Rui Liu Thesis (PDF 1MB)

Competition and Innovation: Independent Production in the Chinese TV Industry

Rui Liu Art BA /Journalism MA

A thesis submitted in fulfilment of the requirements for the degree of PhD

Creative Industries Faculty

Queensland University of Technology

2011

Competition and Innovation: Independent Production in Chinese TV Industry

Abstract

Independent television production is recognised for its capacity to generate new kinds of program content, as well as deliver innovation in formats. Globally, the television industry is entering into the post-broadcasting era where audiences are fragmented and content is distributed across multiple platforms. The effects of this convergence are now being felt in China, as it both challenges old statist models and presents new opportunities for content innovation.

This thesis discusses the status of independent production in China, making relevant comparisons with independent production in other countries. Independent television production has become an important element in the reform of broadcasting in China in the past decade. The first independent TV production company was registered officially in 1994. While there are now over 4000 independent companies, the term „independent‟ does not necessarily constitute autonomy. The question the thesis addresses is: what is the status and nature of independence in China? Is it an appropriate term to use to describe the changing environment, or is it a misnomer?

The thesis argues that Chinese independents operate alongside the mainstream state- owned system; they are „dependent‟ on the mainstream. Therefore independent television in China is a relative term. By looking at several companies in Beijing, mainly in entertainment, TV drama and animation, the thesis shows how the sector is injecting fresh ideas into the marketplace and how it plays an important role in improving innovation in many aspects of the television industry. The thesis shows how independent television companies in China are looking to protect their property rights. It demonstrates that far from being at the cutting edge, independents are reliant on a system that has many inbuilt structural problems. The thesis outlines many of the challenges facing „independents‟.

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Keywords

Television, TV industry, TV market, TV independent production, TV drama, TV entertainment, TV animation, Innovation, Competition, China

ii Competition and Innovation: Independent Production in Chinese TV Industry

Table of contents

Abstract...... i Keywords ...... ii Table of contents ...... iii List of figures ...... viii List of tables ...... ix Abbreviations ...... xi Authorship ...... xii Acknowledgements ...... xiii Chapter 1 ...... 1 Introduction ...... 1 1.1 The Development of the Television Industry ...... 2 1.1.1 The Television Industry Globally ...... 2 1.1.2 The Television Industry in China ...... 4 1.2 Research Subjects ...... 6 1.2.1 Research Questions ...... 6 1.2.2 Definition of Independent Television Production ...... 8 1.2.3 Research Approach ...... 10 1.2.4 Research Significance ...... 15 1.3 Outlines of Chapters ...... 16 Chapter 2 ...... 19 Literature Review and Theoretical Concepts ...... 19 2.1 Introduction ...... 19 2.2 Television Studies in Creative Industries ...... 19 2.3 The Concepts of the Television Industry and Television Market ...... 21 2.3.1 Market Structure in the Television Industry ...... 22 2.3.2 Market Value Chain in the Television Industry ...... 26 2.4 Competition and Diversity in the Television Market ...... 29 2.4.1 Dimension of Competition and Diversity...... 30 2.4.2 Government Intervention...... 31 2.5 Creativity and Risk for the Independent Television Production Companies ...... 33 2.5.1 Risks for the Independent Television Production Companies ...... 34

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2.5.2 Creativity from the Independent Television Production Companies ...... 36 2.6 Conclusion ...... 38 Chapter 3 ...... 40 Innovation in Television with Independent Production and Research Design .. 40 3.1 Introduction ...... 40 3.2 Innovation in Television Globally ...... 40 3.2.1 Innovation in Television in the US and the UK ...... 41 3.2.2 New Definition for Innovation in Asia ...... 44 3.3 The Theoretical Framework of Innovation in Television ...... 45 3.3.1 Innovation Concepts in Economics and Television ...... 46 3.3.2 Innovation in Television Content...... 47 3.3.3 The Market Structure Innovation in Television ...... 49 3.4 Research Design Structure ...... 51 3.4.1 Regulatory Structure ...... 52 3.4.2 Market Practice Dimensions ...... 56 3.5 Conclusion ...... 58 Chapter 4 ...... 60 From Monopoly to Competition: the Television Industry in China ...... 60 4.1 Introduction ...... 60 4.2 Background Knowledge: the Chinese Teleivsion Industry Structure and Reform ...... 60 4.2 Market Innovation in the Chinese TV Industry ...... 69 4.3 Current Situation of the TV Program Market in China ...... 79 4.3.1 The Television Production by Genre in China ...... 81 4.3.2 The Television Production by Region in China ...... 83 4.4 The Development of TV Independent Production in China ...... 85 4.4.1 Historical Development of the Regulatory Environment in China ...... 85 4.4.2 Current Situation of Independent Production in China...... 90 4.4.3 From the Edge to the Core: The New Era for Independent Companies in China ...... 91 4.5 Conclusion ...... 94 Chapter 5 ...... 95 Independent Production in the TV Drama Market in China ...... 95 5.1 Introduction ...... 95

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5.2 The Development of the TV Drama Market ...... 95 5.3 The Value Chain in the TV Drama Market ...... 100 5.4 Case Studies: Tongle Media Organisation ...... 103 5.5 Main Issues in the TV Drama Market ...... 110 5.5.1 High Quantity ≠ High Quality ...... 110

5.5.2 Domestic Market ≠ Overseas Market ...... 111

5.6 Conclusion ...... 113 Chapter 6 ...... 114 Independent Production in the Entertainment Program Market in China ...... 114 6.1 Introduction ...... 114 6.2 The Development of the Entertainment Program Market ...... 114 6.3 The Value Chain in the Entertainment Program Market ...... 121 6.4 Case Study on Enlight Media and Cheerland Entertainment ...... 123 6.5 Main Issues in the Entertainment Program Market ...... 130 6.5.1 Censorship vs. Relationship ...... 130 6.5.2 Copying vs. Copyright...... 132 6.6 Conclusion ...... 133 Chapter 7 ...... 135 Independent Production in the TV Animation Program Market ...... 135 7.1 Introduction ...... 135 7.2 The Development of the TV Animation Market ...... 135 7.3 The Value Chain in the TV Animation Market ...... 141 7.4 Case Studies: Its Cartoon...... 144 7.5 Main Issues in the TV Animation Market ...... 148 7.5.1 Subsidy or No Subsidy ...... 148 7.5.2 Going Out ...... 149 7.6 Conclusion ...... 151 Chapter 8 ...... 152 Comparison with the Development of Independent Production in the International TV Market...... 152 8.1 Introduction ...... 152 8.2 The Regulation of Independent Television Production in the US and the UK .. 152

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8.3 The Role of Independent Production Companies in the Television Market in the US and Europe ...... 159 8.3.1 The Television Innovation of Independent Production Companies in the US ...... 160 8.3.2 Television Innovation of Independent Production Companies in Europe and the International Market ...... 163 8.4 Television Production Innovation in Asia ...... 165 8.4.1 The Rise of Japanese Television Program Production ...... 166 8.4.2 The Rise of Television Program Production in Korea ...... 170 8.5 Conclusion ...... 173 Chapter 9 ...... 174 Characteristics of Innovation and Competition Environment for Independent Production in China ...... 174 9.1 Introduction ...... 174 9.2 Regulatory Environment: Policy Market ...... 174 9.2.1 Rule by Law or by Person ...... 175 9.2.2 State-owned vs. Private ...... 177 9.2.3 Regulated or Deregulated ...... 179 9.3 Competition Environment: Competition plus Monopoly ...... 181 9.3.1 Business Models with Chinese Characteristics...... 181 9.3.2 Chinese Competitiveness ...... 184 9.3.3 The Relationship with Overseas Companies: Collaborators or Competitors ...... 185 9.4 Innovation Environment: Market Power vs. Administrative Power ...... 188 9.4.1 In-studio Production vs. Out-of-Studio Production ...... 188 9.4.2 Creativity vs. Imitation ...... 190 9.4.3 Diversity vs. Market-driven ...... 193 9.5 Conclusion ...... 197 Chapter 10 ...... 198 Conclusion ...... 198 10.1 Introduction ...... 198 10.2 Research Summary ...... 199 10.3 Findings...... 201 Appendix - Interview Questions ...... 205

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References ...... 208

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List of figures

Figure 1 Dual product market structure (Albarran 1996, 28; Picard 1989, 18) ...... 24 Figure 2 The dual product market across the geographic market (Napoli 2001, 160) .. 25 Figure 3 The four core processes in the market value chain of media industry (Aris and Bughin 2005, 11) ...... 27 Figure 4 Diversity components, subcomponents and assumed relationships (Napoli 2001, 129) ...... 31 Figure 5 Innovation in television ...... 47 Figure 6 Content innovation process (Aris and Bughin 2005, 93) ...... 48 Figure 7 Main characteristics of the content delivery process (Aris and Bughin 2005, 16; Albarran 2010) ...... 50 Figure 8 Research Design Structure ...... 52 Figure 9 The diversity of capital attributes in television (Lu 2002, 144) ...... 72 Figure 10 1992-1995 TV program production in China (China Radio & TV Yearbook 1992-1996) ...... 79 Figure 11 The proportion of broadcasting TV programs production in 2004 (Zhang 2008a, 9) ...... 80 Figure 12 The current program market value chain structure ...... 80 Figure 13 Program production position according to the government control ...... 81 Figure 14 The proportion of outsourced program category (CSM 2005a, 94) ...... 82 Figure 15 Advertisement share by seven regional administrant division (Tang and Li 2005, 26) ...... 83 Figure 16 Japanese export by genre in 2005 (McPhail 2010, 317) ...... 167 Figure 17 Japanese export by region in 2005 (McPhail 2010, 317) ...... 168 Figure 18 The innovation process under the censorship in China ...... 195

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List of tables

Table 1 Interviewees in this research ...... 15 Table 2 Traditional approaches to defining the market (Albarran 2010, 31-32; Picard 1989) ...... 23 Table 3 Index of the important milestones in the first period of China‟s television reform ...... 62 Table 4 Index of the important milestones in the second period of China‟s television reform ...... 63 Table 5 Index of the important milestones in the third period of China‟s television reform ...... 64 Table 6 China TV Station System ...... 65 Table 7 CCTV Specialized Channels (Compiled from www.cctv.com accessed March 1, 2011) ...... 68 Table 8 Market share of different level television channels (Cui 2005, 254) ...... 68 Table 9 Index of the important milestones in the fourth period of China‟s television reform ...... 69 Table 10 The brand four TV trade fairs in China ...... 76 Table 11 The market share of the different distribution channels (Song 2008, 280) ..... 77 Table 12 Program acquisition modes for Entertainment report shows (Dai 2005, 27) . 77 Table 13 The attitude from different level TV stations to the content supplier outside the broadcasting system (independent production company) (Huang 2005b, 188, 200)90 Table 14 The first eight independent TV drama production companies with a long-term licence ...... 98 Table 15 Program schedule of CCTV-8 on Nov, 19, 2010 (CNTV 2010) ...... 100 Table 16 The distribution mode of different scale TV drama production companies (CSM 2004, 124) ...... 102 Table 17 The TV drama purchase channels of different level TV stations (CSM 2004, 132) ...... 103 Table 18 The four-level national distribution market of TV drama in different areas (CSM 2004, 141) ...... 103 Table 19 Tongle Media Organisation TV drama production ...... 107 Table 20 Tongle Cultural Communication Company TV drama distribution ...... 108 Table 21 Tongle Film & TV Co.Ltd TV drama DVD distribution ...... 109

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Table 22 Tongle Film Production Co.Ltd film production ...... 109 Table 23 Top 10 famous entertainment program production companies ...... 117 Table 24 Program schedule in Anhui Provincial Entertainment Channel on Nov 23, 2010 (AHTV 2010) ...... 119 Table 25 Program schedule in Anhui Provincial Science and Educational Channel on Nov 23, 2010 (AHTV 2010) ...... 121 Table 26 Entertainment program production share (CSM 2007, 75-81) ...... 121 Table 27 Enlight Media Entertainment Program Production (Autonomously) ...... 128 Table 28 Enlight Media Entertainment Program Production (Exclusive Production) 129 Table 29 Enlight Media hosted Events ...... 129 Table 30 Enlight Media other businesses ...... 130 Table 31 Top Eight Independent Animation Production Companies in 2009 ...... 138 Table 32 Program schedule of BTV Kaku on Nov 15, 2010 (BTV 2010) ...... 141 Table 33 Cheerland Entertainment Organisation and Its Cartoon ...... 147 Table 34 American major five media conglomerates who own the television broadcaster (compiled by the author) ...... 156

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Abbreviations

BTV Beijing Television

CCTV China Central Television

CETV China Education Television

CUC Communication University of China

SARFT State Administration of Radio, Film and Television

SMEs Small and medium enterprises

SMG Shanghai Media Group

STV Satellite TV

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Authorship

The work contained in this thesis has not been previously submitted to meet requirements for an award at this or any other higher education institution. To the best of my knowledge and belief, the thesis contains no material previously published or written by another person except where due reference is made.

Signature

March 2011

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Acknowledgements

It has been a great journey while undertaking my PhD study in the Creative Industries Faculty at Queensland University of Technology for these past four years. I appreciate the supervision from my principal supervisor Associate Prof. Michael Keane and associate supervisor Prof. Terry Flew. As English is my second language, Michael has endured my rough grammar and has patiently spent a lot of time on editing during these four years. As I am an international research student, Terry has been generous to provide me with opportunities and help, not only for my research but also for my academic career. Particularly, in my final stage of PhD study, both Michael and Terry provided me with strong support so that I could complete this journey. Meanwhile, I also would like to thank the people who accepted my interviews and helped my field work in China. They were so generous to contribute their time and share their experience and opinions despite their busy schedules. Without their contribution, I would not have finished this research today!

It has been a fantastic experience for me during these four years in Brisbane, Australia which is a beautiful and peaceful place to live. I have achieved not only my academic title but also met my life-partner here. I am deeply grateful to my husband who has supported me spiritually and materially in this journey. It is because of him that this far- away from home journey was not boring and lonely. Instead it has been full of colourful stories and wonderful experiences. I also feel deeply thankful and sorry to my parents. Thanks for their support that they always provide to me but sorry to miss the time to spend with them in China. I also appreciate the guidance provided by my husband‟s parents, especially in the final stage of my thesis correction when they performed a careful review of my thesis.

Finally, I would like to give my heartfelt thanks to my office colleague and one of my best friends, Linda Watterson, who has provided so much assistance and excellent suggestions in both my research and my life during this four-year journey. I give my best wishes to her.

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Competition and Innovation: Independent Production in Chinese TV Industry

Chapter 1

Introduction

The concept of culture in China has long been associated with the realm of ideology. Culture, creativity and industry have had an uneasy co-relationship. However, China is no longer insulated from global forces and ideas. Following the development of the agricultural and manufacturing sectors during the Reform and Opening Policy of the 1980s, China‟s policy makers started to acknowledge the impact of the knowledge economy. China has endeavoured to catch up with advanced Western economies and to move up the global value chain. However, while Chinese manufacturing and productivity have achieved a global reputation with „Made in China‟, China still remains at the lower level of the global value chain, without „creative‟ added-value. Since the beginning of the 21st century, innovation policies in China have been put forward to change the image of „Made in China‟ to „Created in China‟. One of the main targets is the renovation of non-competitive Chinese cultural industries (Keane 2007b). The media has been an area of such reform since the early 1990s. Since 2001, television has been considered as one of the core industries, according to the annual series of National Blue Books of Cultural Industries.

Media is generally state-owned in China. Before the economic reforms in 1979, the media system was considered to be part of the state bureaucracy, primarily responsible for ideology rather than information or entertainment. With China entering into the World Trade Organisation in December 2001, the television industry has come to accept the challenge of competition. Players in the Chinese television industry have changed. Private television production companies have become more active. It might be assumed that, similar to other media markets, competition among the private independent television sector will lead to more diversity and an improvement in innovation in China‟s TV market. However, the key questions are: Are Chinese television programs becoming more innovative and more creative? Are the Chinese

1 Competition and Innovation: Independent Production in Chinese TV Industry television programs able to take a position in the global television market? Who are the innovative players in the Chinese television market, the independent or the state-owned?

1.1 The Development of the Television Industry

In China, market forces have influenced the television industry only since the 1980s. Therefore, in many respects the Chinese television industry demonstrates different characteristics than other more mature markets. However, with market liberalisation and international market influence, the television industry in China is now following similar developmental paths as those mature markets. Today, in the era of the multimedia environment and the global market, the television industry in China is facing intense challenges and opportunities.

1.1.1 The Television Industry Globally

Many authors (Curtin 2007; Keane 2006, 2004; Rogers, Epstein and Reeves 2002; Moran 1998; Hoskins, McFadyen and Finn 1997) have argued that the past ten to fifteen years have seen a dramatic and significant change in television systems globally. Media companies and networks have had to constantly alter their business models. Moran has argued that in contrast with the present moment, earlier stages of television might be usefully designated as Live Television, Filmed-series Television and „Quality‟ Television‟ (Moran and Malbon 2006, vi). Due to a combination of technology (multi- channels and digital transmission) as well as, new forms of financing and content in recent years, audiences have more choices and a greater array of options. What is novel and original about this kind of television? The fact is that centralized broadcasting arrangements have been increasingly transformed and reconstituted in country after country across the world, mostly in places where there has been a minimum of change since the beginning of television broadcasting. According to Moran and Malbon, “Television is rapidly becoming something else characterized by new patterns, agendas and structures” (Moran and Malbon 2006, vii).

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In the 1950s, the US television system led the global television industry with international models of production and licensing. The US model, at least in production and licensing, has been influential. Rogers, Epstein & Reeves (2002) define the characteristic of US production development as Television I, II and III. Television I was „a period when television broadcasters profited by delivering a largely undifferentiated mass audience, in lots of a thousand, to advertisers‟ from the 1950s through to the mid-1970s (Rogers, Epstein and Reeves 2002, 46). Then, television entered into Television II, the period of quality TV targeting high-value advertising niches from the 1980s. In this period, these programs still sought to attract mass audience on free-to-air channels despite their appeal to high-value demographics. Television III illustrates the new age of narrowcasting: pay TV with the premium- brand to attract subscriber loyalty towards the non-mainstream. This Television I, II and III model has emerged at different times with differing degrees of social uptake in various countries. In contrast to Television I, II and III typology, Keane et al (2007: 194) proposed a different phase of development, the prototype „Publishing Model‟. This model saw the US in-house (studio) system sub-contracting production to the independent sector. Elsewhere, the evolution from public service to a dual track public- independent model occurred in the 1980s in most European countries, and also in East Asian countries. During the 1990s, the privatization of public channels and the licensing of new commercial channels in Western Europe promoted the role of independent production. Due to the nature of the market and a propensity to maintain control of content, independent production emerged in East Asia (Keane, Fung and Moran 2007, 194).

New technological platforms have accelerated development. Today, multi-channel platforms, including cable, satellite and terrestrial platforms, or IPTV (Internet Protocol Television), “are providing new opportunities for aspiring producers, hopeful of making their ideas accessible to different audiences” (Keane, Fung and Moran 2007, 192). Interactive television services through digital TV have been developed specifically to meet the demanding requirements of cross-platform, multi-format, and multi-channel operations. Changes are apparent. Keane et al (2007) point out that “the „old‟ network strategy of keeping audiences in their seats and building program or channel loyalty is based on a notion of passive activity, „valued in part because it is bereft of thought and the need for considered choice‟(Owen 1999, 103)”. Moreover,

3 Competition and Innovation: Independent Production in Chinese TV Industry they predict that digital media will be substitutes for, rather than supplements to, existing media. “As convergence increases across platforms, mature media – including television – will struggle to maintain loyal audiences” (Aris and Bughin 2005, 8). All of these challenges are evident in China.

1.1.2 The Television Industry in China

For more than five decades since the first television signal was transmitted in Beijing in 1958, television has carried historic and social responsibilities. In the first two decades of its development in China, television was a channel for government propaganda. Commercialization was considered as capitalist ideology. The most important role of television was to transmit government policy and to broadcast political news. Television content was produced according to specific government guidelines.

Nowadays, television has been dramatically transformed, alongside huge changes in Chinese society. Beginning in 1979, the media began to gradually open up the market. By the 1990s, government subsidies were fewer and advertising had become the main revenue. The audience became a god and content became king. All of these dramatic changes in Chinese television happened rapidly, in the last three decades. However, the television system in China is still state-owned and the government emphasizes propaganda as the prime responsibility of television organisations, who also have to consider the commercial side of operation in a new, competitive market environment.

Most viewers in China can watch over fifty channels through the cable system. In spite of this, the audience is still not satisfied with the variety of the programs. In fact, behind the abundance of TV channels, there is a huge gap between the demand and the supply of content. The state-owned television system can only provide 20 percent of broadcasting time every year. Unsurprisingly, production outside the state-owned broadcasting system has become the best supplement in the market. I define this production outside the Chinese state-owned broadcasting system as „independent production‟. In this thesis, I explore the development of independent production in China and will examine the contribution of the independent production sector to the

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Chinese television industry. I examine whether or not independent production means more competition and innovation in content provision.

Since the economic reforms began, television organisations have undergone reform from government „institution‟ (shiye) to an „enterprise‟ (qiye). In brief, this means they have changed their operation from being reliant on government funding to that of commercial management through advertising and program rights. Policy makers in the State Administration of Radio Film and TV (SARFT) have directed this reform with a range of industry development models, from a hierarchical management system to the more networked model, from the „separation of TV production and broadcasting‟ to what is called „resource integration‟. Despite the reforms, many television administrators have endeavoured to evade compliance with best practice, whether defined by the Chinese government or by the international trading community (Keane, Fung and Moran 2007). As Keane et al (2007) pointed out: pragmatism, for both policy makers and practitioners reflects uncertainty and inherent risk, a legacy of state interference in the cultural sphere.

During the last few years, there has been a looming crisis in content production. Many TV programs have adopted overseas formats. A good example is „Super Girl‟ (chaoji nüsheng), an unlicenced Chinese version of the international pop idol show. This resulted in a flood of similar programs on TV screens, including channels on national and local TV stations. This is a reflection of the content crisis in China‟s TV industry. Although the market has expanded ten-fold since the establishment of the economic reforms of 1978, there is no consensus as to what „good content‟ is. Content production is often cheap, repetitive and imitative.

Uncertainty provides opportunities for people outside the state system. With continuous expansion and development of digital technology, television stations have to face the fact that there is a shortage of programs and a lack of innovation in content. According to the latest government data, the demand for television broadcasts all over the country was over 10 million hours while the production supply by the TV stations themselves was only 2.6 million hours (SARFT 2010b, 33-34). So there is a big gap between production and demand that needs to be filled. Furthermore, under the traditional system, a television station produced all programs, including news, dramas and

5 Competition and Innovation: Independent Production in Chinese TV Industry educational and entertainment programs, with few programs traded and exchanged. Most television production under the control of the broadcasting system is still low- cost. Cloning and low quality production values have appeared due to the lack of competition and intellectual property legislation. Consequently, television stations have sought support from outside the system, and since the 1990s, have made use of independent studios and outsourcing businesses. This represents a significant change of direction.

1.2 Research Subjects

1.2.1 Research Questions

Under the pressure of the international markets and new media, how is television reacting to the challenges? Where are the drivers to lead innovation in the television market in China? In this research, I explore market dynamics to answer these questions. While competition is getting stronger, creativity in content production is not keeping pace with the change. We need to ask: why is this so? I argue that the significant driver of these changes can only come from the independent production sector.

This thesis discusses the competition and innovation ecology, taking into account four key factors in the development of television industries: policy, media rights, new technology and market value chain. This leads to an examination of how these factors impact on development at different stages, and how program production is targeted at different markets; namely, the international, the regional (Asia), the national, and the local. In this process of industry development, the importance of rights will come to centre stage.

The objectives of this research are to: • explore the inter-relationship between competition and innovation in the television industry, under market liberalisation reforms;

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• compare the environment of competition and innovation in the television market between China and other countries; • investigate the tension and relationship between independent companies and state- owned stations in the Chinese context; • review the emergence and influence of the independent television sector on the television market in China; and • analyse the social, political, economic, and legal factors impacting on the future development of independent television production in China.

