for Terminator 3: Rise of the Machines no less than 14 times.
Hello? Is this the kind of deal typical or extraordinary? Are there other examples of 8-figure stars apart from the now-moved-on-to-greener-pastures Governator?

Second, he makes stupid errors that belie his lack of familiarity with the system. In referring to Tim Robbins’ character in the movie The Player, Epstein calls him a “studio chief” and marvels how he is unable to greenlight anything. Anyone who spent more than a couple of weeks around a Hollywood studio knows the difference between a development executive and a studio chief. It’s nitpicking, I know, but it’s indicative. And mistakes like this throughout the book cost him credibility.

Third he fails completely to talk about how Hollywood is dealing with the threat of digital content. To read the book you would think that a) Hollywood invented the idea of digital movie delivery, and b) is leading the charge to adopt it. MGM v. Grokster, anyone? Hello?

Fourth, he talks extensively about US distribution system and the Popcorn and DVD economies, but he has no clue about the challenges and opportunities Hollywood faces offshore. The fact that China merits a single mention is just dumb.

Fifth, he never talks about the implicit opportunities Hollywood faces in not only new distribution models, but new production models as well. There’s no discussion of green-screen technology and what it could do for location costs or the cost of talent. No thinking about the Bollywood or Hong Kong production models. No consideration given to people like Richard Rodriguez who, amazingly, have discovered a mystical formula to deliver films ahead of schedule, under budget, and for moderate fees that actually make money. No. It’s much sexier to talk about how Hollywood lavishes ridiculous production budgets on overpriced films that are created by a bunch of artless marketers and overpaid dummies posing as talent.

There are numerous other smaller faults as well, but suffice to say that if Mr. Epstein labored mightily he brought forth a mouse. He indeed gives us The Big Picture of Hollywood, but there are holes in that portrayal that leave a sightly knowledgeable reader asking for more.