In order to answer the research question, I utilize media economics to analyse the market structure of China‟s television and compare competition in China with that of other countries. Moreover, I will take the model of „the innovation ecology of TV production in China‟ (Keane 2007a, 13) to examine the status of television production innovation in China. Keane describes the development of creative industries in China as proceeding through six stages: (1) low-cost production; (2) imitation; (3) co- productions, formats and franchises; (4) East Asian markets, (5) the creative/industrial cluster, and (6) peer communities. I will explore how the development of television production goes through these stages and I will discuss how the quest for good content is a combined process of professionalization and internationalization; in other words, from imitation to innovation, from Made in China to Created in China. During the progression through the different stages, I investigate how rights, ancillary marketing and product placement become integral to business practices and sustainability.

In contrast to the perspective of theorists who question the novelty of television content, this thesis will critically appraise the innovation process and the degree of both content and structure innovation in the television industry, especially with the growth of independent production. My argument is that the process of television content production and distribution generates continuous innovation to meet the market in the context of a changing technological and regulatory environment. As a form of goods and service, the content of television and the process of television production and distribution experience metamorphoses continuously in the market. Therefore, the degree of market competition is an important factor for impacting on television innovation. Meanwhile, as a type of the public good (Touffut 2006), television is more heavily regulated than other industries to balance the market driven motivation and the

7 Competition and Innovation: Independent Production in Chinese TV Industry public interest. Therefore, the regulatory factor is included in the processes of television innovation. In this thesis, I will examine innovation of television under two main factors: one is the visible hand of regulatory power; the other is the invisible hand of market power.

In arguing that there is a crisis of content, I identify a range of factors impacting on the innovation ecology of China‟s TV content. These include regulation and censorship, finance and distribution, audiences and characteristics of the market. As China progresses from an immature media market to a more mature international model, the issue of how to share rights with profit partners (creators, investors, station owners, and independent companies) is a complex issue. This is particularly evident as markets become international and production becomes internationalised (e.g. co-productions and joint ventures)

1.2.2 Definition of Independent Television Production

Traditionally, 'independent' has referred to companies that produce programming outside the network of ownership or control (Taub-pervizpour 2004). Studios are the basic unit integral to independent television production. They produce television programs by independent producers or, at times, by the studio itself (Kassel 2004). It is believed that small independent companies and studios can provide a variety of media output, or offer something alternative in some way. However, nowadays, most of the so- called independent production companies in the world are owned by integrated media groups. In Britain‟s 1990 Broadcasting Act, an „independent‟ production company is defined as one which is not more than 15 percent owned by a TV broadcasting company and which itself, owns no more than 15 percent of a TV broadcaster. And then in the 1995 Broadcasting Order, the threshold for cross-ownership between independent producers and broadcasters was amended from 15 percent to 25 percent. At the very least the independent production should be kept at a certain distance from the mainstream broadcasters. „Independent‟ production is discussed in relation to „mainstream‟ or large-scale activity is driven primarily by a profit motive or represents the mainly dominant views in society (Branston and Stafford 2006, 239). The term „independent‟

8 Competition and Innovation: Independent Production in Chinese TV Industry in television is used to distinguish itself from the mainstream in the different context in the different country. Being „outside the mainstream‟, the independent television is aligned alongside the four main networks in the US, the main public service system in the UK and the state-owned system in China.

In China, production organisations can be divided into two main categories: one category is considered to be inside the broadcasting system, while the other is outside the system. The former category includes all the state-owned organisations, like TV stations and the subordinate units or companies of the television stations, such as the drama production centres or the distribution companies. After the reform of the broadcasting system, some departments of TV stations gradually separated and became subordinate production companies. However, no matter how they operate or how they define themselves, these companies are still either fully state-owned or are partly state- owned, and, moreover, the business of these companies still depends on the resources of state-owned TV stations. The category outside the system can be further divided into two types. They can be state-owned or partly state-owned by other government departments outside the broadcasting system. For example, Jindun Film and Television Cultural Centre is a state-owned film and television production company under the Ministry of Public Security that produces film or television programs related to police topics, and Daye Media (DYTM) is a partly state-owned production company under the People‟s Daily. Although these companies were set up originally as enterprises outside the broadcasting platform, they generally take advantage of their state-ownership and the resources of their parent body.

The other type in the category outside the system is the totally independent company, which is called private-operation television (minying dianshi). If the partly state-owned organisation (either inside the broadcasting system or outside the system) can be considered as being quasi-independent, the private-operation television companies are fully independent. Without state-owned background or resources, they are totally reliant on the market. In 1994 the first fully-independent TV production company was registered officially by the Chinese trade department. Since then thousands of independent production companies have emerged. They form a very special group and become numerous. They are special in China because they look different with the majority inside the state-owned TV. However, today they have been seen nearly

9 Competition and Innovation: Independent Production in Chinese TV Industry everywhere in the TV production market. They are involved in each part of the value chain, including distribution, production and packaging. They contribute a lot to improving market reform in the industry. In this thesis, the fully-independent companies are the subject of the research.

1.2.3 Research Approach

In this research, I adopt four approaches including archival analysis, interview, case study and cross-national comparative study.

Archival research Archival research is one of the most widely used methods in the humanities and social sciences and is also one of the most frequently used in the research of media and cultural industries (Stokes 2003, 109). Archival methods involve the study of documents created at some point in the relatively distant past (Ventresca and Mohr 2002). In this thesis, the major tasks include identifying information about the current situation in the television industry, the scale of the independent production, and financial reports on the success and failure of independent production investment. I will mainly focus on two types of documents: published material and reports. Regarding publications, there are many sources on TV in China, such as the Yearbook of Chinese Radio and Television sponsored by SARFT and edited by CUC (Communication University of China) since 1986. This records major events in the broadcasting industry every year. In recent years, SARFT published official statistics in Blue Book: Radio, Film and Television annually since 2006. Regarding market reports, there are many statistical analyses and reports, such as the annual Report on the Television Market by China's Golden Eagle TV Art Committee, CSM Media Research and CUC; Report on China’s TV Programs Market, Report on China’s TV Columns, Report on China’s TV Sport Programs and Report on China’s Digital TV (2002-2006). I have access to these materials through my institutional links to the Communication University of China (one of China‟s most famous media education and research institutions). Other documents have been collected from some TV stations, media research centres and government media organisations.

Archival methods also include analysis of digital texts, including electronic databases, emails and web pages (Ventresca and Mohr 2002). Material available on this topic includes

10 Competition and Innovation: Independent Production in Chinese TV Industry many electronic files and websites, such as MediaChina.net, People's Daily Online, Media Online: Media News (2005-2008) and Xinhuanet. Data is available from official websites of the government, from independent TV production companies and some authoritative websites, such as the State Administration of Radio, Film, and Television (SARFT) in China, the Federal Communications Commission (FCC) in the US and Ofcom in the UK.

Cross-national Comparative Study Comparative study is a common social research practice. All social research includes elements of comparison, for instance, research of groups, cases, periods (Vaus 2008, 249). The historical background and cultural context needs to be taken into account. In my research I will compare independent production in the Chinese television market with other developed markets, including the US, the UK, Japan and Korea. In the global media environment, television production is becoming more and more relevant. It is hard to ignore its international impact on the Chinese television market any more. As my research design (see the details in Chapter 3), I chose two dimensions and three submarkets as my research variables to compare the features of other developed markets.

However, due to the time and thesis limitation, I did not choose any first hand case or survey based comparison from other countries. I collected data from public sources and from academic and news articles through archival searches. Based on the regulations impacting independent production and market practices of independent companies in TV drama, entertainment program and TV animation production, I compared the American Financial Interest and Syndication Rules (fin-syn rules) and the British independent production policy with that of the Chinese condition and independent production companies in the US and Europe. I also compared the Japanese TV program production market and Korean content industry policies to reach conclusions about Chinese characteristics.

Interview Interview is the primary research means to gather first-hand sources of evidence. In my research, interviews are used as the essential approach, and the interviewees include five main categories:  Independent production business owners;

11 Competition and Innovation: Independent Production in Chinese TV Industry

 TV Station directors and producers;

 Government policy officers;

 Academic scholars and experts; and

 Overseas companies' directors.

In order to set up a „friendly‟ and „non-threatening‟ environment for my interviewees, I chose semi-structured interviews with open-ended questions (see the interview questions in Appendix I). According to Bailey (2007), in a semi-structured interview, specific questions that are organized by topics are to be asked, but they are not necessarily asked in a specified order. To a certain extent, the interviewees are given free range to talk about aspects related to the interests of the researcher. Interviewing a wide range of respondents can result in gaining very fruitful information. Open-ended questions that lead to the extended sharing of information (Bailey 2007, 96) are asked. Because of the need to speak to government officials and state-owned TV station directors, and considering the complex political and media business environment in China, it is necessary to frame open-ended questions. Generally, interviewees asked to remain anonymous in the formal text due to issues of confidentiality.

I also conducted in-depth interviews. The in-depth interview can provide one-to-one contact with the respondents for a long period to inquire in more detail on certain attitudes and responses (Ritchie and Lewis 2003, 142-143). With independent production business owners, I supplemented in-depth interview with more interactive questions in order to stimulate the interviewees into considering the importance of this research. With academic scholars, open questions were based on their research on television reform related to the independent production sector. I also sought their future insights into television regulation and innovation. Overseas companies were happy to share their opinions and experience in the market.

Case Study In my research I chose three independent companies as the main cases to reflect the historical development and the current situation of independent production. The case study can provide the researcher a tool with which to obtain a wealth of information

12 Competition and Innovation: Independent Production in Chinese TV Industry about the research subject. It is particularly advantageous for finding out clues and ideas for further research (Wimmer and Dominick 2006, 137). In this research, I chose three companies: Cheerland Entertainment Organisation, Enlight Media and Tongle Organisation as examples in the entertainment program market, The TV drama market and TV animation market respectively. The case studies are helpful in understanding China‟s complex market, and problems inside the companies can be investigated through individual cases. In order to obtain better sampling, I examined different business models in the three markets. Enlight Media is the biggest independent production company in the entertainment program market. Tongle is a typical middle-scale TV drama independent production company. Cheerland used to be one of the most well known entertainment production companies, but nowadays has moved into the animation market.

According to the classification of the sources for the case studies (Yin 2009, 101), I collected the data from four sources: documentation, archival records, interviews and direct observations. By collecting newspaper stories, and research and market reports, I was able to understand important elements of each case before conducting in-depth interviews. Through the interviews I explored more attitudes and individual opinions on subjects related to my research. Meanwhile, I also visited the companies to observe their operations and to obtain more detailed, hands-on information. I visited some several times to obtain a more objective assessment and to balance any bias within the documentation.

Data Collection Process I conducted my research in three stages. In the first stage, I researched the development of the market and market regulations by collecting data from archival research. I attended television events to understand the historical development and the current status of the television industry. There are three major TV festivals in China: Shanghai TV Festival sponsored by SARFT, the Shanghai government and SMG since 1986; Beijing International Television Week sponsored by SARFT, the Beijing government and Beijing TV station since 1989; and Sichuan TV Festival sponsored by SARFT, the Sichuan government and Sichuan TV station since 1990. In addition, the China International Radio, Film and Television Exposition, sponsored by SARFT and CCTV, has become one of the biggest events in China's TV industry since 2003. In 2008, 802 media organisations and

13 Competition and Innovation: Independent Production in Chinese TV Industry

192 media organisations from China and overseas exhibited their programs at Expo and at the Shanghai TV Festival respectively, including China's TV stations and independent companies, and overseas media companies interested in China's market. Most independent TV production companies and relevant government officers attended these events. They proved to be very effective research environments for my research. I attended the China International Radio, Film and Television Expo in Beijing in 2008 and the Shanghai TV Festival in 2009 to conduct my field work.

In the second stage of the thesis, I examined the three program markets and the independent production roles in these three markets. The TV drama market was the earliest open field for independent production in the television industry in China. There are a number of large and medium-sized independent companies that have grown up in this market due to its mature regulations and its practical operation. However, in the entertainment market, independent production has still not clarified its regulations and market practice and is not as professional as the TV drama market. Therefore, I paid more attention to this less developed research area. The animation market grew later than the other two markets, but it grew the fastest because of the government subsidy system. In terms of the geographic location, independent production in the animation market is more geographically dispersed in China than the other two markets, which are mainly based in Beijing and Shanghai.

In the third stage, I narrowed my research to Beijing and Shanghai. According to the five categories in the research design, I conducted in-depth interviews with independent production business owners of Cheerland Organisation, Enlight Media and Tongle Organisations. In addition, I conducted interviews with another four companies: BMC Animation, Restyle studio, Red Wind Consulting and Botai Tianming. I interviewed seven TV station directors and producers from CCTV, China International TV Corporation, Guizhou provincial TV, SMG and CETV. For government policy officers and academic scholars and experts, three persons are included from SARFT, Beijing Municipal Bureau of Radio, Film and Television, Shanghai Municipal Administration of Culture, Radio, Film and Television, and three persons from Qinghua University, Communication University of China and Shanghai University. Moreover, there are three main interviewees from overseas companies: CMM Intelligence, Sony and News Corporation.

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Interviewee Category Companies

Independent production Three main cases: Cheerland Organisation, Enlight business owners Media, Tongle Organisations; Other four complementary: BMC Animation, Restyle studio, Red wind consulting and Botai Tianming TV station directors and from CCTV, China International TV Corporation, producers Guizhou provincial TV, SMG and CETV Government policy from SARFT, Beijing Municipal Bureau of Radio, Film officers and Television, Shanghai Municipal Administration of Culture, Radio, Film and Television Overseas companies from overseas companies including CMM, Sony and managers News Corporation Academic scholars and from Qinghua University, Communication University of experts China and Shanghai University

Table 1 Interviewees in this research

1.2.4 Research Significance

Generally, the first independent television company was considered as the official registration in 1994, but the independent production has still not treated fairly as a recognised market player in the Chinese TV market until today. In practice, the independent production companies had already appeared in different forms before 1994, but without formal government acknowledgement. They survived under many different covers in the market despite a lack of copyright protection and without guaranteed payment from stations. Even today, it is still difficult to find exact statistics about independent production companies from government reports. Generally, the statistics of independent companies are buried under mainstream statistics; there is no exact reporting on them in official documents. Sometimes the role for this group is controversial when their existence influences the government‟s media policy of 'bigger and stronger ' for the state-owned media. Because the government still focuses on how to enhance state-owned media to increase the propaganda capability or compete with international conglomerates.

15 Competition and Innovation: Independent Production in Chinese TV Industry

Different with the majority of the Chinese television study, my research focuses on independent production, not the state-owned media in China in order to understand how this group impacts on the transformation of policy, market and technology. As I discuss in the following chapters, independent production has played an important role in the television industry globally. The Chinese television industry is entering into a „post- broadcasting‟ era too, facing a global deregulated market, the multiplication and convergence of media formats and the fragmentation of media audiences, particularly national audiences (Turner and Tay 2009, Intro). I believe that the development of independent television companies is a worthwhile research project not only because it reflects changes and reforms in China's TV industry but because it brings up the topic of television innovation in the post-broadcasting era. My argument is that this transformation of policy, market and technology is driven by independent production more than slow-moving bureaucratic state-owned organisations. As Leadbeater and Oakley (1999) have pointed out, independents play a key role in many aspects in cultural industries. Independent production in China is playing an important role in the television industry development too with the market reform.

1.3 Outlines of Chapters

In Chapter 2, I introduce concepts from media economics, which will be used to measure or evaluate the television market in China. It includes the concepts of the market structure and the market value chain. In order to describe the market, the concepts of competition and diversity are introduced to examine the inter-relationship of products and firms in the market. The government intervenes in the market by regulation. For the television companies, the main concern is to balance risk and creativity.

In Chapter 3, I discuss the core concept of television innovation and, following this concept, outline my research structure. As the concept of innovation is seldom referred to in television studies literature, I explain the term in the context of my thesis. The research focus is on the innovation in the market, not only the content itself. Generally,

16 Competition and Innovation: Independent Production in Chinese TV Industry television content is blamed for a lack of innovation, but, in fact, I argue that the process of production and distribution has undergone dramatic changes in the development of television, especially in the era of „post-broadcasting‟. The diversity and competition represented by independent production plays an important role in stimulating innovation. Meanwhile, the innovation environment needs a regulatory balance between independent production and mainstream broadcasters. Regulation and market practices are two important factors. I examine the Chinese market within this framework.

I focus on television in China‟s context in Chapter 4. Firstly, the historical development of the television industry in China is introduced with the factors influencing competition and innovation. Then the current situation of the industry and the historical developments of independent production since the broadcasting reforms took place are explained. The innovation process and the role played by independent production are emphasized. In the development of television in China, regulation from the government has influenced industry growth dramatically.

From Chapter 5 to Chapter 7, the current situation with regards to independent production is explored by looking at three submarkets: TV drama, entertainment and animation, that are dominated by independent production in China and they are also the market-liberated genres in China and the main trading genres globally. With the growth of the independent sector in these three fields, production supply has increased quickly, not only to occupy the domestic market but also in extending into international markets. Each submarket is explored in the framework of government regulation and the market practices of the independent production companies. In order to explain a complex situation, I have chosen three individual companies from these three submarkets as case studies. Within their submarkets, I analyse issues according to regulation and market practices.

In Chapter 8, I have chosen the US, the UK, the Japanese and the Korean markets as a comparison to act as a mirror to reflect Chinese characteristics in the television industry. I focus on regulations and the practices of independent companies in TV drama, entertainment and animation market in these countries. I discuss the influence of the regulations on independent production and also point out the advantages or

17 Competition and Innovation: Independent Production in Chinese TV Industry disadvantages as compared to Chinese regulations. I also explore the innovation of independent companies in these countries in content and market processes, including formatting and branding.

In Chapter 9, the characteristics of innovation and competition in the Chinese television environment are analysed. Compared with television in the other countries, China is more heavily regulated. Regulation impacts on competition and innovation. In such a market, the relationship between the independent sector and the state-owned broadcasters are not as simple as that of collaborators or competitors. Independent firms have to be concerned about not only risk in the market but also regulatory risk during the process of innovation. Creativity is limited not only by the degree of diversity but also the degree of censorship restriction.

In the last chapter, I provide a conclusion and the significant contribution of this research based on the findings in this thesis.

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Chapter 2

Literature Review and Theoretical Concepts

2.1 Introduction

As a media industry, television generally is considered from the perspective of economics; as a creative industry, television is considered as a business with unique elements of creativity and risk. In this chapter, I introduce concepts relevant to my research from media economics and policy studies. Within the framework of media economics, the operation of independent production should develop under a certain market structure and market value chain, depending on the degree of competition in the respective media market. From the perspective of the policy studies, the environment of independent companies also depends on competition and diversity, essential factors in balancing the market. In this research, independent television will be considered as a creative industry. I will use concepts of media economics and media market to examine the television industry and television market.

2.2 Television Studies in Creative Industries

Since television was developed as a form of mass media in the middle of the 20th century, television studies have been one of most important parts of media studies. However, in the process of fundamental worldwide changes in media technology and social environment in the last two decades, television studies have been recognised as being more complicated and ambiguous in the new circumstances of globalization, deregulation and convergence (Turner and Tay 2009, 16). Echoing this point, the researchers and government policy makers are trying to transform this change into research and policy. In the theoretical framework, scholars have defined the boundary of the new television study as the „post-broadcasting‟ era (Turner and Tay 2009) or

Competition and Innovation: Independent Production in Chinese TV Industry

„Television studies 3.0‟ (Miller 2010) in order to differentiate the special features of contemporary television. And with the development of this new terminology, creative industries have been included in the new framework as a cultural or creative commodity. Television studies, as the core part of this cultural or creative commodity, have also undergone a change in definition.

In traditional television studies, generally there are three majors (Miller 2010). The first is about institutions, the ownership and the control of the technology; the second is about content, the textuality; the third is about audiences, or the public. As Miller reveals, TV Studies 1.0 focuses on ownership and control rather than audience response and frequently functions on the political-economy side of things, „neglecting struggle, dissonance, and conflict in favour of a totalizing narrative in which television dominates everyday life and is all-powerful‟ (Miller 2010, 26). By contrast, TV studies 2.0 represents the popular classes, and the all-powerful agency is the audience not the industry. TV 2.0 claims that the public is clever enough to be able to „make its own meanings, outwitting institutions of the state, academia and capitalism that seek to measure and control it‟ (Miller 2010, 27). Consumption is realized as the key point in the research undertaken by observing the practices of viewing. In Miller‟s summary, both TV Studies 1.0 and 2.0 are frequently associated with the more critical, textual, political-economic and ethnographic side. The new television, however, has two other constraints to face: technological and political. With the new technology, especially the emergence of multimedia, the political constraints from regulation shift from restrictive regulation to deregulation. Due to deregulation, the structure of the television industry has changed on many levels: international, national, regional and municipal (Miller 2010). Thus, what should the new TV Studies be in the new circumstances?

Although there are many different expressions and explanations, the creative industries frame provides a new and varied vision of scale, organisation and economic activity for the television. Today, there is a new television era, which is as new as the platform and the content, the spectrum and the distribution (Keane, Fung and Moran 2007, 191). The multi-channel environment is resulting in dramatic changes to television production and consumption; globalization drives television content into a new international practice of entertainment formatting; and the institutional structure is shifting towards production sectors beyond the usual platforms of control. The tension under this extraordinary

20 Competition and Innovation: Independent Production in Chinese TV Industry transformation is much stronger than at any other stage before, not only in television but also in the whole of society. It is already hard to explain any of these phenomena under the traditional framework of television studies. Creative Industries provides a new vision in which to understand and interpret our current environment.

In an economic context, „industry‟ can be classified broadly (i.e. manufacturing) or specifically (i.e. fast-food restaurants). For the traditional manufacturing industry, the term includes: (i) large-scale enterprise; (ii) industrially organized; (iii) led by entrepreneurs; where (iv) production is the key to added value; in (v) a defined sector of the economy (Hartley 2005, 23). However the creative industries are often micro- businesses, or SMEs, and are organized around projects, not the factory or office; the business is consumer-led and is based on the individual; value is achieved from the consumption end of the value chain; and they are increasingly dispersed into other service sectors. Therefore, in order to understand television as an industrial term, its unique economic features have to been recognised within this framework (Hartley 2005, 23). Hesmondhalgh writes:

One of the most important ways in which corporations have changed their organisational structures, in nearly all major areas of business, is that they increasingly subcontract to small and medium-sized firms. (Hesmondhalgh 2002, 151)

SMEs alongside the main television networks are often more able to innovate. The independent production has become an important part of the television market and creative economy.

2.3 The Concepts of the Television Industry and Television Market

Media economics research concerns „the application of economics theories, concepts and principles to study the macroeconomics and microeconomic aspects of mass media companies and industries‟ (Downing 2004, 291). The researchers try to understand the economic factors shaping the evolution, behaviour, content output, the factors

Competition and Innovation: Independent Production in Chinese TV Industry underlying the production and the distribution of content, as well as the audience (Napoli 2009, 161). The television marketplace is the most developed in the United States. It is also considered to be the best „soil‟ in which production companies can grow. Since the 1980s, the European TV system has gone through a process of market reform to provide an active market environment for independent production. The key concepts associated with the marketplace are policies or market practices related to competition and diversity, „maximizing the number of distinct participants in the idea marketplace‟ (Napoli 2001, 25). The rise of an independent production sector has improved competition and increased content diversity. Consequently, independent production has stimulated competition in the global market.

2.3.1 Market Structure in the Television Industry

Traditionally, in terms of microeconomic theories, the most widely used framework to analyse the media industry and market is the industrial organisation model (Albarran 1996, 2004, 2010): SCP (structure-conduct-performance) model. According to the SCP approach, the market structure can be categorized on the basis of five models, with variables including the number of sellers/buyers; production differentiation; barriers to entry; cost structures and the degree of vertical integration. These four models of the market structure are perfect competition, monopolistic competition, oligopoly and monopoly, which are summarized in the four core factors below.

Type of Media The The differentiated/ The degree of The difficult Market Number substitutable degree of controlling of degree of the Structure of media media products price by media entry of new firms firms competitors Perfect Numerous Selfsame/ can be No Very easy without competition substituted completely barriers Monopolistic Many Same category but Appreciably Comparatively competition differentiated/basically controlling easy can be substituted Oligopoly A few Homogeneous or Considerably Difficult with differentiated/ can or controlling certain obstructions cannot be substituted

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Duopoly Two Interdependent of one Relatively Very difficult but firm impact on the other similar and set still possible with by the firms certain conditions Monopoly Single The only product/no Greatly Very difficult, homogeneous controlling but almost impossible substitutes commonly regulated or restricted

Table 2 Traditional approaches to defining the market (Albarran 2010, 31-32; Picard 1989)

Historically, each media market used to be defined by analysing the specific product and geographical dimensions. However, today, many industries have been rethought for their treatment with the combination of the regulatory, technological and globalization forces (Albarran 2010, 54). It is harder and harder to define clear market structures; telecommunication and cable television used to be treated as a monopoly model but new technology has brought alternatives. In the television industry, the sub-segment markets of free-to-air TV, commercial and public service broadcasting and pay TV all have different business models. Furthermore, they can also be broadcast using terrestrial, satellite or cable infrastructure, or be streamed via the internet.

No matter how complex the media market, generally they still operate in two separate but related products market, called a dual-product market. The term dual product market suggests that media industries generally contain two markets – the consumer market for media goods and services and the advertising market in which services are sold to advertisers in the form of access to audiences (Albarran 1996; Picard 1989) (See Figure 1). Within the television industry, many analysts have indicated the importance of two markets for firms: in the audience market, firms have to sell the content to audiences; in the advertising market, the firms have to sell the time to advertisers (Napoli 2001; Owen and Wildman 1992; Picard 1989). And, simultaneously, firms operate in international, national and local geographic markets. On the low end of the geographic markets is the local market, which generally refers to the signal coverage area for terrestrial broadcasters, for the individual broadcaster‟s or the cable system‟s products (Bates 1998, 250). This area is normally constrained by both technical and

Competition and Innovation: Independent Production in Chinese TV Industry regulatory limits and thus there is normally a number of local markets defined. These markets are then aggregated into regional and national markets.

Figure 1 Dual product market structure (Albarran 1996, 28; Picard 1989, 18)

Napoli (2001) presents the matrix in both the geographic market and product market, which is helpful to understand the competition at the different level (See Figure 2). He breaks the content market into two components: the upstream, or the wholesale content market; and the downstream, or the retail content market. Generally, the upstream component represents the relationship between program production sectors and distributors, and the downstream component represents the relationship between program distributors and audiences. The upstream content market is the market in which outlets purchase programs from production sectors, primarily at the national level. The downstream content market is the market in which programs attempt to sell or give away their content to audiences. The second major television market is the audience market, in which media firms attempt to sell the attention of the audiences they attract to advertisers.

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Figure 2 The dual product market across the geographic market (Napoli 2001, 160)

In a competitive market, audiences and advertisers can interact in the market. In a competitive market, no matter if it is free-to-air networks or cable system broadcasters, the competition is based on the content to attract advertisers or audience subscriptions. Therefore, „content is king‟ becomes the predominant rule in the television market. Meanwhile, in order to maximize limited time, the more valuable demographic groups for advertisers become the target of an increasing amount of programming, both locally and internationally. As a result, more and more youth-oriented television programs, like genres such as TV drama, entertainment and animation, attract advertisers. However, who is the most competitive player in the content market, the broadcasters or the content producers? In a competitive market, the content producers have more advantages in the production stage of the market value chain.

Competition and Innovation: Independent Production in Chinese TV Industry

2.3.2 Market Value Chain in the Television Industry

The value chain is shaped by industry structure (Porter 1998, 58). In Porter‟s terms, the basic tool is to diagnose the competitive advantage and enhance the value chain (Porter 1998, 26). The value chain describes the process between the production and consumption and the added value, especially for the firm‟s management. Value chain analysis is designed to pay full attention to the possibilities of increasing revenue and cutting costs all along that chain, not just in the process of manufacturing or production (Hartley 2008, 20). Generally, the discussion on a value chain focuses on a chain of activities for a firm operating in a specific industry. With the concept developed broadly, the value chain has been extended beyond individual firms to the industry level. The value chain is generalized in three main sections. At one end of the process are origination and production; in the middle is found the commodity and its distribution; at the other end is the consumer or end user (Porter 1985, 1998).

Due to the pace of progress of media expansion, the production-consumption value chain has become complex. The value chain for the media can be structured along four core process: the content-generation process, the content-delivery process, advertising sales and end-customer interaction (Aris and Bughin 2005). In mature media markets, the value chain has been developed into a more segmented and professional sector. It is structured along four core processes (See Figure 3) which characterize most media organisations (Aris and Bughin 2005, 11). In the television market, once a creative idea is introduced, formalised and produced into a program, it will result in a value chain in the content-generation process, illustrated below (Aris and Bughin 2005).

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Figure 3 The four core processes in the market value chain of media industry (Aris and Bughin 2005, 11)

In television, there are three fundamental components to be considered in the market value chain: the content (programming), the distribution (broadcasting or cable system) and the funding system (advertising or public funding) (Bates 1998, 227). The most important is that different funding models perceive the value of the content and the source of the value differently and each emphasizes a different and distinctive audience for the content. Consequently, there are differences in how the markets are defined and structured for each of these models and there are different conceptualizations of the goods and the buyer of the goods under each of the funding systems. Firstly, it has to be clarified what kind of funding system it is in the market, because the funding system can shape the nature of the competitive model in the value chain.

Bates (1998, 228) explains that there are three main models of funding in television. The first model is the direct-pay, or subscription model, where the individual or the group receiving and consuming the content pay directly for the ability to obtain programming. A second model is the advertising model where the group, placing the value on the content, is not the programming recipient, but another group, which wants to provide content or information to that audience. In this model, the goods are not the program itself, but the audience, or, rather, the attention of the audience. The final model is the government model where tax revenues are used to fund broadcasting on

Competition and Innovation: Independent Production in Chinese TV Industry the basis of its perceived social value, thus access is subsidized. Today, television systems can utilize a mixture of different funding models. However, in most countries, the television industry can still be defined within one of these models, with the majority of funding coming from just one source.

The basic source of value in television comes from the content. Therefore, the core of the value chain in the television market is the programming. However, the exact value of programming is unknown until the point of distribution and consumption. Bates (1998, 236-238) concluded there are several general rules that represent the special features of how the content value is distributed in the television market.

 The first of these general rules is that the value of the content tends to decline with duplication, as programs have low marginal costs of production. This means that a program will have the greatest value the first time it is shown or consumed, and that subsequent consumptions will be less valuable to the viewer and to the broadcaster as well. But some programs may develop a „cult‟ status, where the value of repeat viewing lies not with the additional information gained, but from the general experience.

 This leads to the second general rule of programming value. With informational programs, the value of the content is primarily in the information itself, in what the viewer learns. With entertainment programs, the value is based less on the specific information provided than the experience of viewing. As a result, for entertainment programs, there is not only a first-run market, but there are subsequent opportunities for reselling.

 The third general rule for programming is that the greater the production values in the program, the greater its value to consumers. Clearly, production values alone do not create the value of a program, but higher production values, in terms of better actors, writers and directors, more realistic locations, etcetera, do tend to result in higher expected values for programming.

 A fourth general rule is that programs will have greater value for the target audience than for other audiences. The more specifically targeted a program, the greater the value of that program for that specific target audience and the less its value for other

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audiences. Therefore, one of the deciding factors for producers and broadcasters is the relative size of the target market, whether the target audience group is large enough and the value of the programming is high enough within that group to cover the cost of production.

After production, a program can be distributed to consumers through different distribution systems. The essential economic difference between wired and wireless broadcasting system lies in the technological differences of the two distribution systems (Bates 1998). In both wired and wireless distribution systems, the market can be divided into the local, the regional, the national and international market. As noted above, the costs of programming follow a pattern of high costs for the initial production and low cost to duplicate and distribute subsequent copies of the program. Thus, for program producers, there is a strong economic incentive to distribute those costs over as many broadcasters and into as wide a coverage area as possible. One way is to distribute a program to many stations or networks. The other way is to maximize the value of the programming to stations and audiences by providing program exclusivity. Since the value is highest for the first airing of a program, stations seek to minimize the availability of that program. For broadcasters, „there are also incentives to act as program aggregators, in the ability to extract benefits from efficiencies of scope, cross- promotion and the ability to establish and identity and thus establish expectations for value, even where the viable markets are entirely within a single small coverage area‟ (Bates 1998, 247).

2.4 Competition and Diversity in the Television Market

Within television markets, the benefits of competition have often been seen in traditional economic terms, such as increasing efficiency, enhancing quality and innovation, and maximizing consumer satisfaction. Many studies have found that increased competition is associated with greater financial and personnel commitment to program production. Competition promotes diversity of sources and content (Napoli 2001; Johnson 1994). Extending competition and diversity can enhance media

Competition and Innovation: Independent Production in Chinese TV Industry pluralism, which can avoid the over-representation of certain political viewpoints or values, or certain forms of cultural output, at the expense of others (Doyle 2002).

2.4.1 Dimension of Competition and Diversity

At either end of the spectrum for the market model are two structures: monopoly and its opposite, perfect competition. Certainly, perfect competition exists only under ideal conditions characterized by many buyers and sellers, many products that are similar in nature and, as a result, many substitutes. In reality, there is no existing perfect competition model without barriers to entry for new companies. However, under certain competitive structures prices can be determined by the market and producers can increase the price based on supply and demand.

The degree of competition can be assessed in content markets and audience markets separately by determining the degree of substitutability between media products and the audience. In content markets, “the history of the effective competition standard is historically instructive in that it illustrates the dynamic nature of media content markets and the associated difficulties in determining substitutability across media products” (Napoli 2001, 165). With the development of new technologies, competition has expanded. Policy intervention plays an important role in market competition. I will explore the influences exerted by government on competition in the next part in this chapter.

Napoli divides the primary components of diversity into three broad categories in the marketplace: source diversity, content diversity and exposure diversity (Napoli 2001, 129) (See Figure 4). The diversity chain illustrates the relationships between the media production organisations, the content and the audience. Diversity in the source of information is related to the diversity of the available content. An increase in the diversity of available content can lead to an increase in the diversity of content consumed by audiences.

30 Competition and Innovation: Independent Production in Chinese TV Industry

Figure 4 Diversity components, subcomponents and assumed relationships (Napoli 2001, 129)

Diversity of ownership is a highly influential factor in media pluralism and it can be divided into two categories: content ownership (or suppliers) and outlet ownership (or outputs) (Doyle 2002; Napoli 2001). In order to maximize the diversity of content, the separation of ownership between the content and outlet becomes very important. As both content and outlet owners, television broadcasters can also produce their own content. However, as outlets, they can decide which source of programming will be distributed. Thus, the outlets may favour certain program owners over others. Diversity in programming still depends on the decision made by the owners of the distribution outlets. As a result, the ownership between content production and broadcasting outlet has to be artificially separated in some ways by the policymakers.

Diversity of content ownership can also improve content diversity. With different program types or format designs, program-type and format-type diversity increases the likelihood of maximizing the satisfaction of more categories of viewers, and there are different audience preferences and behavioural distinctions in viewing patterns. With more diverse content representatives for the minority in the demographic way or with the same interest, the minority can be portrayed in reasonable proportions to their prevalence in the society. Meanwhile, the diversity of viewpoints reflects diversity in social, political and cultural perspectives (Napoli 2001, 138).

2.4.2 Government Intervention

Television has both attributes of public good and commodity. As such, television is regulated typically through government intervention. Governments take control of the

Competition and Innovation: Independent Production in Chinese TV Industry content sources by introduction of some form of censorship to demonstrate public concern (Bertrand and Hughes 2004, 125). In addition, policymakers have to concern financial factors and international markets (Napoli 2006, 39). In both public service systems and in the privatized systems, government involves the whole media community – owners, producers and even consumers of media, and also the government agencies that oversee the institutional processes. Government intervention in the television market can be summarized as: firstly, measures to keep a balance in content between the public interest and the market driven programming; and secondly, measures to maintain a competitive market environment to avoid monopoly and preserve ownership diversity.

For policymakers, the foundation principles of the industry are public interest and the marketplace. Based on these two principles, diversity and competition are important themes in academic and legal discourse. Censorship regulation is conducted according to certain principles. The potential effects have to be concerned with social, cultural and political influences that extend well beyond individual institutions (Napoli 2001). Under the conditions of a market economy, governments can use administrative intervention to resolve problems in resource allocation in the market, promote fair competition between producers, protect producers and consumers, and satisfy the public interest, in order to achieve the goals of diversity and competition.

Generally, in order to limit competitive entry and define specific prices, products and services of „natural‟ monopolies in the market (McKnight, Vaaler and Katz 2001, 4), the government can intervene in the market in four major ways: regulation, advantages, subsidies and taxation (Picard 1989, 97). First, regulatory agencies are created by governments to assist with the regulatory process. Regulatory agencies can function at different levels of government (Albarran 2010, 115). Usually, the agencies focus on three types of market regulation – technical, market structure and behavioural (Picard 1989, 96). Technical regulation is introduced to set, or maintain, technical standards; market structure regulation is introduced to build up certain licence systems, such as television licences and cable franchises, in order to control the numbers of producers or sellers, horizontal or vertical integration, and the development of monopoly of a specific market, thereby protecting the market structure; behavioural regulation is introduced to control the actions of firms and some economic effects involving

32 Competition and Innovation: Independent Production in Chinese TV Industry

“increase or decrease in costs, revenues, or profits caused by the addition of non-market requirements and forces” (Picard 1989, 96).

Furthermore, in order to stimulate target specific industries, producers or firms, the government can provide advantages, subsidies or taxation priorities to improve the undesirable externalities according to the preferred treatment in the different markets (Picard 1989, 96-97). The benefits of such advantages, subsidies and taxation priorities in media markets can lead to a reduction in the costs of goods and services, a rise in profits and the stimulation of media production. Subsidies also take the form of research funding for the improvement of journalistic and media production techniques, or the direct purchase of media goods and services by governments. Considering market competition, governments customarily choose an appropriate form of regulation in response to the conditions applying at the time.

2.5 Creativity and Risk for the Independent Television Production Companies

There are several distinctive characteristics of television content as an economic commodity: immateriality, novelty, non-rival, non-excludability, high-risk (or high uncertainty), and perishablility (Collins, Garnham and Locksley 1988, 7). The value of the content is based on its usefulness when it is consumed. However, TV programs are immaterial goods, television production is a risky business and the value of the content lies in the novelty of the goods and in the production of new content. However, once the initial content is created, duplication consumes no other physical goods and thus imposes no other direct cost, while its value remains steady, even after consumption. Meanwhile, consumption of the content does not exclude others from the opportunity to acquire and consume the content, so distribution and consumption can be implemented in many different levels of the market. Therefore, content production is a high return business, if successful. Under television market structure, independent production companies play an important role in the content production value chain. Compared to the outlet control of the broadcasters, independent production takes more responsibility

Competition and Innovation: Independent Production in Chinese TV Industry for competition and innovation. As independent producers of the content, the independent production companies have to consider all of the above factors too. As a result, there is much more uncertainty and risk, but that is the challenge of creativity and novelty.

2.5.1 Risks for the Independent Television Production Companies

Creative industries are focused on the production of texts to be bought and sold (Hesmondhalgh 2002, 18). Risk derives from the fact that audiences use creative commodities in highly volatile and unpredictable ways, often in order to express their difference from others (Garnham and Inglis 1990). As a result, some texts can suddenly become outdated even if they are heavily marketed, and some other texts can become unexpectedly successful. Hesmondhalgh (2002, 18) generalizes these risks as being related to two main factors, which creative-industries companies face as special and unpredictable problems. First, companies grant creators a degree of autonomy in the hope that something original and distinctive enough is going to be created and be a hit. Thus, the companies have to take the risk in a constant process of struggle to manage what creators are likely to come up with. Second, each company is reliant on other players in the market value chain to make audiences aware of the existence of a new product, or of the uses and pleasure from experiencing the product. But it is still difficult to control the kind of publicity the text is likely to get, even if you own all the subsidiaries in each part of the market value chain.

The market for television production companies is high risk because the primary source of its value is clearly its content, whether it is informative, persuasive or entertaining. Such value is not realized until the content is distributed to and consumed by the viewer (Bates 1998, 229). Therefore, the value of the content is based in audience perceptions, which broadcasters have to estimate in order to determine their perceived value for the program content; and, simultaneously, the producer of programming has to estimate the likely value of the program to broadcasters when they make their decisions about producing and selling the program. Despite the negligible cost of duplicating content, initial production costs can be very high. For the audience market, the initial cost of generating the audience is high. The broadcaster has to establish the message

34 Competition and Innovation: Independent Production in Chinese TV Industry distribution system and acquire the programming to attract the audience before any access to that audience can be offered. However, once the audience is generated, there is little direct cost involved in sending an additional message. In economic terms, it is defined as „high start-up costs, but low marginal costs‟ (Bates 1998, 234). In this model, it is suggested that the producers will tend to maximize production of the goods to reduce the average cost, or at least until the increased supply will have a negative impact on the value of the goods.

One general feature of television markets illustrates high levels of uncertainty. In order to reduce the market uncertainty risk, both content producers and broadcasters attempt to spread those risks across goods and markets. Bates (1998, 232) concludes that there are three ways to reduce risk. Generally, one obvious way is through promotion and advertising. For the suppliers, some advance viewings of the product may decrease consumer uncertainty and increase the perceived value of the content. For the independent production companies, one of the risks is that they do not own the outlet platforms so cannot promote or advertise themselves. Therefore, they have to seek collaborations with broadcasters.

The second way to reduce the risk associated with production is by favouring consistency and familiarity over innovativeness (Bates 1998, 232). If successful, viewers establish a general expectation of the value of a new program based on their previous experience with related information content. Like drama series, producers and broadcasters favour consistency and familiarity. This can work not only with new episodes of continuing programs, but with any component which has established a consistent value. Broadcasters and producers can establish general value for programs. A particular star, writer or director can bring to the project certain expectations about value. The star system is a risk-reduction strategy. Independent production companies have to take more responsibility for the risk of the innovation because they generally seek more innovative strategies than broadcasters to win contracts.

Another way is to provide more content (Bates 1998, 232). While the individual program is high-risk, producers prefer to have a number of programs. There will be some success, as well as some failures in any large group of programs. It is an aggregation strategy, meant to spread risk. The aggregation strategy works for program 35

Competition and Innovation: Independent Production in Chinese TV Industry distribution as well. It is used by broadcasters to aggregate programs and schedule new programs, and for multi-channel distributors to aggregate channels in blocks or tiers. As the content providers, most of the independent production companies build up the brand in their particular genre or format, in order to aggregate the source and reduce the risk.

Furthermore, the presence of the secondary market allows producers and broadcasters to spread risk across markets (Bates 1998, 232). As competitive forces push up program quality and cost, the best strategy is to seek out markets beyond the primary market for the program. In competitive situations, the drive to attract larger and larger audiences tends to push program costs higher. The ability to spread risk and to acquire additional revenues has encouraged producers to seek out additional markets, such as foreign sales. This has led to greater international co-productions and the creation of programming with international values and interest. In this strategy, the independent production company takes advantage of broadcasters and adapts itself, or their programs, across the market. I will discuss worldwide television markets and the Chinese television market in the following chapter.

2.5.2 Creativity from the Independent Television Production Companies

In economic terms, creativity is one of the most important elements in productivity. Joseph Schumpeter introduced the concept of creative destruction to describe the way in which old ways of doing things are destroyed and replaced by the new (Schumpeter 2006). Creativity is also seen by economists such as Paul Romer as an important element in the recombination of elements to produce new technologies and products and, consequently, economic growth (Audretsch, Heblich and Falck 2009; Jaffe et al. 2002; Link 2008). Even though the relationship between creativity and commerce is still a matter of negotiation, conflict and struggle, there is consensus on the importance of creativity and innovation in most industries. Consequently, creative products are protected by intellectual property laws. Meanwhile, the creative class and creative professionals are recognised as an integral part of modern economies (Florida 2004).

36 Competition and Innovation: Independent Production in Chinese TV Industry

In order to access and understand creative work in media production, the process of creativity has to be disassembled. Although it is difficult to measure creativity, the program generation process can be seen from the ideas generated and packaged into original products which enter into markets through the television market value chain. Therefore, generating successful new content is considered as the heart of the television industry. To create a blockbuster is the ultimate test of a company‟s ability to compete. Success in the media is often judged on the basis of assumptions about commercial intentions (Hesmondhalgh 2002, 71). Content creation is seen more as an art than as a science for a typical „hit and run‟ industry (Aris and Bughin 2005, 81). In the creative industries, structuring the process may kill creativity. As a result, the dynamics at the initial idea generation stage becomes very important. That is why the independents occupy an important role in the creative industries.

In the television industry, programming can be considered as a productive constraint. Creativity and imagination occurs within a certain set of boundaries to enhance the understanding between audiences and producers. The project teams involve themselves in the creation and conceptualisation of the idea, its execution and reproduction of an object, followed by its circulation. The producers and other workers are rewarded by the creative ideas. Copyright becomes the key legal concept for rewarding creators, or company, for their original work and creative expertise. Therefore, the management of product creators is subject to less strict control, as opposed to the control industries exert on distribution and marketing (Hesmondhalgh 2002, 161). This situation allows independent companies to tie themselves to larger companies through financing, licensing and distribution deals. The larger companies exert much tighter control over production, distribution and marketing in order to reduce the risk associated with managing creativity.

Protecting creative ideas is also a key challenge for the media industry. Since the 19th century, copyright has strengthened the ownership of creative commodities and provided incentives for creators. However, with more complex media forms, this legal framework has became more contradictory (Hesmondhalgh 2007, 72), especially in an era of globalization. In the television context, TV formats are invented as a form of intellectual property to protect content creators from unauthorized adaptation and also to establish a market for the trading of TV programs and program concepts among TV producers,

Competition and Innovation: Independent Production in Chinese TV Industry distributors and broadcasters. Due to the large cost savings associated with minimizing the risk of inventing something original, format purchasing is popular with broadcasters. The TV format is often used as a licence to produce and to broadcast a national version of a copyrighted foreign television program and to use its name. Format trading has become a major part of the international television market and independent companies have also become an important part of trading in the international market.

Due to the complexity of the format details, it is very hard to give TV formats a legal definition within copyright law. TV formats are „understood as the set of invariable elements in a program out of which the variable elements of an individual episode are produced‟ (Moran and Malbon 2006, 20). It involves all of the components in the programming process basically including the initial paper draft, the paper format which summarized the details of the initial concept and the program/format „Bible‟. It can also include the production consultancy services, blueprint and set specifications, computer software and graphics, sound, scripts, insertable footage depending on the individual format. As a result, copy-cat formats are sometimes created, which seek to duplicate the success of an original format without paying the rights-holder of the original format. On the other hand, the spin-off program in the other country can be totally new and original. The new elements based on the existing TV format also expand the range of possible application or adaptations. Therefore, the copyright protection in the international market is still a problem, especially in the media environment with globalization and internationalization (Moran and Malbon 2006, 20).

2.6 Conclusion

In this chapter, television as a market was discussed, together with the concepts of market risk. In order to understand the television industry and television market, relevant theories of media economy were reviewed. As the theories illustrated, the commercial television market dynamically transforms with the audience market and the advertising market. In my research, the interaction of the advertising market and the consumer market with independent companies will be examined in the television

38 Competition and Innovation: Independent Production in Chinese TV Industry market value chain. Also, as a heavily regulated industry, television experiences government intervention in many aspects. I examined the most important components of the television marketplace: competition and diversity, which are two dimensions used by policymakers to adjust competitiveness and protect markets. Therefore, in my research, the policies adopted to adjust competition and diversity which directly impact television production companies in the market will be examined too. Meanwhile, for television production companies, capability of creativity is also an important factor to increase competitiveness in the creative industries. It is necessary to protect and encourage the creativity in the market to improve competitiveness and diversity. Overall, I conclude that two main issues have to be considered for television production companies in the commercial television environment. One is business risk, including the market factors and capability of creativity and the other is structured uncertainty, including the government intervention and political factors. In the next several chapters, these concepts will be examined in the development of the global television industry, with particular reference to China.

Competition and Innovation: Independent Production in Chinese TV Industry

Chapter 3

Innovation in Television with Independent Production and Research Design

3.1 Introduction

Is there innovation in television? While innovation has been studied in a variety of contexts, including in relation to technology, commerce, social systems, economic development and policy construction (Fagerberg, Mowery and Nelson 2006), it may have different explanations in different fields. However, innovation is rarely studied in relation to television. Television is seldom considered as a public service any more, but is seen as part of the creative economy. Therefore, innovation in television is needed in order to meet changes in the market. The market structure also needs to adjust in response to government regulation and competition from the open market. In this chapter, I will argue that the forces of innovation develop as a result of market competition and regulatory change, and that the independent production sector plays an important role in the innovation of both the content and the processing of content. In the context of Asian cultural proximity, the characteristics of innovation ecology will be discussed.

3.2 Innovation in Television Globally

Television has experienced innovation in technology, consumption, regulatory frameworks and industry structure, both historically and globally. As an industry, television has experienced convergence with other media platforms; as a media product, television programs have developed from passive viewing to a more interactive experience. With deregulation, market liberalisation and globalization, television has

40 Competition and Innovation: Independent Production in Chinese TV Industry evolved from comprehensive large-scale studio productions to specific productions on a comparatively smaller scale.

3.2.1 Innovation in Television in the US and the UK

Over the last several decades, television has developed under the US and UK umbrella in terms of technological convergence, regulatory and deregulatory policy regimes and global trade. New technology has impacted on television and has influenced the way that viewers use television and it has modified the production and distribution process. These changes have led to changes in the content production processes. The status of American and British television as leaders in the field provides the best reference for the development of television. Through examining the evolution of television in the US and the UK, we can view the changes that occur in relation to content and industrial processes.

Rogers, Epstein & Reeves (2002) have defined the three eras of evolution as Television I, II and III. Before the 1960s, television was the early stage of the development and still growing in the shadow of radio and film. Thus, this period pre Television I is considered as the time when television was being introduced to the world. In this period, mature Hollywood film studios were involved in TV production, but they generally regarded TV as an advertising vehicle for their films and their brand (Curtin and Shattuc 2009). The major five film studios: Warner Bros., Universal, 20th Century Fox, Disney and Paramount developed subsidiaries in TV production. Since then, American studio-produced programs have become well-known as telefilms. Meanwhile, many initial producers who migrated from film studios to TV production brought new blood to TV content.

The golden time for television is considered to be the 1960s. The era of Television I from the 1960s through to the 1980s was „a period when television broadcasters profited by delivering a largely undifferentiated mass audience, in lots of a thousands, to advertisers‟ (Rogers, Epstein and Reeves 2002, 46). It can be called the mass TV period. In this era, American television stayed in the „classic network‟ stage and 41

Competition and Innovation: Independent Production in Chinese TV Industry eventually launched the public broadcasting service, although the public broadcasting service played a much smaller role than in most other countries. Its British counterpart started the decades of „cosy duopoly‟ between public network, BBC, and its commercial rival, ITV. In this period, programming was under the creative control of television oligarchies who orientated television programming towards the perceived requirement of a mass audience (Dunleavy 2009, 4).

From the 1980s to the beginning of the 21st century, television entered into the era of Television II, the period of quality TV that targeted high-value advertising niches. In this era, new competition arose in American television: additional terrestrial networks FOX and WB and UPN, and also the premium cable networks HBO and Showtime; in British television, the new public network Channel 4 and multi-channel satellite service BSkyB arrived. Pay TV with its premium-brand attracted subscriber loyalty towards non-mainstream programming (Rogers, Epstein and Reeves 2002). An important indicator of the shift from TV I to TV II was „the development of programming that attracted segments of the population that were most valued by advertisers‟ (Rogers, Epstein and Reeves 2002, 44). The new competition impelled programming to open up to a greater range of content providers and creative approaches (Dunleavy 2009, 5).

The era of Television III is in an unfolding period, but is a new narrowcasting age that responds to a more aggressive multi-channel and multi-platform competition environment (Dunleavy 2009, 239). Meanwhile, television technology is completing a transition from analogue to digital transmission. Therefore, TV programming has had to develop strategies to compete with, or exploit, the internet as an additional platform. In this convergent multi-platform environment, the content delivery strategies need to shift from an advertiser focus to a user experience focus. This has also been referred to as a post-network era (Lotz 2007), a technology-driven process shifting power from broadcaster control. Content, as well as how audiences receive and use this content, has changed dramatically. In the network era, television programs were a broadcasting-only text. In the post-network era, programming is centred on the segmental audience, in the subscription-based cable or satellite TV context, or the user-based multi-platform, as an alternative to advertiser-funded broadcast services.

42 Competition and Innovation: Independent Production in Chinese TV Industry

As reflected in the different Television eras, programs have evolved in different ways under different American and British broadcasting systems. Following the film studio tradition, TV drama was the hallmark of the network era (Curtin and Shattuc 2009). In the commercial context of advertiser-funded broadcasters, „regular‟ drama has transformed to „quality‟ TV and „high-end‟ TV, which is labelled „Not TV‟ and even has „cinematic‟ visual quality to emphasize its distinction, with higher production cost and unusually innovative serials (Dunleavy 2009; Rogers, Epstein and Reeves 2002). In order to maximize the quality of the writing, video and audio production, the budget for episodes of TV dramas increased more and more, as evidenced by the budgets for programs such as The Sopranos, Lost and CSI. In the US, contemporary „high-end‟ drama production increasingly exceeded US$3 million per hour-long episode (Dunleavy 2009, 198).

In television, non-scripted entertainment programs were always considered as the major genre to fill in non-primetime slots. Their formats did not vary much until the rise of „reality‟ and „lifestyle‟ programming. These formats created a new genre for television programming that presented purportedly unscripted dramatic or humorous situations, which documented actual events and usually featured ordinary people instead of professional actors (Hill 2005). This format involved the ideas of social-network and participatory content in the new media environment (Deuze 2010). The unexpected success of reality TV at the turn of the 2000s changed the old TV programming strategies. This unscripted programming format not only challenged the primacy of scripted TV but it also challenged the global position of the U.S. as the mainstream of scripted TV production. As Curtin and Shattuc (2009, 187) point out, the reality format had its roots in Europe, where the producers could not compete with American high production values and expensive stars. In contrast to the distribution of fictional TV, the revenues of reality TV do not only depend on repeats of the show and on international syndication, but also on the distribution of the program formats themselves. Since the success of reality TV programs, attention has shifted to different topics, such as ethical controversies, globalization and localisation, and even the democratization of television culture (Murray and Ouellette 2004; Xie and Chen 2007; Hartley 2008).

Reality TV differentiates from traditional genres. Although the genre of reality TV developed from the mixture of the game show and factual television, there are enough 43

Competition and Innovation: Independent Production in Chinese TV Industry unique characteristics to differentiate the elements of reality TV from other genres, including the observational „actuality footage‟ and eye-witness testimony (Creeber, Miller and Tulloch 2008, 134). In contrast to traditional genres that emphasize the script, reality TV production concentrates on developing and devising the core concept of the format. Once the essential elements in the format are confirmed, the details of pre-production and post-production are packaged into a format „Bible‟ that can be traded and licensed in the market. Franchising the format of Reality TV is changing the traditional distribution model too; the business has transformed from distributing work to distributing ideas.

3.2.2 New Definition for Innovation in Asia

It is not difficult to see the shadow of the American and the British model in the development of television in Japan and Korea, even including content production and regulatory intervention. However, the success of the Japanese and Korean television industries leads us to think of a different meaning for innovation. The term „second generation innovation‟ is particularly useful for understanding innovation in Asia. Breznitz and Murphree use this term to refer to the mixing of the existing technologies and products with the new solutions and the science of organisational, incremental and process innovation (Breznitz and Murphree 2011, 15). Both Japanese and Korean TV programs adapt existing productions or techniques in television to develop their own products.

How and why does this innovation happen? Keane (2007a, 13) explains the East Asian innovation ecology in six stages. I borrow these six stages to illustrate the process of the innovation on television production in China. Generally, most of the production work started from a low-cost production stage, when the higher cost production sector outsourced their work. The outsourcing production sector can then duplicate the existing products, or technology, quickly at the imitation stage. After improving the production skills or techniques, the growing market will look for co-production and formatting with the high-value added production sector. The build-up of capital and market will expand the production and result in a niche market. The specialization in the market will lead to an industrial cluster with a higher value-add and economies of

44 Competition and Innovation: Independent Production in Chinese TV Industry scale. In the further development stage, the user-led innovation in new media will build up in peer communities.

According to this innovation ecology, television production in China is different from international models. The innovation in China mostly began with the lower layers: outsourcing, cloning and co-production. It is well-known that rising production costs in developed industrial economies have seen the relocation of much standardized production to low-cost locations. However, once they learned the existing technology and how to format products from experience, the local production grew strong enough to build their own style and innovative products. The development side of the production chain thus moved from the lower, copying, level to the higher, value-added, level. To some extent, this process has occurred in Japan and Korea. In the beginning they followed the way of US production. Then Japanese production found its own way to take a leading place not only in the Asian market but also in the international market. Later, Korea learned from the Japanese experience and created its own style. The second generation in Asian television is reflected not only in the content but also in the production process. Japanese anime production was initially derived from Disney but they innovated the products with new characteristics and production processes and re- branded it. Korean drama production used to be based on a Japanese trendy formula but they developed the formula into a product with celebrity creations and various revenue channels (Black, Epstein and Tokita 2010).

3.3 The Theoretical Framework of Innovation in Television

Generally, innovation is considered as a positive and revolutionary change in the thought processes, or it is the useful application of new inventions or discoveries (McKeown 2008). According to the OECD, innovation is defined with reference to four types: product innovation; process innovation; marketing innovation and organisational innovation (OECD 2010). The term innovation is often used to refer to the entire process by which a new creative idea is generated and converted into novel, useful and viable commercial products, services, and business practices. Innovation includes both

Competition and Innovation: Independent Production in Chinese TV Industry generating new ideas and applying new ideas in some specific context, including the processes of the value chain. In economics, much work concerns the relationship between innovation and economic growth (Schumpeter 1939; Pratt and Jeffcutt 2009; Schumpeter 1994).

3.3.1 Innovation Concepts in Economics and Television

Innovation can be distinguished from invention and creativity. According to the definition of the OECD, innovation is a significant improvement based on the current existing products or processes. Innovation can also be seen as a new way, or a new strategy, to change business in the market (OECD 2010). For industry, innovation can be examined using four approaches: industry structures; regulatory approaches; competitive positioning strategies; technological assumptions (McKnight, Vaaler and Katz 2001, 4-5). These four aspects also interact with each other. As discussed before, under different models of market structure, there are different industry boundaries and entry barriers. The model of the market structure can be modified by the government regulation. Government regulation also has to concern itself with technological influence on industry. Firms in the industry will adjust their competitive position, according to all of three factors above, to adapt to in the environment.

Innovation in television has not been extensively researched by the mainstream of media studies. There has been more focus on innovation in relation to industries such as telecommunications and information technology. It has been more common to view television in terms of repetition rather than in terms of creativity and innovation. A classic statement along these lines can be found in Todd Gitlin‟s Inside Prime Time where television is understood in terms of „the Triumph of the Synthetic‟(Gitlin 2000) and an endemic lack of novelty and innovation.

As a television product move through the factories of the production companies and the networks, the singular elements are trimmed back, the corners knocked off. Even „novelty‟ is stereotyped, because only certain forms of novelty are considered saleable. Talk of „innovation‟ is relative in the extreme. (Gitlin 2000, 71)

46 Competition and Innovation: Independent Production in Chinese TV Industry

The term innovation is used to characterize the occurrence of new or improved goods and services, and improvements in the ways to produce these goods and services (Fagerberg, Mowery and Nelson 2006, 7). In the television industry, in order to seek the best position in the market, companies will seek to improve their content and their branding through innovative approaches. Therefore, in order to examine television innovation, I divide innovation in television into two aspects: content innovation and process innovation. The content and process innovation are also influenced by the main elements of the regulatory and market environment (See Figure 5). Meanwhile, the technological changes effect on the environment of the regulation and market.

Technological changes

Dimension Factors Regulation Market

Innovation Content innovation Process Innovation

Figure 5 Innovation in television

3.3.2 Innovation in Television Content

Technological and regulatory changes always affect content production – content transformed with the development of video recording technology; the changes following the advent of portable video cameras; new creative opportunities as a result of special effects technology; the availability of channels for „niche‟ programming. Changes in market competition also impact on innovation. In the past decades, international content flows have increased throughout the world, not only the Hollywood soap opera but also European formats. Television content has changed in many aspects, in the quality, the genre and the format.

Competition and Innovation: Independent Production in Chinese TV Industry

One example of television content innovation is the unit of the show. The show developed from being a one-off to being something that runs for a season, which has a number of advantages for reducing risks and increasing the advertising sale of a successful schedule (Lotz 2007). The season cycle provides more opportunities for creative workers, who can focus more on the end-customer experience, and broadcasters, who can focus more on value-based pricing rather than on quick product replication. Flexibility in season length also offers the creators more time and space for experimentation with unconventional ideas, and broadcasters have more latitude with scheduling.

The creation of television content has developed into a mature process, not only the creative process of a single artist or producer/auteur, but also as an industrial production process. In most industries, product success can be guaranteed by controlling the production process. However, in the creative industries, the more you structure the process, the higher the risk is of killing creativity (Aris and Bughin 2005, 93). A great deal of planning goes into the selection and processing of ideas. In the mature television production market, content generation can still be generalized as follows (See Figure 6).

Figure 6 Content innovation process (Aris and Bughin 2005, 93)

48 Competition and Innovation: Independent Production in Chinese TV Industry

This diagram applies to the television production firm and the television production market. It illustrates that in the content innovation process, it is essential to collect the breakthrough ideas from as many sources as possible and then to focus on the most promising ideas. Before the launch of any new program, it is necessary to test the pilot extensively and rigidly monitor the feedback (Aris and Bughin 2005, 93). It is also clear that the core of this process is to ensure sufficient openness to original ideas. Therefore, where there are few dominant players, there will not be enough diversity and a sufficiently competitive environment to provide more creative ideas and reward innovative projects. By contrast, in a competitive environment, content innovation will be represented as changes in program formats, quality and themes.

Novelty and innovation are risky so it is safer and more „comfortable‟ to produce more of the same or similar (Gray 2008, 23-24).Therefore, it is understandable that many strategies work against creativity and innovation. Consequently, this leads to „Innovation – Imitation – Saturation‟, where a good idea is imitated ad infinitum, through franchising and outright copies until finally the public tire of it (Mittell 2004, 70). Small producers or production companies have to focus on short term returns and to replicate successful formats. One solution is for large companies and broadcasters to invest more in content development to ensure a turnover of ideas. Therefore, regulations in different countries aim to encourage competition and diversity so that the innovation processes, including creation, trading and elaboration of something novel and new, can keep occurring.

3.3.3 The Market Structure Innovation in Television

As I discussed in the previous chapter, once a program is generated, it will be delivered into the market. Generally, this content delivery process in television programming can be demonstrated as shown below. This process illustrates an important element in television market trading: the content rights. Once the idea is confirmed to be launched into a program, the most important step is to ensure the generation of rights. The rights should be defined clearly in the extended sense, not only as a legal piece of paper defining who owns what content, but also as the concrete output resulting from a

Competition and Innovation: Independent Production in Chinese TV Industry creative process (Aris and Bughin 2005, 14). In the mature market, who owns the rights of the content will take the dominant role in the market, „content is king‟.

Sell/Buy Package & Market Create rights rights Price Distributor End-consumer

· · · · In-house Deficit Advertising Free TV ·Independent ·Cost-plus ·Subscription ·Pay TV ·Pay-per-use ·Multi-platform

Figure 7 Main characteristics of the content delivery process (Aris and Bughin 2005, 16; Albarran 2010)

Content may be created by the in-house producer or by independent companies. Naturally, the broadcasters can produce their own content and control content distribution as they wish; the broadcasters can act as both content and outlet owners. As the outlets, broadcasters are able to decide which source of programming will be distributed. Even if the independent producer or production companies can provide the programs, broadcasters may still favour certain programs over others and the available diversity has to depend on the decisions made by the owners of the distribution outlets. Therefore, the separation between the content and the outlet in some ways has to be artificially distinguished by policymakers under the assumption that more diversity of content ownership will encourage more innovative ideas out in the market. It is a kind of the innovative progress that the monopoly of the content ownership develops to greater diversity.

As independent production has emerged to compete with in-studio production, the television market structure has changed greatly with the enhancement of the production sector. The process of television production has undergone much development globally since television became the No.1 mass medium in the 1950s. As the biggest commercial

50 Competition and Innovation: Independent Production in Chinese TV Industry model in the world (Dunnett, 1990; Smith, 1998; Gomery & Hockley, 2006), American fin- syn rules and Hollyhood model has influenced the market structure not only in the domestic market but also in the international market. As the biggest public broadcasting service reform in the world, British regulations mediate between influential commercial and public broadcasting. In the British government‟s concern, independent production has become the important component in the television market and the whole creative economy. Korean and Japanese television programs take the biggest market share in the Asian programs market, which is a result of their flourishing independent production. In Chapter 8, I will examine the influence of the independent production policies and firms in the television market in detail in these countries.

3.4 Research Design Structure

To consider the current development of independent production in China, I divided the research into two dimensions and three submarkets. The television market in China is developing under two essential factors. First, television is a heavily regulated industry and government administrative power has to be considered as one of the most important factors; second, the television market has developed its own rules and established its own work practices. Therefore, in my research, I will consider these two dimensions: the level of government regulation on the independent production and market practice of the independent production companies. Meanwhile, the research respondents will be drawn from the three television program markets: the TV drama market, the entertainment program market1 and animation market where the most of independent companies operate their businesses. The structure of research design is illustrated in Figure 8 below.

1 The entertainment program is a general genre, separated from TV drama, music and sports in the Chinese TV program classification. See the explanation of program classification in details in the sections of Content Revolution, Genre and Production in Chapter 4 and the division of entertainment program in Chapter 6 in the Chinese context. 51

Competition and Innovation: Independent Production in Chinese TV Industry

Market practice TV drama market Government regulation

Entertainment Cartoon program market market

Figure 8 Research Design Structure

3.4.1 Regulatory Structure

In the development of independent production, government regulation has played a determining role. In order to control the content, the government established the censorship system to manage the independent companies. The highest level of central government department, Publicity Department of the Communist Party of China controls the general direction for all media and cultural products. The responsibility for content censorship of television is undertaken by SARFT, State Administration of Radio, Film and Television. SARFT has the main responsibility for censorship of film, radio, TV drama, animation and daily monitoring of all programs in all broadcasting channels including the overseas channels launching in China. The responsibility of print content including novels and animation books is undertaken by GAPP, General Administration of Press and Publication. In this research, I emphasize TV animation as one of my research subjects, but this does not include animation book and animation film.

 Censorship on the content

As mentioned previously, content restrictions depend on the genre. The genre with less political sensitivity will be more open to independent production; the genre with more

52 Competition and Innovation: Independent Production in Chinese TV Industry political sensitivity will be more restricted for non-state-owned productions. News and current affairs programs are political genres. Therefore, these genres are not part of independent production. Entertainment programs are generally free of sensitive topics. Therefore, this genre is much easier to open up to independent production. Independent production mainly takes place in the three main genres of TV drama, entertainment program and TV animation. According to the regulations of SARFT, management of content regulation can be categorized as scripted program like TV drama and animation and non-scripted program like entertainment programs.

For scripted programs, including film (TV film), TV drama and TV animation, SARFT has had regulations on content censorship on script censoring and pre-distribution censoring since the 1990s. The regulations include Film Script (Scenario) Registration and Film Management Regulation (BRFT 2008, 47-52), TV Drama Censorship Regulation (including TV animation) (BRFT 2008, 95-100), Importing and Broadcasting Regulation on Overseas TV Programs (BRFT 2008, 87-89) and even Radio and TV Commercial Broadcasting Regulation (BRFT 2008, 173-175). For the overseas co-production of TV drama including TV animation, the special Sino-foreign Co-production TV Drama Regulation (BRFT 2008, 90-94) applies. The government departments of radio, film and television management at the provincial level have the approval rights in the first round and SARFT makes the final approval decision for script registration and distribution certification. The approval certificate for the script registration is only valid for two years. If the script is not put into production within two years, the production company has to reapply for the approval certificate. Therefore, the production company generally has to factor in the production period and script censorship time. Before the distribution of film and television programs, the program has to be censored before it can achieve a distribution licence.

According to these regulations, some content is restricted. Some content from overseas is restricted and cannot to be broadcast in China. Generally, the rule is that the content should not include topics involving pornography, violence and threats to the stability and security of society and nationalities. But regulations do not include details of what kind of topics are harmful so that censorship sometimes depends on the judgement of the censorship panel. The regulations clearly include some details on what kind of program cannot be broadcast. For imported programs, news and current affairs are 53

Competition and Innovation: Independent Production in Chinese TV Industry definitely excluded, and imported programs cannot be broadcast at prime time. For commercials, the percentage of the broadcasting time cannot be over 20 percent of the whole channel per day, and 15 percent per hour in prime time (BRFT 2008).

However, for non-scripted programs in China, SARFT cannot censor the content by the script or pre-production. Therefore, SARFT delegates the power to each TV station. Each director of a TV station, as the government appointed position, has to consider the degree of influence once there is any problem in the content. Meanwhile, SARFT sends daily guiding documents to the director of each station, which is called „Red Title Document‟ (Hongtou Wenjian) inside the system. This document notifies directors as to what kind of content is good and what kind of content is not so good. Sometimes it will point out the exact program name directly for appraisal or punishment; sometimes it will ban the program straight away if the program includes really serious problems, even for an advertisement. As a type of non-scripted genre, entertainment programs such as game shows, reality shows and talk shows are often criticized by name in the Red Title Document and generally the criticism from the government will result in direct changes in the style, the season and even the costumes used in the program. Most production companies cannot produce programs by themselves and need the support of TV stations. However TV stations have to be concerned about any feedback they receive from the government.

 Censorship on the organisation

The launch of a licence system is one of the most important developments for the independent production in China. Although the first licence regulation did not allow for independent production companies, it represented a shift from in-studio production to out-studio production. The first regulation on licensing was called the Film and TV Drama Operation Licence and was carried out from 1995 to 1998. As the name suggests, this licence was mainly granted for film and TV drama production. From 1998, the licence system was renamed Licence on Radio and Television Program Production and Operation and the film licence was separated from the management of radio and television programs. Any company who operates a radio and television program production business must apply for this licence and, furthermore, TV drama production companies have to apply for a TV Drama Production Licence, which is of

54 Competition and Innovation: Independent Production in Chinese TV Industry two types. One is the long-term licence valid for three years; the other is the short-term licence only for a one-off production.

There are different censorship conditions applied for state-owned organisations and independent companies. After 2003, the environment for independent production companies has become more relaxed. The general Licence on Radio and Television Program Production and Operation can be applied for by independent production companies much more easily and it covers genre production, including TV animation, once they meet the government regulation criterion. But the government still clearly stipulates that independent companies cannot produce news and current affairs programs. The long-term TV drama production licence can also be applied for by independent companies. For Chinese-foreign joint production venture, it is a different situation. That production business became an investment hot spot after the permission had been granted in the short-term just between 2004 and 2005.

From 2007, the government also added the management of internet video-and-audio content and organisation regulation into SARFT‟s responsibilities. The Internet Video and Audio Program Regulation (BRFT 2008, 38-44) asserts that any company providing internet audio and video content or services has to apply for a licence, and the licence has to be renewed every three years. This regulation regulates online program content like current affairs programs. This regulation also describes protection of copyright, especially for film and TV programs. Online program management is still a new field for the government, but it is learning new management skills in this new media environment. Although the internet video-and-audio content is not the main concern in the research, the distribution of television programs online also is impacted and limited by the government internet regulation. Therefore, most of the independent production companies still do not consider online distribution as a main distribution platform for them.

Overall the degree of censorship varies according to content, organisation and genre. I will investigate each market in more detail in the next three chapters.

Competition and Innovation: Independent Production in Chinese TV Industry

3.4.2 Market Practice Dimensions

As with the global TV trading market (Havens 2006, 41), the most popular genres in China for independent production companies are TV drama, followed by TV animation and entertainment shows. This is partly the result of government censorship control. It is also the result of domestic demand and international trade. After over two decades independent companies have developed a presence in the Chinese market.

 Practice on production and distribution

The value chain in the Chinese television market has developed differently from the international market in some way. First, in China, independent companies cannot be involved in the broadcasting stage of the value chain. Under the government bureaucratic system, TV stations cannot fully follow market rules to trade programs either, which directly results in independent companies not being fully independent in the market. I will explore some of the problems which independent companies have to face in the different submarkets later. However, with the market liberalisation of the television industry‟s reform deepening, independent companies have found a way to build up the value chain in the television market beyond the state-owned organisations and TV stations, and are trying to follow many international general market rules to develop their business.

In the upstream value chain in the television market, production includes the creativity, R&D and packaging in the international general way. Most independent production companies will build up their own brand and content integration according to their experience, like Idol brand and game show library, but most Chinese companies or TV stations have not realized the importance of the originality and R&D in the market and have no idea with how to operate a creative production team. With the fast development of independent production, a few independent companies have realized this point and have developed even faster in branding their programs and positioning their products in a niche market. I will inllustrate some cases in the next chapters and will do some comparisons in the research analysis between independent production and in-studio production.

56 Competition and Innovation: Independent Production in Chinese TV Industry

In the downstream value chain in the television market, distribution generally involves the relationship between TV stations and independent companies. Sometimes the relationship depends on the personal „guanxi‟ (connection); sometimes the relationship is built on the basis of a genre‟s scarcity. Once the programs are put into the distribution channels, the production companies still have to consider the commercial package and the influence of the broadcasting network. Most independent companies in China play multi roles in the market, not only in producing the programs but also in selling the advertisements or being an advertising agency itself.

With the development of the market value chain, derivative products are recognised as an important part of the company‟s business. The distribution extends to the internet, DVD, online games and new media like mobile phones. The image licensing and commercial performances have become a recognised value chain and this has been developed by agency businesses for many TV dramas and by entertainment production companies. The business of toy production and theme-park goods also derives from animations and some children programs. The Disney Model is a good example for many Chinese animation companies. In the following chapters, I will explore these practices in detail in each submarket.

 Practice on the market rules

In examining the practice of these companies, it is clear that they face some similar situations as the international markets. First, capital investment influences the industry. Once more investment is put into the industry, more quantity and better quality programs are created. However, in China, the investment scale is limited, first by GDP and second, investment in television production is limited by government policy as a sensitive area. Most production companies used to be, or are being, limited to the small or middle size operations, compared with international independent companies, many of whom are massive operations. However, with the growth of the Chinese economy and its television industry, independent production is developing fast while state-owned TV stations are receiving more advertising revenue, and domestic investment is open for television production.

Competition and Innovation: Independent Production in Chinese TV Industry

In the market, investment follows scientific market research, including rating and demographic data collection. In China, with market growth, independent companies have increased the pricing system with market research. Meanwhile, due to the massive size of Chinese TV broadcasting channels, production companies develop many different strategies, like distribution at region levels. Some create exclusive distribution rights, and second and third distribution rights; some build up the local broadcasting networks to compete with the national market. Strategies have been developed not only for the domestic market but also for the international market. Certainly, in different submarkets, different strategies are used.

Copyright protection is one of the most important factors in the international market. Although the main voice appealing to the protection of the copyright comes from overseas companies and overseas interests in China, independent companies are actually the most active domestic power to push for copyright protection. Independent companies have to take more market risks compared to state-owned organisations; therefore, independent companies need more copyright protection for their own brands and their original content. In each submarket, independent companies face different problems with regard to copyright protection. In China, if there is supportive policy coming from the government, there will be more protection for the originality of works; if there is less government attention, it will be more difficult to argue for copyright protection in the market.

3.5 Conclusion

In this chapter, I have defined innovation in television as the evolution of content and process following market changes. With deregulation and market liberalisation, innovation in television occurs in different ways all over the world. I applied the innovation ecology concept to explain the development stages of independent television production in China, from the low level of outsourcing and copying to the higher level of co-production and niche markets in the East Asian context. Overall, I designed this research to explore innovation in Chinese television in two dimensions consisting of

58 Competition and Innovation: Independent Production in Chinese TV Industry regulation on independent production and market practice of independent production companies. I examined these two dimensions in three television submarkets: drama, entertainment and animation. In order to obtain a comprehensive view, I collected data in both quantity and quality using an archival approach, interviews and case studies. In the next chapters, I will follow this structure to explore the history of television competition and innovation in China, and will investigate the dimensions of government regulation and market practices in detail in TV drama, entertainment and animation markets.

Competition and Innovation: Independent Production in Chinese TV Industry

Chapter 4

From Monopoly to Competition: the Television Industry in China

4.1 Introduction

As mentioned in the introduction, the Chinese television industry has changed considerably over the last two decades, from being a political mouthpiece to being an industry. In this chapter I look more closely at some reforms relevant to independent television. I begin the chapter with a background to television in China. I identify three periods: no competition, partial competition and disordered competition. The discussion shows how changes have come from the reform of the television funding system, which shifted from government subsidy to advertising revenue. Other changes are due to new media technologies that have led to the development of advanced cable and satellite platforms. With such changes, innovation has occurred in both television content and distribution. The chapter discusses TV trade fairs and types of programming. It argues that independent production is another change in the media landscape. From being non- existent to being actively encouraged by the government, independent production now defines the emerging Chinese media landscape.

4.2 Background Knowledge: the Chinese Teleivsion Industry Structure and Reform

Since the first television station – Beijing TV – began broadcasting programs in May 1958, the Chinese Television industry has developed from an early institutions (shiye) model to a current industry (chanye) model. The main function of television in China has changed from being a public service and propaganda tool to being a commercialized entertainment package. Although many researchers analyse this reform from the development of markets,

Competition and Innovation: Independent Production in Chinese TV Industry programs, or industrialization (Keane 2007a, 404; Tang and Li 2005; Wang 2007), generally, the development process is divided into four stages: the pure institutions period (1958-1978), the early period of the evolution of the television industry (1979-1991), the formative period of the television industry (1992-2000), and the integration period of the television industry (2001- ). Compared with the main milestones in the development of television internationally, the Chinese television „industry‟ has developed only in the past two decades.

The first period (1958-1978): no competition

During the period 1958-1979, television organisations in China were totally funded by the government under a planned economy. Like other mass media, television was considered to be the 'mouthpiece' of the Party and the government. Television stations were directly responsible to the government and were without any commercial function. Programs were monotonous – basically news-slides and educational programs. China's television developed slowly through the national policy of the „Great Leap Forward‟ (1959-1960) and the Cultural Revolution (1966-1976). At the end of the Cultural Revolution, only one in 1600 households possessed a television set. Furthermore, there were only 5000 colour TV sets, and among these, 68 percent were in cities (Guo 1997, 15). There were only 1222 hours of broadcasts per week (Wang 2007, 11). Compared to the fast grow of television in the international market, television programs seemed a luxurious commodity restricted to the minority at that time in China.

Some researchers refer to this as a hierarchical period (Keane 2007b): television organisations were operated by the government department, Ministry of Radio, Film and Television (lately, State Administration of Radio, Film and Television, SARFT) like a part of government bureaucracy. Programs were produced and broadcast in the propaganda way, without consideration for audience preferences.

Index of the important milestones in this period: Time Events May 1958 China's first TV station – Beijing TV formally broadcasts programs to the nation, the former CCTV;

Competition and Innovation: Independent Production in Chinese TV Industry

May 1973 The first colour TV programs broadcast, in Beijing; May 1978 Beijing Television transformed into China's Central Television (CCTV); Dec 1978 The Reform and Opening Policy claimed in the Third Session of the Eleventh Centre Committee of the Party.

Table 3 Index of the important milestones in the first period of China‟s television reform

The second period (1979-1991): partial competition

In 1978, the Ministry of Finance approved media organisations, including the biggest newspaper in China, People‟s Daily (Remin Ribao), to operate under 'institutional organisation, enterprise management' (shiye danwei, qiyehua guanli) guidelines. China's media had cautiously entered the „industry‟ (chanye) era from the „institution‟ (shiye) era. The following year, approval was given to allow television stations to make commercial revenue and manage their business operations. CCTV built up a commercial organisation – the China Television Service Company. Since then, television station revenue has changed from being solely government funded to now having an income that co-exists with advertising and others activities. Initially, advertising was regarded as a supplement to government funding. By the end of the 1980s, however, advertising fees had become the main source of revenue.

In 1983, Article 37 was announced at the 11th National Broadcasting Conference in Beijing. This conference is regarded as the most important historical milestone in the development of China's Radio and TV. In this conference, the 'four-tier system' (siji ban) policy was announced, to improve the 'Two-level' status. This policy meant that China's TV industry could build its own local stations and broadcast local news and programs. As a result, television stations proliferated in China. By the end of 1990, there were 509 TV stations, covering nearly 79 percent of the population (Zhao 2004, 397). Financial responsibility also shifted from the central government to local government. This also led to the decentralization of administration (Keane 2007a).

In 1985, the State Council announced statistics about television and radio in the list of tertiary industries (disan chanye). Television had officially entered into the industry phase.

62 Competition and Innovation: Independent Production in Chinese TV Industry

During this period, production began to operate independently and commercially. TV developed more program diversity. However, stations still focused on their internal management and there was no serious competition.

Index of the important milestones in this period: Time Events Jan 1979 The first commercial advertisement broadcast in Shanghai; Mar 1983 The four-tier policy in the 11th National Broadcasting Conference in Beijing; Aug 1985 CCTV-1 firstly transmitted by the satellite in China;

Jul 1986 The first Satellite Provincial Channel, Xinjiang Provincial TV transmitted to resolve the transmission difficulties in Northwest China; Apr 1990 The first cable TV station started to transmit programs in Hunan province and the Temporary Regulation for the Cable TV announced. After that China's television enters into the cable era.

Table 4 Index of the important milestones in the second period of China‟s television reform

The third period (1991-2000): disorderly competition

Since 1991, television has become the prominent mass media in China and has become the pillar industry for all forms of media. Television infrastructure had already developed with transmission through satellite and ground reception in local regions, and cable TV was developing rapidly in the urban areas. By 1995, there were 3429 TV stations registered with the different levels of government over the whole country and the number of TV households had reached 250 million (Zhao 2004, 404). The number of TV stations had already exceeded the total number in America, Russia, Japan, France, Germany, Britain, India, Canada, Australia and Brazil in 1995. However, in terms of value, the Chinese television industry had the total annual revenue of 2.7 billion RMB, mainly from commercial advertising, which equalled only one eightieth of the total revenue of the American television industry. After the central government announced a policy to make use of satellites to transmit TV programs and set up local cable TV networks in 1995, the

Competition and Innovation: Independent Production in Chinese TV Industry number of TV channels able to cover the nation grew quickly. In 1997, 14 provincial TV Channels had moved to transmission by satellite (Liang 2006). By 1999, there was at least one Satellite TV channel owned by each of the 34 provinces and municipalities, and transmitting to the local cable network. By 2000, television had reached 92.5 percent of the Chinese population (Zhao 2001).

In 1993, the revenue from advertising first exceeded funding from the government; by 1999, the commercial revenue in the television industry amounted to 85 percent of all income (Tang and Li 2005, 14). This can be considered as a landmark for the economic independence of the television industry. During this period, the television industry was enhanced by an improvement in technology and economic policies. The monopoly of CCTV was broken by provincial satellite TV and local city TV. Between 1997 and 2000, the share of CCTV in the market gradually decreased from 37.5 percent in 1997 to 30.5 percent in 2000, while the share of the local TV stations increased considerably (Wang 2007, 106). TV production also developed more variety, with production companies operating outside the state-owned system, particularly in TV drama production, the first genre of TV program to enter into the market.

Index of the important milestones in this period: Time Events May 1993 The first magazine TV program Oriental Time (Dongfang Shikong) broadcast by CCTV, first operated by the „producers‟; May 1995 Doc 132 (Ministry of Radio, Film and Television, former SARFT): “Organizing Actively the Cable Network in Conjunction with the Satellite Transmission”; Jul 1997 The entertainment program Happy Base (Kuaile Da Benying) broadcast in Hunan Provincial Satellite TV popular all over the country, which is the first significant innovative entertainment program from provincial TV; Nov 1998 The licence system for TV drama production announced by SARFT; Jun 2000 The first Reality TV show in China, Great Challenges for Survival (Shengcun Da Tiaozhan) broadcast in Guangdong Provincial TV.

Table 5 Index of the important milestones in the third period of China‟s television reform

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The current period (2000- ): cut-throat competition

Compared to the pace of growth of the last period, television entered into an adjustment period from 2000. With broadcasting deregulation occurring internationally, especially in the US and Europe, media conglomerates rapidly expanded their business globally. Under the threat of the international media conglomerates, the Chinese government introduced a policy of „media groupalisation (jituan hua)‟ from 2000, which artificially forced the integration of media organisations. This agglomeration included free-to-air TV with cable TV and built up a number of Radio and TV Groups, thus changing the 'four- level structure' to a 'two-level structure'. The objective of the plan was that only central and provincial levels would remain capable of producing content (See Table 6). Although this reform had failed to be implemented nationwide by 2004, a few successful models survived, such as Shanghai Media Group (SMG), Hunan Golden Eagle Broadcasting System (GBS) and Beijing All Media Group (BAMC). They made good use of their geographic advantage.

New Covering Four-level System Main Competitor Two-level Area System 1st State-level CCTV All over the Satellite Channels 1st country overseas in China 2nd Province- Provincial All over the Other Provincial 2nd and- Satellite Channels country Satellite Channels Independent- And Municipality And Municipality level Satellite Channels Satellite Channels

Provincial Local All Over the City Channels Channels Province Area

Municipality Municipality All the Other Local Channels Area Channels launched in this Area 3rd City-level City Channels City Area Provincial Local Being - Channels integrated to 4th County-level Town Channels Towns and Nearly No Province Rural Area Competitor Level (because of lack of self-production)

Table 6 China TV Station System

Competition and Innovation: Independent Production in Chinese TV Industry

As a result, these locally integrated media groups started to challenge CCTV‟s dominance in the national market and expanded their revenue from the local market to the national market. The clear landmark for the challenge occurred at the beginning of 2003 when provincial STV eliminated advertisements from the CCTV Daily News Broadcasting (Xinwen Lianbo), which is obliged to be transmitted by all TV stations, excluding Shanghai TV. Daily News Broadcasting is a 30-min news report program in CCTV that has been assigned primary rights to report all the most significant political news. It has been considered as the most important propaganda channel to distribute and announce the important statement for the central government since 1982. The government requires all provincial and local TV stations to transmit this program at the same time every day. Since the late 1980s, CCTV has placed advertisements before and after this program and then advertisements gradually became part of the program to be transmitted by all TV stations. The price for the 65-second advertisement in CCTV has broken the highest bid record every year, from the competitive candidates all over the country, because of its exclusive monopoly coverage. However, when provincial STV started to compete with CCTV in the national market from the late 1990s, the provincial TV stations became more and more dissatisfied with this operation. In 2003, the alliance of provincial STV channels decided to replace CCTV advertisements with their own at a much lower price range, which is considered the most significant beginning of the challenge to CCTV‟s monopoly position in Chinese television history.

During this period, the television industry entered into channel expansion and the 'Channel Specialization Era' (Shi 2001). TV stations began to specialise their numerous channels once they had more channel resources. Nowadays, CCTV has tripled its channels to 21 since the 21th century (See Table 7 below). Those channels are fragmented to target different audiences in order to grab back some share in the national market, given the advantage of the central government and its monopoly position for all of resources, such as the priority of all kinds of news reports. Meanwhile, STV channels sought specialization to differentiate from CCTV. Hunan STV established a reputation for entertainment programs, from 'Happy Base' (Kuaile Dabenying) to 'The Rose Date (Meigui zhi Yue), from 'Perfect Holiday' (Wanmei Jiaqi) to 'Super Girl' (Chaoji Nüsheng). Hunan STV localized many international formats quickly, which then became popular TV formats in China. Huan STV also learned many innovative ways to increase the revenue from overseas, such as mobile

66 Competition and Innovation: Independent Production in Chinese TV Industry voting associating with telecom companies, singer agency with music companies and exclusive sponsorship for the program among others. Elsewhere, Anhui STV specialised the channel in the TV drama genre and created the concept of „Exclusive Play‟ (du bo quan) to buy out the first-run broadcasting rights in the fiercely competitive market. In local markets, city and provincial non-satellite channels also competed fiercely for audiences. Because censorship was not as restricted as in the national market, more programs could be distributed in the local market and become more popular with local audiences. As statistics illustrated in 2005, the local market share, including city channels and provincial non- satellite, had nearly caught up with the national market share, including CCTV and STV (See Table 8).

Channel Content Specialization Starting Time Sep 1958 (new version from CCTV-1 Comprehensive Channel May 2003) CCTV-2 Business Channel Feb 1987 (renamed in Oct 2003) Variety Channel (including variety shows, art, and CCTV-3 Nov 1995 literature) International Channel (Covering Asia, Europe and CCTV-4 Oct 1992 North America)

CCTV-5 Sports Channel Jan 1995

CCTV-6 Movie Channel Jan 1996 CCTV-7 Military and Agriculture Channel Nov 1995 CCTV-8 Drama Channel Jan 1996 (renamed in Jan 1999) Documentary Channel (including English CCTV-9 Jan 2011 version) CCTV-10 Science and Education Channel Jul 2001 CCTV-11 Chinese Traditional Opera Channel Jul 2001 CCTV-12 Society and Law Channel May 2002

CCTV-13 News Channel May 2003

CCTV-14 Children Channel Dec 2003

CCTV-15 Music Mar 2004

Sep 2000.9 (new version from CCTV-16 English News Channel 2004)

Competition and Innovation: Independent Production in Chinese TV Industry

CCTV-17 French Channel Oct 2007

CCTV-18 Spanish Channel Oct 2007 CCTV-19 Arabian Channel Jul 2009

CCTV-20 Russian Channel Sep 2009.9

CCTV-21 HD Channel May 2008

Table 7 CCTV Specialized Channels (Compiled from www.cctv.com accessed March 1, 2011)

CCTV channels

8% 15% 33% STV channels

Provincial non-STV 26% channels 18% City and county channels

Others

Table 8 Market share of different level television channels (Cui 2005, 254)

Index of the important milestones in this period:

Time Events Dec 2000 The first provincial Radio, Film and TV group set up in Hunan; Oct 2001 The first overseas TV channel, Phoenix TV approved into Zhu Jiang Deltaic cable network; Nov 2001 China formally enters into World Trade Organisation (WTO); Jun 2003 The social TV content production approved legally by SARFT; Nov 2003 The first overseas media group, News Group approved to collaboration with Qinghai Provincial Satellite TV and the film and TV production centre of Committee of the Communist Youth

68 Competition and Innovation: Independent Production in Chinese TV Industry

League of China.

Table 9 Index of the important milestones in the fourth period of China‟s television reform

4.2 Market Innovation in the Chinese TV Industry

1978 is considered as a significant changing point, not only for the Chinese TV industry (Qian 2002) but for all China. Although TV had developed under the Chinese government before 1978 as a kind of propaganda media, the media system existed as part of the government bureaucracy. Guo Zhenzhi has described this period of Chinese television:

After 18 years‟ slow development, Chinese TV still stayed in the cradle stage. It was just basically the shallow reflection of political life and weak echo of political alteration.(Guo 1997, 105)

After 1978, Chinese television started to change as the market economy deepened. The changes happened at both the macro level of central government and at the micro level of the TV station, from the administrative management reform to the program operational reform, from revenue reform to technological innovation reform. All of these reforms were part of the trend of industrialization (Huang and Ding 1997). From 1979, Chinese television transformed from institutional stage to an industrial stage. Today, after two decades of industrialization, China‟s TV industry has changed dramatically in 3 main aspects, all of which will impact on the future of China‟s TV industry.

Commercial innovation of the Television industry

In the 1980s, Chinese TV‟s funding system changed from total government funding to a dual funding system, the mixture of government funding and advertising revenue. As discussed in Chapter 2, the funding system is one of three key fundamental components

Competition and Innovation: Independent Production in Chinese TV Industry in the market for television structure. Commercialization has changed the whole industry. The development history of television advertising is a major industry reform (Ding 2007). Since 1979, when the first advertisement was broadcast on Shanghai TV, China‟s TV industry entered into the commercial operation era. By 1991, TV advertising revenue had reached 1 billion RMB, surpassing newspapers (Tang and Li 2005).

The advertising business was the first to be opened to the private sector in media. Since the Chinese Communist‟s Party‟s Fourteenth National Congress in 1992, individual and private companies could set up advertising businesses as independent organisations (Wang and Zhu 2008). Before that, they could only be involved in advertisement design and production through co-operation with state-owned organisations. In 1993, private companies were formally allowed to set up business as an advertising agency following the regulation Applying Advertisement Agency in China (Testing), which was issued by the Commerce and Industry Bureau. In 1994, the first advertising law was announced. In corporation law passed in 1993, the minimum of registered capital for the category of Advertisement Company was 30,000 RMB, the same as other business companies (SAIC 1999; Congress 1999). Since then, private advertising agencies, as the premier form of private company, have played one of the most important and active parts in the media arena, especially in television.

Further, advertising was opened to overseas companies. In 1986, Dentsu, Young & Rubicam set up the first joint-venture advertisement company with China International Advertising Group in China, which was also the first 4A advertising corporation in China. By 1996, all of the top five international advertising corporations had entered China‟s market (Yu and Deng 2000), which improved China‟s advertising production level to international standard. Hence, the first generation of independent enterprises and production teams grew up with advertisements. Following revenue increases, there was a huge demand for programming inside the existing broadcasting system. Independent advertisement companies took the opportunity to extend their businesses from advertising to program planning and packaging, working with experienced production teams. Today, some advertising companies have grown to become successful independent production companies in their own right.

70 Competition and Innovation: Independent Production in Chinese TV Industry

With the rapid development of advertising, advertising revenue has become more important for TV stations than government subsidies. Take CCTV as an example. CCTV began to operate the reform „Program depending on advertising; advertising feeding to program‟ (lanmu dai guanggao, guanggao yang jiemu) to manage programs in 1996. Each TV program could take out a maximum of 10 percent of its total time for advertising, and 50 percent of each program‟s advertising income could be used for their own program costs. The more popular the program, the higher the advertising price; the more the advertising incoming, the more budget the program could get. In 1999, advertising revenue in CCTV had reached RMB 5.1 billion yuan and occupied one third of the total television advertisement revenue in the whole country (Zhao 2000). By 2000, advertising had occupied over 90 percent of total income for the whole TV industry (Zhao 2000). The state-owned TV stations had become self- dependent and did not need to rely on government subsidy. Today, commercial momentum is driving more and more fierce competition, and advertising revenue is just one of the most important factors (Xie and Dang 2005; Huang 2006; Lu 2002). With the rapid developments of the late 1990s, more and more professional people from film production, music, theatre and drama and art design have moved into advertising. On the one hand, the advertising industry was growing quickly; on the other hand, professional advertising people brought in more advanced concepts for television production. Program parades, program trailers, program packaging and channel packaging were all introduced into Chinese TV production by new advertising companies.

The commercialization of television has directly improved the diversity of organisations in the television market. However, all broadcasting platforms are under state-ownership. Traditionally, all TV stations and transmission networks belong to the broadcasting system, which is called „inside system capital‟. With economic reforms and technological developments, the government has allowed state-owned capital and some joint-venture capital. This arrangement has to include more than half state-owned capital in the transmission platforms, like cable TV network or digital TV network. Domestic private capital is allowed to invest in some production and distribution and it can found joint-venture companies with state-owned capital. Finally, international capital is allowed to invest in broadcasting, but under many restrictive conditions. The

Competition and Innovation: Independent Production in Chinese TV Industry restrictions for the three types of capital increase with the decrease of state-owned involvement, as illustrated below.

Inside broadcasting Less Sole state- system owned capital Outside broadcasting State-owned and State-owned system private joint capital capital (State-owned holding) State-owned and overseas joint capital (State-owned holding) Restriction

Sole private Degree capital

Private and state- Capital attibute Domestic owned joint capital private capital (Private holding) Private and overseas joint capital (Private holding)

Hong Kong and Taiwanese capital Overseas capital

Foriegn capital More

Figure 9 The diversity of capital attributes in television (Lu 2002, 144)

Technological innovation in TV Industry

Chinese Television, like a thirsty child, was keen to absorb advanced technology after its slow development of two decades. Cable TV, satellite TV and digital TV developed fast in China. After the first regional cable TV was tested in Shanghai in 1987 (Guo 1997), cable TV grew quickly in the cities in the 1990s. Today, the cable network has become the terminal platform of television broadcasting transmissions in urban areas. The total cable network in China covers three million kilometres (CNCATV) and covers 164 million users (SARFT 2009, 186). Although the cable subscription fee in China is

72 Competition and Innovation: Independent Production in Chinese TV Industry only RMB24 per month, averaged over the country, the revenue from subscription fees occupies 26 percent of the total revenue of the TV industry (Zhao 2009).

Satellite TV started operation in China from the 1980s. At the beginning, it was used only to resolve the problem of the coverage in rural areas. By the late1980s each provincial TV station had had one STV channel to be transmitted all over the country. The provincial TV stations rapidly found the opportunity to use satellite TV to enter the national TV market (Zhao 2000). Today, through cable TV, most city audiences can watch around 30 satellite channels. As an example, the audience can watch 63 channels in Beijing, including 15 China Central TV (CCTV) channels, 10 Beijing TV channels, 31 provincial satellite TV (STV) channels1 and 2 Central Education TV (CETV) channels with only 18 RMB subscription fee per month (Gehua 2010).

Gradually, digital TV was introduced into the government‟s development plan. Since the government decided to start up digital television, SARFT framed a complete three- step plan for the development of new business. The first step was to kick off 10 commercial digital broadcasting channels and sign up one billion cable digital TV subscribers by 2004. The second step was to develop the Satellite Live business and promulgate high resolution digital TV standards by the end of 2005; the third step was to transmit digital high definition television (HDTV) signal all over the country during the Olympic Games in 2008, and stop analogue transmission by 2015. With the expansion of transmission technology, the transmission platform operation gradually separated from the TV stations, which remained in charge of content control. The national cable network was built by China Cable Television Co. Ltd, but it is generally operated by the local state-owned cable operators in each city. The local network operators played the most important role in the transformation of the technology, including digitization, and they also became gatekeepers about which provincial

1 The number of STV channels that can be received in each area differs throughout the country depending on the local cable network operator which used to be part of the local TV station and nowadays, operates separately with TV stations. Generally, STV has to pay the local cable operator the „launching fee‟, which is a kind of local market rule rather than a formal government regulation and is also different in the different areas according to the demographic statistics. 73

Competition and Innovation: Independent Production in Chinese TV Industry satellite TV channels and which digital channels could be carried into local cable network by charging launch fees. There are different STV channels received by the local audiences in different areas, excluding CCTV channels. This also results in competition among provincial TV stations for advertising.

Compared with the 40-50 channels transmitted through traditional cable, digital TV can provide 400-500 channels. For the central and provincial TV station, as the content providers of the digital platform, the need is to keep pace with program demand. However, the government alleges they have created a database for digital programs which boasts several thousand hours of homemade programming and ten times more of imported content. The feedback from the digital TV clients is not as positive as the government would hope, particularly as the clients have to pay for the digital TV service. Clients expect to have more special content than traditional cable TV.

Meanwhile, with the fast development of broadband and mobile media in China, Internet Protocol Television (IPTV) and mobile TV became hot topics from 2005. As a result of the strong administrative barriers between the television industry and the telecom and mobile industries, radio and TV stations cannot collaborate with the telecom and mobile companies as content providers in China. In 2009, SARFT launched 9 licences for mobile video-audio content suppliers (SARFT 2010b). This was the first time that SARFT regulated video-audio content online in their institutional frame. The government has shown much interest in new technology media content.

Distribution Innovation in the Television Industry

The third innovation shows up in program distribution. Before the broadcasting system reforms, there were no program production companies in China and each TV station only produced programs for their own use. Program trading seldom happened. With the expansion of TV stations after the reform, program production from the TV stations could not match the demand for programs. Meanwhile, in addition to battles for advertising revenue, competition became fiercer between TV stations, channels and programs. Audience ratings were introduced into state-owned TV stations, and became

74 Competition and Innovation: Independent Production in Chinese TV Industry the dominant factor in TV programming decisions and the arbiter of which programmes were the most popular. As a result, the program trade market formed quickly in 1990s.

Program distribution started around 1984. At that time, distribution was basically a kind of exchange between TV stations and there was no formal trading system. In 1984, the National TV Program Exchange Network of Provincial TV Stations was established, followed in 1985 by the National TV Program Exchange Alliance of City TV Stations. This kind of program exchange effectively relieved the tension between the huge demand and the shortage of supply during the 1980s. The exchange rule was built on an equal quantity exchange, without price, and each member provided programs as per a quota according to the population of the city or the province. If the member could provide more programs than the quota, it was rewarded; if the member could not provide the quota, it had to be compensated by capital (Song 2008) . However, equal quantity did not mean equal quality. For the TV stations who invested more in programs, it was unfair to exchange with other TV stations. In the 1990s, the rule changed from unpaid exchange to paid exchange, and that gradually changed into becoming real trade. In 1990, the TV drama Aspirations (Kewang), was the first to be traded between city TV stations. Although the incoming revenue was RMB 500, 000 yuan and the production cost RMB 1 million yuan, the social effect was massive. The new distribution system encouraged producers and investors to produce better quality programs. Until 1993, the biggest production TV drama, Beijingers in New York (Beijing Ren Zai Niuyue), distributed over $US1 million in the first round, which just covered its production costs (Meng 2008).

After 20 years of development, TV programs are now distributed through two main channels. One is the TV trading platforms, like TV festivals and expos; the other is direct contact between supplier and buyer. The traditional program exchange between stations still exists and plays an important role in China‟s program market. Among the numerous program trading platforms, four TV program trade fairs have developed. The first one is the Shanghai TV Festival, which is also the oldest TV festival in China; the second is the Beijing International TV Week; the third is the China International Film & TV Expo (CITV), which is now the biggest TV program exhibition in Asia; and the fourth is the Sichuan TV Festival, which is linked with the Golden Panda award (See Table 10). 75

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They have become the most important program trading platforms for domestic and international TV content suppliers in China. In 1986, the 1st Shanghai TV Festival was held and 23 TV stations from 16 countries and 18 cities traded their programs, but still without capital trade. In 1988, at the 2nd Shanghai TV Festival, programs were traded as a kind of commodity, and is considered the beginning of China‟s TV program market (Tang and Li 2005). By 2008, there were over 1402 drama series, 262 films, 623 animation programs and 2020 documentaries and other genre programs exhibited in CITV, creating over RMB1.6 billion worth of trade (CITV, 2008).

Trade Fair Establishment Period Month Features year Shanghai TV 1986 Annually June Magnolia Award and Festival Forum; „DocuChina‟ project; Animation Project Pitching Beijing 1989 Annually May Film and TV program International market; forums TV Week Sichuan TV 1991 Every two October Golden Panda Award; Festival years China 2003 Annually August Beijing International International Radio, TV and Film Rodio, TV & Equipment Exhibition Film Expo (BIRTV); Flying Goddess Award for TV drama; Huabiao Award for film

Table 10 The brand four TV trade fairs in China

With the development of the TV program trading market, the number of distribution channels increased (See Table 11 below). In the trading market, the dominant genre is TV drama followed by entertainment shows.

Category Self-built TV Festival Trade Fair Permanent channel Trade Network TV 92.8% 59% 37% -- Column (Lan Mu)

76 Competition and Innovation: Independent Production in Chinese TV Industry

TV Drama 84.4% 76.6% 45.3% 32.8%

Table 11 The market share of the different distribution channels (Song 2008, 280)

The development of advertising improved TV program distribution in China. At the beginning of the broadcasting reform, TV stations could seldom afford program purchases in cash. In order to obtain more program resources, TV stations allowed sponsorship advertisement as part of the production attached in the program. In the 1980s, the first overseas program, the animation Astro Boy, was broadcast on CCTV, the first time that a program was distributed with sponsorship advertisement. Sponsorship for TV program production started in the early 1990s when payments were made by including thanks in the titles and with other soft advertisements. In 1991, the sitcom Stories from Editorial Board (Bianjibu de Gushi) was sold to TV stations nationally by using advertisements at the end of episodes to build up a kind of Chinese characteristic distribution style (Zhang 2008a). Even today, some TV stations and independent companies still consider this kind of distribution style to be a common rule of practice, especially in the local market.

Level of TV Self- Purchase Advertisement Others Stations production Exchange Provincial 22.4% 38.9% 16.7% 22.2% Capital city 20% 40% 40% - Local city 8.3% 6.7% 66.7% 8.3% Table 12 Program acquisition modes for Entertainment report shows (Dai 2005, 27)

Content Evolution of Television

Apart from commercialization and scale expansion, the most essential innovation in content is the change from propaganda tool to commodity in the market. Before 1979, TV programming served an educational and propaganda function. It was as monotonous as other media content. After 1979, with the beginning of advertising, television programs began to change. Content supply and demand increased quickly in response to the transformation in the services provided. In 1981, the production of TV drama reached 150 series, for the first time overtaking the production of cinema (Zhao 2006). The first variety show Spring Festival Gala (Chunjie Lianhuan Wanhui) 77

Competition and Innovation: Independent Production in Chinese TV Industry appeared in 1983. It was the first entertainment format appearing in China. In the 1990s, the variety show format swept up the whole of China with its format. This type of entertainment show was much appreciated, compared to the dreariness of educational, art shows and literature programs. From the late 1990s, entertainment programs grew fastest among all television programs. Its appeal spread due to the development of provincial satellite TV and it developed into more formats including the game show, interactive show and entertainment report show (CSM 2000).

With increased variety, the classification of television programs became a new topic in TV industry reform. Before the 1990s, there was still no concept of TV genre and even the clear definition for program division in China. By the 1990s, some classifications started to be used by the government to divide programs. Generally, the programs are divided into the five main categories: news, society and education, culture and art, feature and lastly service (Zhang 2008a). TV stations also followed the classification of programs to build up production departments, like news production centres, social and educational production centres, cultural and art production centres and special feature and public service production centres, inside the state-owned system. TV drama and advertisement production were categorized separately as TV drama production centre and advertising centre latterly after the broadcasting system reform. The government also followed this framework to set up the standard for production quality and program evaluation. As illustrated in the table below, in the middle of the 1990s, TV program production had doubled from the early 1990s, especially in the culture and art category. In 1995, the first culture and art channel was set up at CCTV. As the third channel of CCTV, it focused on more entertaining programs, becoming the most important milestone in China‟s entertainment program development. Since then, entertainment programs have developed more variety.

78 Competition and Innovation: Independent Production in Chinese TV Industry

service category

feature category

culture and art category 1995 1994 society and education category 1993 1992 news category

Total TV Programs

0 100,000 200,000 300,000 400,000

Figure 10 1992-1995 TV program production in China (China Radio & TV Yearbook 1992- 1996)

As the industry further expanded, another, narrower classification system was created to collect and divide the data for advertising. In this system, the programs were divided into 11 categories: news, business, culture and art, opera, film and drama, military, music, sports, legal, children and technology categories (CCTV and CSM). These classifications allowed audiences to easily recognise their favourite genres and gave them a framework in which to understand the content. Producers were able to follow the different niche markets and target markets according to genre. They saw it as not only an effective way of cultivating audience loyalty to a particular genre, but also as a way of increasing production efficiency. With channel expansion, TV stations followed this classification to set up specialized channels and programs, like CCTV in table 4.1.5.

4.3 Current Situation of the TV Program Market in China

Today, in China, TV stations can generally get programs made in three ways: self- production (produced by staff inside the TV stations); outsourced production (produced outside TV stations but TV stations still hold the copyright); purchased programs (from

Competition and Innovation: Independent Production in Chinese TV Industry

domestic production companies, trading network and overseas program agency). In 2004, a SARFT survey indicated that total broadcasting hours were 11.03 million hours in China‟s TV industry and self-production inside the broadcasting system took 3.85 million hours (Zhang, 2008). Outsourced programs took 22.8 percent of that time and purchased programs took 42.3 percent.

22.80% 42.30% Purchased Self-production 34.90% Outsourced

Figure 11 The proportion of broadcasting TV programs production in 2004 (Zhang 2008a, 9)

Under the dual-track operation of state-owned control and commercialization reform, program production has gradually formed a stable value chain (see Figure 12) in China‟s television program market. Overseas programs have to be distributed through a domestic agency or re-produced in a Chinese version.

Production Distribution Broadcasting

- State owned TV station - independent or state- - National market self-production; owned companies’ including CCTV and STV; - Independent self-built network; - Local market including production; - permanent trading provincial and  network; municipality - Trading fairs; broadcasters; city  broadcasters  TV festiva  TV statio

Figure 12 The current program market value chain structure

80 Competition and Innovation: Independent Production in Chinese TV Industry

4.3.1 The Television Production by Genre in China

The government never clarified what kind of programs could be produced by independent production and what programs could not. Generally, according to the different degree of government control, the different categories of programs are produced in different ways. Following the general five categories that the government has adopted, the control of program production can differentiate from less to more as shown below (see Figure 13).

service category culture and art category society and education category feature category

News category

Figure 13 Program production position according to the government control

Programs in news category include all of the domestic and international news report and current affairs which involve in the political issue and standing. Therefore, the programs in this category can only be produced by state-owned TV stations. No any independent production company can have the reporting and interviewing rights to produce the news, even including public information like traffic condition. Even between central TV stations and local stations there are different reporting rights associated with news. In news production, generally over 80 percent of the news, especially domestic news is still produced by local state-owned TV stations themselves; CCTV provides four percent including domestic news and international news; China state-owned news agencies provides seven percent, especially the international news.

Programs in feature categories include documentary and in-depth reports. Sometimes the topics in this category can be too sensitive to be produced outside the state-owned 81

Competition and Innovation: Independent Production in Chinese TV Industry system. Therefore, the majority of the programs in this category is still under the state- owned production control. Programs in the society and education category generally belong to the domain of the public interest. While even the government does not control production outside the state-owned system, not many independent production companies are interested in such non-commercial value programs. But recently, the children programs in this category have attracted more and more attention from the independent production companies as a result of the prosperity of the toy industry and the investment of one-child parents on children. The culture and art category used to refer to the serious cultural and art programs like traditional Chinese folk operas and classical music. But since economic reforms, the younger generation gradually has accepted more popular cultural program including pop music, TV drama and entertainment programs. Meanwhile, as less political concern and less government restrictions applied to this category, the popular cultural program production became the best development area for independent production. As statistics show in 2005 (see Figure 14), this category accounted for the greatest percentage of outsourced programs which generally means out-studio or non-TV station production. Advertising, as one type of service category and the most important revenue for TV stations, has been considered to be the farthest away from government attention, so advertising production is the most market oriented since the beginning of the television reform. Considering the different characteristics with other TV programs, the contribution of advertisement to the outsourced program is separated from the other categories (see Figure 14 below).

16% Art and Culture category Feature category 43% 13% Educational category news 6% service 5% Advertisment 17%

Figure 14 The proportion of outsourced program category (CSM 2005a, 94)

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4.3.2 The Television Production by Region in China

In China, because stations are separated by administrative divisions, the capabilities and resources of TV stations are differentiated territorially. In the administrative division, TV stations can artificially be divided into central level, provincial and municipal level, and local city and county levels by limiting the channel numbers and production budget. For CCTV, the central level TV stations can own 16 channels and the TV stations in lower divisions can own fewer. Production capability is limited by economic and human capital resources in different areas. Basically, the ranking of such capability matches economic development all over the country. The production capability on the eastern coast is stronger than that of the western areas where the economy performs poorly. Advertising revenue illustrates television market development.

Eastern China 8% 10% 42% Northern China 10% Southern China North West 12% North East 4% 14% Central China South West

Figure 15 Advertisement share by seven regional administrant division (Tang and Li 2005, 26)

Where advertising revenue resource is richer, the demand for programming is stronger. Meanwhile, independent production has grown fastest in higher demand areas. According to statistics of SARFT in 20091, over 700 independent companies had located to Guangdong Province while over 600 companies were in Beijing, which has the highest density of independent producers. Zhejiang Province ranks third with over 400 companies and Shanghai ranks fourth with more than 300 companies.

1 Data from the interview of the officer in SARFT by the author in June,2009; 83

Competition and Innovation: Independent Production in Chinese TV Industry

Beijing has the biggest market for programs by region. CCTV, Beijing TV and CETV are all based in this municipality. No other city in China can compare with media organisations like this. CCTV owns 16 channels and needs 270 hours of air time per day. Although self-production occupies 70 percent of the broadcasting hours, it still has one of biggest demands for other programs. CETV as a central level TV station, owns 5 channels, and among these 5 channels, CETV-3 broadcasts in Beijing. Beijing TV station itself owns 10 channels, excluding the digital channels. In order to compete, BTV has been a pioneer in opening doors to independent production companies. Joyful Culture and Entertainment Co. Ltd (Huanle Chuanmei) grew up with its entertainment show Happy Together (Huanle Zongdongyuan), BTV from 1999. Yinhan Communication Co. Ltd (Yinhan Chuanbo) contracted BTV Life Channel in 2000 to repackage the channel with lifestyle infotainment programs. By 2010, the TV drama production yield in Beijing had taken the lead in the national market, and TV drama trade occupied one third of the national market (SARFT 2010b).

Depending on the resources for program content, other areas took more advantage of the economic reforms. Guangdong Province is at the frontier of where the Chinese audience receives most cultural impact from overseas. It is the only area in China where limited overseas STV and programs can be transmitted through local cable network in China. It also has the biggest distribution network for video-audio content because of its location beside Hong Kong. Since the 1990s, Guangdong has been just like a transfer station for shipping in programs and ideas from overseas. In Zhejiang Province, with the growth of private investment, film and television production became an investment hot spot to develop downstream industries, including the spin-off products and tourism. Among these, Hengdian Film and TV Drama Production Base became one of the biggest clusters for film and television production in China, which is called Chinese Hollywood (Lu 2005).

84 Competition and Innovation: Independent Production in Chinese TV Industry

4.4 The Development of TV Independent Production in China

It is changes in three main aspects of funding reform, technology and market that have brought enormous opportunities to independent companies. TV stations under the pressure of broadcasting time and limited production supply have sought content supply outside the system. Investors have found business opportunities in this new sunrise industry. Under the previous state-owned system, production capability was unable to match expansion. In the early1990s, the gap between the self-supply of state-owned TV stations and the demand of broadcasting rapidly increased. In 1994, annual TV broadcasting time had reached 2.07 million hours, double the 1.05 million hours in 1989 (SARFT, 2009, Appendix 2). However, the yield of program production did not increase much and achieved 280,000 hours in 1994, which meant the average production yield was only 2.6 hours per TV station every day (Wang, 2007, P89). In 1995, former deputy minister Tian, the Radio, Film & TV (the former SARFT) minister publicly pointed out this problem.

4.4.1 Historical Development of the Regulatory Environment in China

The producer-centre production system was introduced into drama production in the late 1980s. This was one of most important production reforms inside the broadcasting system. Before the producer-centre production system, television production operated under a bureaucratic system, and collective team work was managed under each department. The producer-centre production system gradually developed from TV drama production to all the other forms of program production. This brought entrepreneurial management into program production and aroused enthusiasm for creativity. The producer-centre production system under entrepreneurial management directly and rapidly drove the market liberalisation of TV drama production. A number of the first generation of independent producers and independent production companies grew up from this reform. In 1991, the non-government committee “TV Producer Committee” was founded in Beijing. It included the first generation of a number of independent producers and independent production companies.

Competition and Innovation: Independent Production in Chinese TV Industry

From the time when the first independent TV production company appeared „above the ground‟ in 1994, over a thousand independent television production companies have been formed. According to statistics of SARFT in 20091, over 700 independent companies have located in Guangdong Province and over 600 companies exist in Beijing, which is the highest density for independent production. Zhejiang Province ranks the third with over 400 and Shanghai ranks the fourth with more than 300 companies. According to the definition supplied by SARFT, there are five main types of production companies, those engaged in TV drama, film, animation, documentary and advertising. Today, independent production is the main content provider for the Chinese TV market. Independent production accounts for 80 percent of content in TV drama. In China‟s biggest TV program trading event, the China International Film & TV Programs Exhibition in 2008, 75 percent of exhibitors came from „non-government enterprises’ (CITV 2008), which is one way of describing independent production companies in China.

To understand the emergence of independent production, it is necessary to consider changes in the regulatory climate. Since 1994, regulatory approaches can be divided into 3 stages banning, acquiescence, and approval. It is described as the 'non-oxygen' stage; 'lack of oxygen' stage and 'feeding with oxygen' stage (Lu 2005Preface).

'Non-oxygen' stage (-1994): Before China‟s economic reform began in 1978, the mass media were entirely ideological and media organisations were an integral part of the political bureaucracy. Even after the economic reform in the 1980s, there was still no space to talk about non-government media companies. As the 'mouthpiece' of government, the mass media were considered too sensitive to be opened up to any private investment. Thus it was like an oxygen-deprived environment for independent production.

'Lack of oxygen' stage (1994-2003): With the rapid growth of independent advertising companies, private companies gradually became involved in the business of production. The concept of independent TV production subsequently began to be considered by

1 Data from the interview of the officer in SARFT by the author in June, 2009;

86 Competition and Innovation: Independent Production in Chinese TV Industry policy makers, although many independent production companies had already existed 'underground'. Generally, Jiangshi Advertisement Cultural Ltd Company is regarded as the first legal independent television production enterprise registered with the Industrial and Commercial Registration Department in 1994 in China after Corporation Law was executed. Although this company was considered an advertising company by title, its business was TV production in Beijing. The first Broadcasting Regulation to clarify this concept was formulated the following year. However, the following year, 1995, the most important regulation for the independent production was announced by SARFT. No.16 Document of Broadcasting Management clearly indicated that no private company or individual could set up business in broadcasting production. While this negative regulation was never executed, independent production companies still existed in an environment lacking in oxygen. With the deepening reform of the market economy and the boom in television, the scale of independent production companies increased rapidly under the cover of advertising, culture and art design.

In 1997, SARFT noted that independent production companies could be allowed in some areas as a pilot with permission of relevant government departments. Since then, many independent production companies have come up from underground in Beijing, Guangzhou Province and Zhejiang Province. By 2000, the number of independent TV production companies had more than doubled. For examples, at the Beijing International Television Expo in June there were a total of 317 such entities registered. Since 2002, the term „separation of production and broadcasting‟ (zhi bo fen li) has been discussed by many producers and media experts. The reform of „separation of production and broadcasting‟ was about changing the function of TV stations that had previously controlled all aspects of television; that is, producing, broadcasting and distributing programs. The ideal new model would to be a branded entity (a network or channel) which produced news and some local current affairs related content, and which controlled the broadcasting platform. In this way, independent companies would be freed up to manage the business of production and distribution.

‘Feeding with oxygen' stage (2003-): Despite the growth of independent production and the warm discussion on independent production, they were still not recognised in regulation by the central government. In 2003, finally, the Office of State Council announced the policy to open all business in production, performance, exhibition and 87

Competition and Innovation: Independent Production in Chinese TV Industry entertainment to non-government domestic investment. Followed up by SARFT, a new policy clarified that the mainstream of film, radio and television industries were state- owned but other non-government organisations and organisations outside the state- owned broadcasting system were encouraged to become involved in the development of the industry. Meanwhile, the restriction on independent production companies in No.16 Document of Broadcasting Management was abolished and the long-term licence to TV drama production was granted to eight independent production companies. It was a significant landmark for independent companies. Before then, they had to produce programs under the gaze of state-owned media organisations who owned the certification. These series of policies acknowledged their existence and their role in the development of television production. This provided the oxygen to expand the business of independent production. Since 2003, independent companies have rapidly expanded and become the core of the television industry.

Before 2003, despite independent companies having licences of certification for production of radio and television programs, the risk of sudden suspension of business by government still existed. In 2000, the government suspended 82 licences of independent production companies. Even Tang Dragon International Media Group (Tanglong Guoji), a mature-scale independent production company which had produced seven hours per day and distributed to over 600 TV channels in 2001 was suspended in 2002. After 2003, the government acknowledged the positive role of independent production in the market, especially the overseas media conglomerations‟ influence in the Chinese marketplace after entering the WTO. In order to manage independent production under government control, SARFT set up a department of media to licence and regulate media organisations, including the independent sector. The department is in charge not only of licensing but also of explaining reasons for suspensions. This has helped the business of independent companies to be operated in more stable conditions.

In 2003, Media China Corporation Limited (Huayi Chuanmei), a publicly listed company on the Hong Kong Stock Exchange, signed a contract with the Hainan Provincial TV station to co-operate on Hainan STV channel, Travel Channel, which was the first branded STV channel in China. Media China Corporation Limited and Hainan TV station co-built the company Travel Channel Ltd. The company owns the

88 Competition and Innovation: Independent Production in Chinese TV Industry operation rights and revenue rights for 30 years, Hainan TV station still holds 51 percent of Travel Channel Ltd. Media China Corporation Limited became the first independent company to own a broadcasting platform in China. In 2004, under independent operation, Travel Channel quickly changed, with new programs provided through commissions with other independent production companies, but packaged into new versions. Today, the Travel Channel has become one of the most valuable investments and an innovative broadcasting brand in China1. With the development of Travel Channel, several independent production companies grew up to brand their programs, including Oriental Fashion (Dongfang Fengxing) with their lady fashion branded programs, and Xing Kai Communication (Xingkai Yingshi) with their car branded programs.

In early 2004, two other independent production companies, Shanghai Camera Media Group (Kaimaila Chuanmei) and Beijing Egasus & Taihe Entertainment International (Paige Taihe), separately signed agreements with Neimenggu STV and CETV-1 for operation rights. Meanwhile, in the local market, Beijing Golden World Cultural Company co-built a joint venture with Guiyang TV station to operate programs and advertisements, excluding the news. The government granted 16 independent production companies long-term licences for TV drama production. However, as mentioned above, news production is still a forbidden zone for independent production. The news program News Witness (Muji Zhe, renamed later Xinwen Zhuiji) on a Shanghai local TV channel produced by Jiashi Media Company was halted by SARFT in 2004. Later that year, representatives from the independent companies, including Enlight Media, Hairun Film and TV and Hengdian, attended the national broadcasting conference. This was the first time that the government had acknowledged the existence of independent production companies officially in the industry.

1 Travel Channel was granted the award title of the most valuable media investment and an innovative broadcasting brand in the Annual Media Investment Conference in 2005. This conference is hosted annually by the StanChina and China Media Academic Committee. 89

Competition and Innovation: Independent Production in Chinese TV Industry

4.4.2 Current Situation of Independent Production in China

Independent companies have surpassed the number of state-owned TV stations. According to statistics from SARFT, by 2009 there were 272 TV stations, 2087 radio and TV stations (mainly in rural areas) and 44 educational TV stations throughout the country, while 4057 independent radio and television companies were registered in all kinds of business (SARFT 2010b). The statistics for independent production included some state-owned production enterprises, but private companies made up about 90 percent of the number. However, most independent companies were small to medium sized businesses. In terms of production yield, large production companies produced 2774 hours annually (four percent); the mid-scale production companies average 2264 production hours annually (five percent); and independent companies, which represent 91 percent of the rest, produced around 70 hours on average annually (Editorial 2006).

By distribution region, only 15.6 percent of independent companies distributed programs in the national market, 12.3 percent distributed in their own provinces, and 70 percent distributed to only one TV station or several local city TV stations. There is a different attitude from different levels of TV station towards independent production (See Table 13). It illustrates that TV stations in the local market are friendlier than the national market when it comes to independent companies.

Agree to co-operate Agree to co-operate Disagree to co- Different with the independent with the independent operate with the level TV company and already company but have not independent station have some co- got any co-operation company operation Provincial 27.3% 63.6% 9.1% TV Station

Provincial Capital TV 46.7% 53.3% 0 Station City and Local TV 35% 63.3% 1.7% Station

Total 36% 61.6% 2.3%

Table 13 The attitude from different level TV stations to the content supplier outside the broadcasting system (independent production company) (Huang 2005b, 188, 200)

90 Competition and Innovation: Independent Production in Chinese TV Industry

Independent production is limited in what it can produce in news and current affairs. They have no authority to report official news and they cannot import any programs from overseas without the co-operation of TV stations because the quota for the imported program is assigned to the TV stations and some state-owned organisations. However, the entertainment function has been ignored by state-owned media organisations for a long while and independent production companies have rapidly developed that market, more specifically in entertainment programs, animation and TV dramas. It started with TV dramas. In 2005, Beijing TV (BTV) stopped broadcasting the famous program, Entertainment Live, which was produced by independent production company Enlight Media, and changed to a similar entertainment report show Daily Cultural and Entertainment Express, produced by BTV.

As discussed previously, independent companies developed rapidly in economically developed areas and the special genres of TV drama, entertainment and animation were the most available markets for independent production. In the next three chapters, I will explore in more detail these three genres in light of government policy. In each genre market, I will choose two independent companies as the case studies to explain the influences on, and the changes in, the industry.

4.4.3 From the Edge to the Core: The New Era for Independent Companies in China

After 2003, competition inside the broadcasting system became much fiercer, which increased demand for programs not only in quantity but also in quality. Under the policy of „Media Groupalisation‟, state-owned TV stations can integrate more resources including the radio and the newspaper. By 2004, this policy had gradually cooled and several successful models had survived, like Hunan Media Group and Shanghai Media Group. The space for the development of independent production, however, was squeezed from 2005 to 2006 because most of the new media groups ceased contractual

Competition and Innovation: Independent Production in Chinese TV Industry obligations with independent production companies1. For instance, Yinhan Communication Co. Ltd (Yinhan chuanbo) lost the contract with BTV Life Channel; Enlight Media lost several cities‟ distribution channels. The whole independent production industry went into decline. Meanwhile, the cut-throat competition between STV channels excited demand for TV dramas. The broadcasting share and ratings share of TV drama exceeded all other genres by far. In 2005, its share of broadcasting and ratings was 25.9 percent and 36.2 percent respectively (Cui 2005, 250). Domestic animation production also achieved a lot of policy and financial support from the central local governments from 2002 in order to resist imported overseas animation. Once animation was broadcast on television, the companies were awarded different subsidies according to the channels‟ level.

In order to adapt to the market environment, most independent production companies had to transform their business from simple production to multi-business. Some TV drama production companies got involved in film production and actor agency, some involved themselves in TV drama and film production, and some moved into animation or performance. Most of the big-scale independent production companies changed their strategies to survive in the tough environment. Enlight Media started the first film and TV drama production in 2006. Before then, they had mainly focused on the production of entertainment report shows. Cheerland Entertainment Organisation started the big- scale animation production from 2004 by taking advantage of their advertising production team.

Film production opened earlier for the private sector than it did for television production. The environment for film production, from regulation to financial support, was far more benevolent. Film production became a more reliable business model for independent companies and they found they could achieve more financial support from the film production business. In 2006, China Merchants Bank provided RMB 50 million of unsecured loans to Huayi Brothers for film production. It was the first time that a production company had achieved financial support from a bank without the insurance being secured. In China there is no type of insurance that provides for non-

1 Interview with Changtian Wang, CEO of Enlight Media in June, 2010.

92 Competition and Innovation: Independent Production in Chinese TV Industry material products like copyright. In 2008, Beijing Bank provided RMB 100 million in unsecured loans to Huayi Brothers for TV drama production, the first mortgage with copyright in China. By 2009, Beijing Bank had made over RMB 1 trillion in loans to production and cinema companies involved in production, distribution and theatre in Beijing (Zhu 2009).

From 2006, the government enhanced financial support to independent production companies as part of its policies supporting creative industries. The Beijing government took the lead to set up the Beijing Cultural and Creative Industry Promotion Centre in 2006 and signed an agreement worth RMB 5 trillion with Beijing Bank and China Communication Bank in 2007 to provide loans to cultural and creative enterprises in Beijing. At the same time, enterprises would be eligible subsidies to pay off the interest rate. In July of 2008, Enlight Media became the first independent television company to obtain a loan of RMB 10 million. The following year, it obtained a RMB 20 million loan, which is the largest loan ever to an independent film and television production company in China. In 2009, the first independent production company Huayi Brothers won approval to become publicly listed in China. In 2010, Beijing Bank set up the Beijing Cultural and Creative Industry Financial Service Centre to simplify the process of the application and as an independent authority to oversee the risk and to cover 10 business categories in the creative industries, including film and television production, creativity and design, animation and games (Wu 2010).

The first overseas acquisition for a Chinese media organisation occurred in 2010. The Australian production company Photon VFX was acquired by China Stellar Megamedia International Corp (SMI), a Hong Kong listed public company. SMI had developed from the production, distribution and licensing of entertainment-related content for movies, television drama series, documentary and information or entertainment programs in Beijing since 2001. Today SMI is the only independent company to own a broadcasting television channel, Sun STV, and Northern China‟s biggest production bases, Fei Teng Film and TV Drama Base. Photon VFX is a well-known production company for visual effects and animation teams, which services feature film and high- end television drama productions worldwide. After this acquisition, SMI became the premier Chinese international media group outside those with a state-owned background. 93

Competition and Innovation: Independent Production in Chinese TV Industry

4.5 Conclusion

From monopoly to competition, the Chinese television industry has changed dramatically over the last two decades. On the one hand, the changes have come from the reform of the television funding system, shifting from government subsidy to advertising revenue; yet on the other hand, changes have come from the influence of new media technology that developed advanced cable and satellite television. In such a dramatically changing environment, innovation occurred in both television production and distribution. Innovations emerged endlessly from content to technology, from attached advertisement to exclusive sponsorship and from sitcom to variety show. The development of the last two decades can be compared to the dramatic changes that world television experienced over the last half century. Independent production developed and became one of the most important parts of the industry in this process. From being banned by government to being supported by government, independent production has had a tough journey in China during the last two decades.

Having gained an understanding of the development of the whole television industry and production market in China, I will, in the following three chapters, explore independent production in three submarkets in China.

94 Competition and Innovation: Independent Production in Chinese TV Industry

Chapter 5

Independent Production in the TV Drama Market in China

5.1 Introduction

Due to demand for content, the TV drama market was the first sector opened to independent production. By the end of 2008, there were 1974 channels operating in China and 1764 of these broadcast TV dramas. TV dramas occupied 89.4 percent of the total broadcasting time (SARFT, 2009). According to Li Xingguo of the Communication University of China, the vice-president of Chinese Television Artists Association (Xue 2007), independent production provided nearly 90 percent of the total output of television drama. By 2008, China had already become the biggest TV drama production country in the world (Yi 2008). Here, I will explore the development of the TV drama market and examine the current situation for TV drama production and distribution.

5.2 The Development of the TV Drama Market

Since the beginning of broadcasting reforms in the 1980s, the production of TV drama had been regulated differently from other genres. In 1986, the first licensing system started for TV drama production. The licences were divided into two types: licence A, a long-term production certification for a three-year period (it was changed to a two-year period in 2004); and licence B, a temporary production certification that is attached to each series. Licence A had to be approved by SARFT while licence B could be approved by the provincial broadcasting department. The licensing system provided more development space and aroused the enthusiasm of production teams. By 1991, the TV drama production yield had reached 5304 series, more than 10 times than in 1983 (Xu 2003, 272). Meanwhile, under the pressure from the popularity of overseas TV

Competition and Innovation: Independent Production in Chinese TV Industry drama, the government announced limitation quotas: overseas drama could not occupy more than 20 percent of the total drama broadcasting hours and 15 percent of primetime broadcasting in 1990. At the same time, censorship allowed more open topics.

In the 1990s, most TV stations had separated their drama production department into enterprise operations, though the majority of production still remained inside the broadcasting systems. These enterprise operation production companies played an important role in the market. The Beijing Zhongbei TV Art Centre, under Beijing TV, produced the first comedy series Stories from the Editorial Board (Bianjibu de Gushi) in 1992, which was also the first program distributed using sponsorship attachment as payment for services. The same year, Beijing Zhongbei TV Art Centre distributed the100- episode drama Peking Stories (Jingdu Jishi) to 137 TV stations all over the country and attached 90 second advertisements. This nearly became the standard for drama distribution. At this stage, these companies still were not allowed to be registered as independent companies and they had to be a subsidiary of a state-owned organisation. With the emergence of independent production from the underground in 1994, independent drama production companies started to play a more important role in the market. In 1994, the sitcom I Love My Family (Wo Ai Wo Jia) was broadcast. This was bought by CCTV from Yingshi Film & Drama Production Company. It was the first time that the sitcom genre had been introduced into China with canned laugher, and it achieved huge audience popularity (Zhu, Keane, et al 2008).

In the late 1990s, the drama market gradually grew to maturity while independent companies finally achieved a legal identity and STV began to compete with CCTV in the national market. Meanwhile, the first audience rating research company, CSM, was founded in Beijing in 1997. It was a joint venture between CCTV audience research centre and the French company SOFRES. CSM provided the standard for television ratings and demographic data for the advertising market. Therefore, TV stations started integrating advertisements into the total schedule and paid for the program using cash. The fiercest competition was at prime time, in TV drama, between STV and CCTV. By 2000, the ratings of CCTV drama at prime time had fallen under 10 percent from 14 percent in 1998. At this stage, the TV drama market had been totally commercialized in all aspects, from investment to distribution.

96 Competition and Innovation: Independent Production in Chinese TV Industry

At the turn of the century, TV drama independent production rapidly developed and the production capability increased quickly. As a result, the drama production market had attracted more domestic private investment. Before 2003, over 100 state-owned production organisations owned a long-term licence. In 2003 the long-term licence A was finally granted to independent production companies. The first eight TV drama independent production companies granted a long-term licence have developed into the main forces in the TV drama market today (See Table 14). In 2004, SARFT granted 16 more long-term licences to independent production companies. Among these 24 companies, 18 are based in Beijing. Funa Cultural & Technology Ltd, in the first list, was based in Suzhou in Jiangsu Province, but all the others are spread around the country. No companies from Shanghai obtained a licence until 2005.

Name Establishing Advantages Unique Production Year Branding Yield Hairun Movie 1993 One of the Mainstream Over 600 & TV oldest TV drama theme: episodes companies from Police topic; 1994 Revolution topic; etc Jinyingma 1993 One of the All of the topics Nearly 200 Movie & TV oldest TV drama episodes Group companies

Yingshi Film 1994 Family Business Sitcom Thousands of & Drama Studios of episodes Production Co. Director Ying Da and Writer Liang Huan Huayi 1994 Actor agency Grand production Over a thousand Brothers including over in film; Famous episodes Media Group 70 famous TV directors and film stars; including Feng GEM listed in Xiaogang, the 2009 most successful commercial film director Beijing Huayi 1996 Private Film and drama -- Film & Drama investment investment Co.Ltd background and (Latterly film investment merging to Asian Union

Competition and Innovation: Independent Production in Chinese TV Industry

NWE Media) Funa Cultural 1996 Private Entertainment Over 300 & Technology investment fictional subjects episodes Ltd. Co background and overseas distribution Beijing 1998 The famous Romantic topics Over 700 Xinbaoyuan director Zhao and fresh style episodes Movie & TV Baogang and Investment Ltd some famous Co. actors Chaoyong 1999 The best Chinese Over a thousand Oriental owners: one is swordsmen episodes Cultural the famous theme; Company scriptwriter; the metropolitan (Latterly other is the fashion theme named Ciwen famous Pictures) distributor.

Table 14 The first eight independent TV drama production companies with a long-term licence1

In 2004, only one independent production company, Yingshi Film & Drama Production Company, joined in the top eight list in the national market, the other seven being state- owned production organisations (CSM 2006). By 2009, the majority of the production came from independent production, among which Ciwen Pictures occupied a quarter of the annual TV drama production market (Editorial 2009). With the development of independent production companies, the state-owned organisations even threw out an olive branch by asking that they build up joint companies. Guizhou STV, which is based in a poor province in western China, in 2010, built up a joint company based in Beijing with Hanrun Movie & TV in order to have the chance of investing in and obtaining exclusive broadcasting rights for a potentially best-rating drama2. Today, the majority of the production in the TV drama market is taken up by independent production, as is clear from the snapshot below of broadcast schedule on CCTV-8‟s

1 Mostly, according to the report of Power Ranking of Independent TV Drama and Film Independent Companies, Journal of TV Guide China, China Radio & TV Publishing House, Volume 6, 2009 ; 2 The interview with the vice-president of Guizhou TV station was conducted by the author in June 2010, in Beijing.

98 Competition and Innovation: Independent Production in Chinese TV Industry drama channel. Among the TV dramas in the schedule, only one drama is produced by a TV station. And this drama, which had a revolutionary theme, received the worst comments from the audience on the internet.

Time Program Theme Production 00:13 Protecting Country: Historic Beijing Golden Honest Excellent Officer Di Renjie detective Film and TV Production (Huguo Liangxiang Di (Beijing Jin’aote Yingshi) Renjie) (10) 04:00 Bridge between Live and Emotion drama Oriental Legend Death (Sheng Si Qiao) (6- International Media Co. 8) Ltd (Dongfang Chuanqi Guoji Yingshi) 05:37 World Film and Television Appreciation (Shijie Yingshi Bolan) 06:00 Hong Hu City Red Guards Anti-Japanese Hubei TV Station; Hubei (Honghu Chiweidui) (1-3) War Film Production Studio 08:29 Film and Television Interlude (Yingshi Chahua) 08:42 My Dude, Shunliu (Wo de Anti-Japanese Beijing Galloping Horse Xiongdi Jiao Shunliu) (14- War Film & TV Production 16) (Beijing Xiaoma Benteng Yingshi) 11:24 Film and TV Music (Yingshi Jinqu) 11:38 Film and TV Sound-track (Yingshi Tongqisheng) 12:03 Xiaoxiao Tea House Comedy in local Beijing Glowing Worm (Xiaoxiao Chalou) (81-82) folk opera (Er Film and TV Production ren zhuan1) (Beijing Yinghuochong Yingshi) 13:07 World Film and Television Appreciation (Shijie Yingshi Bolan) 13:27 My Youth Who Call the Metropolis Beijing Xinbaoyuan Shots (Wo de Qingchun inspirit Movie & TV Investment Shui Zuozhu) (23-26) Co. Ltd (Beijing Xinbaoyuan Yingshi)

1 Er ren zhuan which means „two-person performance‟ is a kind of Chinese traditional local folk operas popularly in Northeast China and today, it develops to a very popular comedy form in many variety show and TV programs. 99

Competition and Innovation: Independent Production in Chinese TV Industry

17:02 Daddy Nanny (9-10) Drama Imported from Singapore 18:53 Goat Sport Games Animation Guangdong Creative (Yangyang Yundonghui) Power Entertaining (39-40) Company (Guangdong Yuanchuang Dongli) 19:30 New Program Report (Kaibo Zaiji) 20:24 Yiyi Go Ahead! (Yiyi Metropolis idol Beijing Wolf World Film Xiangqianchong) (1-2) and Television Planning Co.Ltd (Beijing Langcang Tianxia Yingshi Cehua) 22:13 Prince and Girl (Bojue yu Drama Imported from Germany Shaonv) (19-20) ZDF

Table 15 Program schedule of CCTV-8 on Nov, 19, 2010 (CNTV 2010)

5.3 The Value Chain in the TV Drama Market

Today, regardless of whether they are independent companies or state-owned organisations, all follow the market value chain in production and distribution. However, all programs have to pass through censorship first. Before production, the companies have to submit the script and apply for approval for the topic. In the classifications by SARFT, TV drama is divided into two categories: realistic and historic. Under the realistic category, there are military, metropolitan, rural, children, criminal and revolutionary topics. Under the historic category, there are palace stories, historical events and characters, ethnic groups and religion and martial art topics (CSM 2006, 70). Every year SARFT not only censors the scripts of TV drama but also controls the balance of the production quantity under each topic. Approval for a production doesn‟t mean the series will be guaranteed distribution after production. The finished product has to be submitted again to SARFT, including all subtitles and music. Generally, the pass rate is around 70 to 80 percent. Once the program passes censorship, the series can get a licence for distribution and start its journey in the market.

100 Competition and Innovation: Independent Production in Chinese TV Industry

In TV drama production, the two most important resources for the success of the independent production are the editor/writers and the actors. Before independent production, the TV drama production, under the state-owned system, was considered a collective team effort. Everyone had to belong to a state-owned organisation, including the writer and the actor. By learning the editor-central production system from American TV drama production, independent production companies in China started to develop a similar system. The best editor/writer was treated as the central resource by the companies and companies used the editor studio to brand themselves. The success of the writer/editor Hai Yan, who created the prosperity of the police theme drama from the 1980s, enhanced the writer/editor‟s position in the market. Hai Yan used to contract with Hairun Movie & TV which is one of the biggest and earliest TV drama independent production companies from the 1990s, and built up the reputation for Hairun with the market success of his police themed TV drama. Recently he changed affiliations to another film and TV drama production company, Century Hero, which offered more attractive conditions.

The other important resource for independent companies is its actors. The actor agency became one of the most important businesses for independent production companies, and this liberated actors from state-owned cultural organisations. Before the economic reform, most actors and artists belonged to cultural and performance troupes under all kinds of administrative departments, like the cultural and performance troupe of All China Federation of Trade Union. These actors generally only had propaganda tasks to perform. At the early stage of the cultural reforms in the 1990s, the independent actor who made a living on their own was called „getihu‟, which literally means „individual operator‟. This group used to be looked down on by other actors who worked in state- owned organisations. But with the growth of the independent production companies, actor cultivation became an important business. Many young generation actors actually grew up with independent companies and did not care about government titles1 any more. Huayi Brothers started an actor agency business in 2000 and have signed

1 The actors belonging to the state-owned organisations can be certified with the title National Actor/Actress from Class One to Class Three by the government. 101

Competition and Innovation: Independent Production in Chinese TV Industry contracts with over 40 actors and singers, which has allowed the company to build up the full market value chain in production.

Generally, production companies have two options to distribute the drama once they obtain the distribution licence for their series. One is „autonomous‟ (zi zhu) distribution; the other one is to commission a distribution agency. Most big-scale production companies distribute the programs autonomously and use their own direct distribution channels to the different level stations. Meanwhile, they also use all TV festivals and program trading fairs. Generally, autonomous distribution can maximize profit. Small- scale production companies may not own the direct distribution channels so they have to commission the distribution to some special distribution agency. Such programs generally distribute to the local market through the local stations trading network. The agency shares 15 to 30 percent of the profit (CSM 2004).

Scale of Annual Autonomous Commission Production Production Distribution Distribution Company Yield Large Over 200 100% 0 episodes Medium Around 80 91.7% 8.3% episodes Small Under 20 24.4% 75.6% episodes

Table 16 The distribution mode of different scale TV drama production companies (CSM 2004, 124)

Different level Direct TV Trade Trade From other Others TV stations sale Festival Fair Network TV stations Provincial TV 100% 85.7% 71.4% 28.6% 28.6% 0 stations Provincial 66.7% 66.7% 50% 50% 0 0 Capital City TV stations

102 Competition and Innovation: Independent Production in Chinese TV Industry

Other local TV 50% 38.9% 22.2% 72.2% 22.2% 22.2% stations

Table 17 The TV drama purchase channels of different level TV stations (CSM 2004, 132)

The distribution market in China is divided into national and local markets. The national market includes CCTV and STV channels, whereas the main local market includes provincial local channels and city channels. The local market can also be divided into four levels according to economic demographic data. The sale price can range a lot (See Table 18). Generally, the drama will be broadcast at the first round in the national market. CCTV has the strongest financial power so most program broadcasting rights will be bought out including all-round domestic and international. Meanwhile, advertising departments are not mature entities in the state-owned TV stations. Generally, independent production companies distribute dramas to TV stations with some attached advertisements at the end of each episode as return. It is the prototype of program market distribution in China.

Level Areas Price per episode (RMB yuan) 1st level Beijing, Shanghai 50,000 – 60,000 2nd level Eastern China and Northern 40,000 – 50,000 China 3rd level Central China, North Eastern 10,000 - 20,000 China, South Eastern China 4th level South Western China, North Around several hundreds Western China

Table 18 The four-level national distribution market of TV drama in different areas (CSM 2004, 141)

5.4 Case Studies: Tongle Media Organisation

Although some big scale production companies have grown up in the TV drama market, medium and small-scale independent companies are responsible for the majority of

103

Competition and Innovation: Independent Production in Chinese TV Industry output. Tongle Media Organisation is one of them. Entering an old business building where Tongle Media Organisation locates in Chaoyang District of Northern Fourth Ring in Beijing, it is a surprise to notice over 10 small or middle scale independent film and TV production companies based there. One of the biggest scale production companies, Hairun Film & TV, is located in this area, a block away from Tongle.

These SMEs reflect the market prosperity following economic reform. This prosperity is also the result of rent-seeking under the long-term monopoly of the state-owned media. Before 2003, the government only granted production licences to state-owned media, and some of them did not even produce programs themselves. Because the supply from these state-owned organisations could not satisfy demand, independent production developed a collaborative relationship with some of these state-owned licence owners. From the trading background of Tongle, it is easy to tell that Tongle also built relationships with CTV, China Television Company, which manages program production and distribution and is an advertising agency for CCTV (See Table 20).

Tongle Media Organisation was founded in 1999. The parent company is Shenyang Tongle Media Investment Company registered in Liaoning Province where the owners‟ hometown is. The partners Li Mangye and Xu Haitao co-operated together for 10 years and neither of them actually had any experience in TV station or media organisations. Under their tacit collaboration, Shenyang Tongle Media Investment Company developed four subsidiaries, including Tongle Media Organisation in charge of TV drama production, Tongle Cultural Communication in charge of distribution to the TV stations, Tongle Movie & TV in charge of distribution in the DVD market and Tongle Film Production. This operation structure is quite popular in Chinese television production companies because they have to apply for different licences in the different market as the government inquiry. By 2009, the company had produced over 13 TV dramas and around 40 episodes per annum. They distributed 18 dramas into TV stations and the DVD market and over 60 episodes were distributed annually. The company have produced 3 films, including 2 digital films since 2002. They also became one of the few independent companies that have obtained 100 percent return from each series

104 Competition and Innovation: Independent Production in Chinese TV Industry they have produced and distributed1. This company has less than 10 full-time employees and all of the production team are employed once the production project gets the approval from SARFT and the distribution is guaranteed.

Tacit collaboration between the two partners is one of its successful elements2. Both Li Mangye and Xu Haitao are the lost generation who grew up in the period of the Cultural Revolution. They did not have much education. The only experience relative to media was their work in the culture centre, which was the social department in the era of the planned economy. Common interest brought them together. Li Mangye, who has more art sense, is in charge of script selection and executing the production details, while Xu Haitao, who has more skills in social networks, is responsible for investment and building up the distribution network. As they explained, most TV drama scripts in the market are based on best-selling novels as not many quality writers make a living in the drama production market. In order to select good scripts, they have to read a huge number of novels and pick ones with the most potential to edit into a TV drama script. They do not employ full-time professional editors in their own company. Instead they collaborate with editors inside the broadcasting system, people such as Han Suzhen, the editor in the China TV Drama Production Centre of CCTV. Most editors inside the state-owned system make money from the drama market. The average payment for writing scripts is between RMB 20,000-30,000 yuan per episode3.

Once a script is selected and edited by the professional editors, the producers look for an investment. One of their buyers is CTV, a publicly listed company of CCTV. In fact, CTV seldom produces programs even if it owns the production licence. CTV takes advantage of owning the long-term TV drama‟s licence and CCTV‟s broadcasting platform to buy programs in the market. Just like the script selected by Tongle Media Organisation, if CTV makes the decision to invest, CTV will submit the production

1 The interview with Qi Xin and Xu Haitao by the author in June 25, 2010 in the company office in Beijing; 2 The content below is quoted from the same interview. 3 The interview was conducted by the author in Oct 18, 2008 with the TV drama writer Mu Xing, who works in National Children‟s Theatre and writes the TV drama scripts for independent TV drama companies. 105

Competition and Innovation: Independent Production in Chinese TV Industry project to SARFT. Once approved by SARFT, Tongle Media Organisation will start production, but CTV retain ownership of the total distribution rights in the market and only make a one-off payment to Tongle. If Tongle could find private investment, they would produce the drama under their own name. Their dramas, Like Falling in Love (Haoxiang Haoxiang Tan Lian’ai) and A Woman‟s Epic (Yige Nüren de Shishi) obtained financial backing from Anhui Weixing Property Development Company and were therefore able to be distributed to TV stations and the DVD market by Tongle.

They distribute dramas for other production organisations as well, especially for CCTV, in the second round market. Generally, the drama produced by CCTV TV Drama Production Centre or bought by CCTV will only be broadcast on CCTV channels. CCTV considers advertising as the best return in the first round with second round distribution returns being minor. In 2001, Tongle Media Organisation bought second round distribution rights from CCTV for the top-rating drama The Grand Mansion Gate (Da Zhai Men) for RMB 20 million which surprised CCTV as to the scale of the local market. Since then, CCTV has started to pay attention to the distribution in the second round market and prices paid by Tongle Media Organisations have increased. Some popular dramas can be distributed to hundreds of TV stations in the second round, or even the third round, and ratings can still remain high at non-prime time.

Index: About Tongle Organisations

Sub- Timeline Production Director Leading Co-production organisations TV Drama Actor & organisations Actress Tongle Media 1999 Director of the Wu Zhang China Television Organisation Community Zhennia Zhihua Company Committee n (Juwei Zhuren) 2000 Betray (Bei Zhang Xu Qing, China Television Pan) Qian Wei Zi Company 2002 Sun Blood Yang Wang China Television (Taiyang Di Haibo Juirong, Company Xue) Chang Rong 2002 Grand Princess Chen Jie Tang China TV Drama Song (Datang Guoqiang, Production Centre Ge Fei) Sun Haiying

106 Competition and Innovation: Independent Production in Chinese TV Industry

2003 Wisdom Storm Wang Sun Chun, China TV Drama (Zhihui Yixing Sun Zhou Production Centre Fengbao) 2003 Like Falling in Liu Jiang Wenli, -- Love Xingang Na Ying, (Haoxiang Liang Jing, Haoxiang Tan Luo Lian’ai) Haiqiong 2003 Ten Days and Zhang You Yong, -- Ten Nights Qian Shi Jingming (Shi Tian Shi Ye) 2004 Red Light, Lu Tao, Fan Ming China TV Drama Green Light Production Centre (Hongdeng Lvdeng) 2004 Sculpturing in Li Li Zhiyu, China Television Time (Diaoke Xiaopin Wu Yuhua Company Shiguang) g 2005 Love To Be Jiang Zhang Found In Jiajun Zhilin, Fan Nowhere Bingbing, (Meili Xin Yang Tiandi) Gongru 2006 Mill Women Lu Tao Liu Jia, Ni Jiangsu Provincial (Mofang Dahong Radio & TV Nvren) Station 2007 Trap Su Peng Wang Lie, -- (Quantao) Wu Jiaojiao 2008 A Woman's Xia Zhao Wei, -- Epic (Yige Gang Liu Ye Nvren de Shishi) Table 19 Tongle Media Organisation TV drama production

Sub- Timeline Distribution Director Leading Production organisations TV Drama Actor & Company Actress Tongle Cultural 2000 Cherish Our Zhang Li Yapeng, Beijing Galloping Communication Love Yibai Xu Jinglei, Horse Company Forever Wang (Jiang Xuebing Aiqing Jinxing Daodi)

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2000 Betray (Bei Zhang Xu Qing, Tongle Media Pan) Qian Wei Zi Organisation 2001 The Grand Guo Chen CCTV TV Drama Mansion Baochang Baoguo, & Film Gate (Da Siqin Production Centre Zhai Men) Gaowa 2001 Orange Li Zhou Xun, CCTV Wuxi Getting Red Shaohong Huang Lei Movie/TV Base (Jvzi Hong Co. Ltd le) 2001 Laughing Ye Jing Tao Hong, Beijing Audio- Stock (Yi Fu Biao video Company Xiao Da Fang) 2002 Miracle Dr. Huang Li Baotian, China Xi Laile Lijia Shen Aojun International (Shenyi Xi Television Laile) Corporation 2003 Like Falling Liu Jiang Wenli, Tongle Media in Love Xingang Na Ying, Organisation (Haoxiang Liang Jing, Haoxiang Luo Tan Lian’ai) Haiqiong 2003 Ten Days Zhang You Yong, Tongle Media and Ten Qian Shi Organisation Nights (Shi Jingming Tian Shi Ye) 2005 Tracking Guo Wang Beijing Flagship Lost Cases Yingjiang Kuirong, Culture Company (Mi’an Yuan Huai Zhuizong) 2006 Starry Sky Gao Yue Hong, CCTV TV Drama (Man Tian Yigong Wu Yujuan, & Film Xing) Wang Production Centre Kuirong 2007 Love To Be Jiang Zhang Tongle Media Found In Jiajun Zhilin, Fan Organisation Nowhere Bingbing, (Meili Xin Yang Tiandi) Gongru 2009 A Woman's Xia Gang Zhao Wei, Tongle Media Epic (Yige Liu Ye Organisation Nvren de Shishi) Table 20 Tongle Cultural Communication Company TV drama distribution

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Sub- Timeline Distribution (CD, VCD/DVD) Production organisations Company Tongle Film & 2001 TV Drama Music Collection of Li TV Co.Ltd Haiying 2001 Empire‟s Barn (Tianxia Liangcang) CCTV TV Drama & Film Production Centre 2004 Honour (Rongyu) China TV Drama Production Centre 2004 River Flowing Eastward (Dajiang Shenyang Dongqu) Sunshine Film & TV Company 2004 Loyal Guard (Zhongcheng Weishi) CCTV TV Drama & Film Production Centre 2005 Decoding Files (Zhongji Jiemi) Shanghai Film Studio 2005 Chinese Style Marriage (Zhongguo Shi Beijing Jindun Jiehun) Xintong Film and Television Cultural Centre 2005 Nine Daughters at Home (Jia You Jiu Beijing Ordinary Feng) People Film & TV Company Table 21 Tongle Film & TV Co.Ltd TV drama DVD distribution

Sub- Timeline Production Director Leading Actor & organisations Film Actress Tongle Film 2002 Who Has Yan Geling Chen Jie, Wu Jiaojiao Production Daughter (Shui Co.Ltd Jia You Nv) 2004 Metropolitan Liu Xingang Love Stories (Dushi Lianqu) 2005 Green Apple Jiang Jiajun Fan Bingbing, Yang (Qing Pingguo) Gongru, Zhang Zhilin

Table 22 Tongle Film Production Co.Ltd film production

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5.5 Main Issues in the TV Drama Market

Since the market was first opened for TV drama production companies with the introduction of the licence system in 1986, the drama market has developed into China‟s, and even the world‟s, most active market today. It has developed from being dominated by state-owned production organisations to being led by independent production companies.

5.5.1 High Quantity ≠ High Quality

After over two decades of development of the licence system in The TV drama market, the independent companies do not consider the licence for production and distribution as a restriction any more. Although, the long-term licence A is still granted to most state-owned production organisations, the percentage of independent companies among the licence A holders has increased quickly and being given a short-term licence B is a quick process for any independent production company. The distribution licence has also been relaxed. As Li Mangye said (Liu 2010),

They never have the problem with applying for the licences for the production and distribution even though they do not have the licence A. Once they choose a good script for the market, it generally can go through the censorship.

But with the rapid development in the TV drama market, the issue becomes: what kind of content is good both for the market and the audience, and what does good quality mean in China?

The new record for a single episode was 1 million yuan by My Chief, My Regiment (Wo de Tuanzhang, Wo de Tuan). The government and the industry are claiming that a new era of quality drama is coming to China. Often mentioned in government reports, My Chief, My Regiment was produced by one of the biggest independent film and TV drama production companies in China, Huayi Brothers, which recently became the first publicly listed independent production company in China. For the government, My

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Chief, My Regiment has a good subject and good content because the story praises the spirit of the Communist army against the Japanese troops in World War II. For the industry, it has a big production with RMB 40 million yuan investment and dramatic visual effect designs. Actually, the ratings for the drama did not perform as well as Dwelling Narrowness (Wo Ju) with a RMB 16 million yuan cost. This was a cosmopolitan story about young people‟s issues. The government, however, hardly mentions Dwelling Narrowness in their annual report and documents because it features several controversial topics about government corruption and property problems. It was even taken off the air for a while.

It is not difficult to explain why schedules are full of historic dramas and reform subjects like the Anti-Japanese War and the Civil War. Under the current content and distribution censorship system, it is hard to create new styles or genres for the independent companies because of the political and market risk. In Li Mangye‟s understanding, they just try to „find the best script in the market, choose the best script writer, select the proper cast and put in good money‟ (Liu 2010) to make the quality drama. From their products (see Table 19), it is obvious that they cannot jump out of the circle that the government has set up for them. Discussions on the quality of TV in western countries (McCabe and Akass 2007) includes not only innovation of a new genre through the recombination of older ones and self-consciousness, but also notes tendencies toward the controversial and the realistic. Some Chinese independent companies seek high quality in big-cost productions but they are still a long way from reaching high quality through innovation and content realism.

5.5.2 Domestic Market ≠ Overseas Market

The TV drama market in China has grown dramatically since the 1980s, but nowadays the industry has started to worry that the market has become saturated. As estimated by the industry, over 90 percent of TV drama companies are medium to small-scale companies, yet over 50 percent of dramas produced cannot be broadcast on television, for many reasons, including over-supply, poor quality, and lack of distribution

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Competition and Innovation: Independent Production in Chinese TV Industry licences1. The industry expects that market trading could extend from domestic market to overseas market. Like other mature markets in other countries, once the domestic market becomes saturated, „going-out‟ becomes an option for the industry. This assumption cannot be established in China. Between 2005 and 2008, the price for Chinese drama in overseas markets had decreased three fold (Liu 2008) and is worth less than RMB100,000 yuan per episode today.

There is a lot of argument why overseas drama easily comes in but Chinese drama hardly ever goes out. Within the last two decades of The TV drama market development, the Chinese domestic market has been conquered several times by waves of overseas TV drama, including a Chinese swordsman „Wuxia‟ drama from Hong Kong in the 1980s, love and romantic „Qiongyao‟ drama from Taiwan in the early 1990s, trendy drama from Japan in the late 1990s and idol drama from Korea in the 2000s. Compared to these popular dramas from overseas, the most popular subjects in Chinese drama generally involve historical stories, Chinese reform history and current social issues, which hardly stimulates the different cultural backgrounds of overseas audiences. The Chinese idol and trendy genres have not achieved success overseas because their success needs the whole entertainment industry to support it. In China, the entertainment industry, which includes music, television, celebrity agency and other areas, has not developed to the same level of maturity as that of Korea and Japan.

Currently in China, most independent companies have to focus on competition in the domestic market. Considering that overseas investment in television production is still not allowed, the independent companies can only develop co-productions with the likes of Hong Kong and Taiwan. Still, China‟s production standards have improved a lot, including actors‟ performances, clothing design, post-production effects and investment value. Mainland China‟s production standards have surpassed Hong Kong and Taiwan.

1 The China-US Film and TV Forum was held during No.15 Shanghai International Television Festival. The author attended as part of the audience in the studio of Shanghai TV station in June 10, 2009. Guests included famous Chinese producers: the director of Beijing TV Art Centre, Zheng Xiaolong; the chairman of Ciwen Film and TV Drama Production Company, Ma Zhongjun; the famous actor, producer and the manager of the TV drama production company, Zhang Guoli; and some American producers of Desperate Housewives and House.

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In the 1990s Hong Kong and Taiwan were regarded as the symbolic titleholders of quality and popularity, but today it is considered as a mark of status and wealth for Cantonese and Taiwanese actors and producers to work on the mainland. Co- productions with Hong Kong and Taiwan are no longer considered to be advantageous. As Li Mangye said (Liu 2010),

In our production, generally we only consider the proper actors from Hong Kong or Taiwan if we have to. The production industry have built up a number of good enough production teams in mainland China now and we do not need to consider the title of co-production any more.

5.6 Conclusion

This chapter has shown that after three decades of growth, independent production in China is playing an important role in the Chinese TV drama market. As the first open market for independent production, the TV drama market has been built up under government systematic regulations on content and censorship that apply to independent companies. The independent TV drama production companies have developed comparatively mature production and distribution practices in local and national markets. Representing the majority, small and middle sized independent companies like Tongle Media, have understood the market and followed market rules well, but there are still issues hindering independent production in the TV drama market, particularly compared to mature TV drama production in the international market.

Independent production is gradually catching up with high-cost production in the international market and with branded niche products. However, it still needs to be answered „What is high quality production in China?‟ Although TV drama production has been successful in the domestic market, it has experienced difficulty breaking into the overseas market in the way that China‟s neighbours have done. In Chapter 9, I will discuss further issues regarding the competitive and innovative environment for independent production in China.

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Chapter 6

Independent Production in the Entertainment Program Market in China

6.1 Introduction

Aside from the genre of TV drama, the entertainment program is the second most popular market for independent production. Television entertainment programs in China are a relatively new category in the market. State-owned TV stations try to make entertainment programs more educational by combining them with arts, but there is seldom any innovation in the format without the approval of the government. Entertainment became popular for audiences in the 1990s. In 1997, the ratings share of entertainment programs was 19 percent, third among 11 categories, after news/current affairs and TV drama (CCTV 1998, 124). As the author of Television Entertainment Programs noted, “during the interaction between China and the world, a cultural consumption- entertainment era is coming quietly and surrounding us but in this entertainment wave, television entertainment only can belong to the latecomers” (Zong 2003, 5). After 2000, entertainment programs became an important engine for high ratings and low-budget and high-return productions attracted more attention in entertainment programs.

6.2 The Development of the Entertainment Program Market

The variety show was regarded as the earliest format in entertainment programming and swept through the Chinese market in the 1990s. At this stage, audiences still did not have too many options for entertainment in everyday life and watching variety shows was the most popular family activity on the weekend. However, due to the influence of overseas programs, the audience quickly responded to new options for entertainment.

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The ratings of the most famous program, Zhengda Variety Show (Zhengda Zongyi) in CCTV dropped to only two percent in 1996, from 23 percent in 1992 (CCTV 1997, 123). In the late 1990s, game shows, talk shows and reality shows rewrote the definition of the entertainment program. In market competition, STV channels used entertainment programs to break the dominance of CCTV. The landmark event happened in 1999 when an interactive game show, Happy Base (Kuaile Dabenying), and a dating show, Rose Date (Meigui zhi Yue), on Hunan STV, swept the country. These were influenced by the entertainment production style of Hong Kong and Taiwan. Meanwhile, Happy Together (Huanle Zongdongyuan), produced by Joyful Culture and Entertainment Co. Ltd and broadcast in Beijing TV, was so popular that it was distributed to over 40 city channels. After 2000, talk shows and entertainment report shows started to take the most share of the market, especially programs like Entertainment Live (Yule Xianchang) by Enlight Media and Super Interview (Chaoji Fangwen) by Fleet Entertainment (Dongfang Fengxing). In 2005, following Super Girl on Hunan STV, the reality show took over from the entertainment wave. Today, entertainment programs generally are divided into six main categories: variety show, single performance show (like Chinese traditional art form), entertainment news report, game show, talk show and reality show (CSM 2007). They also include any infotainment programs that do not belong to other genres.

More independent companies are devoting themselves to developing entertainment programs and professionalizing program innovation and distribution, which are the shortcomings of state-owned TV stations. Independent production, though, remains small compared with mainstream production. However, notably in program innovation, independent producers have developed some degree of maturity and have branded some famous programs for over a decade (See Table 23). Some focus is on the branding of game shows, some on the children‟s programs, and some on entertainment information reporting. However, because it has only had a short time to develop and because of the immaturity of the market value chain, independent production had only taken up 10 percent of the market share by 2005 (CSM 2007, 72).

Name Located Foundation Famous brand Brief Background Time Tang Dragon Beijing 1995 Entertainment 365 Over 10 programs 115

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International Media (Yule 365) and Nike distributed to different Group (Tanglong Knowledge Garden level TV stations; the Guoji) (Nike Zhishi Leyuan) programs platform includes co-production with TV dramas, fashion, Nickelon Channel of entertainment, business Viacom report and children programs Cheerland Beijing 1997 Lucky 52 (Xingyun Formerly Advertising Entertainment 52), Golden Apple Company from 1997; Organisation (Jin Pingguo), mother company Qi Xinran (Qixinran Healthy Star Group including film, dram Chuanbo) (Jiankang zhi Xing), production and animation www.qixinran.com etc in CCTV Enlight TV Beijing 1998 Entertainment Live 12 programs broadcast in Production Co. Ltd Report (Yule over 600 TV channels; (Guangxian Xianchang Baodao) extend the content Chuanmei） used to be broadcast production in mobile SP, www.netandtv.com in over 150 cities internet and other new media; merged with a SP listed company, Huayou Ltd in Nov 2007 Joyful Culture and Beijing 1998 Happy Together Major in the entertainment Entertainment Co. (Huanle TV programs Ltd (Huanle Zongdongyuan)； Chuanmei) Cultural Report www.joymedia.cn Daily (Meiri Wenhua Bobao) Yinhan Beijing 2000 BTV Life Channel Major in the business with Communication Co. (2004-2006) Beijing TV station Ltd (Yinhan Chuanbo) Fleet Entertainment Beijing 2000 Celebrity Talk Show Major in the production of (Dongfang Super Interview lifestyle shows and the Fengxing) (Chaoji Fangwen), fashion brand including Super Jing Distance online fashion shopping (Chaoji Jing Juli); www.lafaso.com Fashion Talk Show Beautiful Lady (Meili Qiaojiaren); Cooking Show I Love Everyday (Wo Ai Mei Yi Tian) Stellar Media Co. Beijing 2001 Multi-platform The biggest company in Ltd (Xingmei distribution this field with the Chuanmei) including the registered capital 320

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magazines and DVD million RMB etc. Egasus & Taihe Beijing 2002 Global Film Report Formerly Egasus Entertainment (Huanqiu Baodao); International from 1993 International (Paige Program design for Taihe) Neimenggu TV (since 2006) Bao Li &Hua Yi Beijing 2003 Hainan TV Travel Formerly Hua Yi Media Media Group Channel (2005 till from 1996; the main (Baoli Huayi) now) control company state- owned Baoli Group Guanhua Centenary Beijing 2003 Police Life (Jingcha Mother company Guanhua Media Company Rensheng) co- Group including the (Guanhua Shiji) production with the equipment and music film and TV production production center of Ministry of Public Security of China

Table 23 Top 10 famous entertainment program production companies

As illustrated in the table above, all of these top 10 entertainment production companies are located in Beijing. As the cultural centre of China, Beijing has all the advantages for entertainment, including celebrities, fashion, production teams, investment and the market. Therefore, like TV drama production, Beijing has become the most popular independent entertainment production centre. In 2005, over 54 percent of independent production in entertainment programs were from companies in Beijing (CSM 2007, 81). Independent production in Shanghai and Guangzhou accounted for 16 percent and 12 percent respectively (CSM 2007, 83), but compared to the production scale of Beijing they were not at the same level, even though Guangzhou had the advantage of access to resources from Hong Kong. Some provincial TV stations have set up some subsidiary production companies or branches in Beijing in order to utilize the resources there and improve further prosperity in the market.

Generally, entertainment programs attract a greater percentage of the audience in local markets while CCTV and STV have dominated the national market. The Anhui Entertainment TV channel and the science and educational TV channel (see Table 24 and Table 25) are typical provincial local channels broadcasting entertainment

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Competition and Innovation: Independent Production in Chinese TV Industry programs. Anhui TV station targets the entertainment and the TV drama markets to brand itself. Anhui TV station performs better than the average in the production of entertainment programs. However, from the program schedule, it is easy to see that more than half of programming depends on the supply from outside the TV station. For other genres, aside from entertainment programs, schedules depend on imported programs, like documentaries. TV stations seldom produce the documentary anymore and independent production is limited by regulation. Imported programs have limitations on their broadcast at prime time, therefore, even science and educational channels are full of entertainment programs, with their imported programs showing outside of prime time.

Time Program Genre Production 6:28:00 Daily TV Guide (Quantian Daoshi) 6:35:40 Beautiful Lady (Meili Fashion Talk Fleet Entertainment Qiao Jiaren) (R) Show (Dongfang Fengxing) 7:30:00 Film & Television Entertainment BTV Film & Television Everyday (Tiantian Report Center Yingshi Quan) 7:52:00 Entertainment Express Entertainment Anhui TV station (Yule Zhitongche) (R) Report 8:25:40 Variety Comedy Show Variety Show Anhui TV station (Zongyi Lefantian) 8:52:30 Meet at Theatre (Xiangyue Local Chinese Anhui TV station Huayilou) Traditional Folk Opera 9:44:20 Super „Jing‟ Distance Celebrity Talk Fleet Entertainment (Feichang Jing juli) Show (Dongfang Fengxing) 10:31:10 Happiness PK (Kuaile Online Games Anhui TV station and Wudi Da PK) Show Hangzhou Winger Online Technology Company (Hangzhou Bianfeng Wangluo Keji) 11:33:00 Film & Television Entertainment BTV Film & Television Everyday (Tiantian Report Center Yingshi Quan) (R) 12:00:00 Love the New Host Talent Show Anhui TV station (Aishang Xin Zhuchi) 12:30:20 I am Popular (Danghong Family Game Anhui TV station Bu Rang) (R) Show 13:36:10 Super Winner (Chaoji Da Game Show Anhui TV station Yingjia) (R)

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15:12:00 Meet at Theatre (Xiangyue Local Chinese Anhui TV station Huayilou) Traditional Folk Opera 16:06:30 Hello! Hollywood Entertainment Meton Media (Meitian Report Meiyue) Super „Jing‟ Distance Celebrity Talk Anhui TV station 17:00:00 (Feichang Jing juli) (R) Show

17:51:50 Variety Comedy Show Variety Show Anhui TV station (Zongyi Lefantian) 18:20:00 Entertainment Express Entertainment Anhui TV station (Yule Zhitongche) Report 18:50:00 I am Popular (Danghong Family Game Anhui TV station Bu Rang) Show 19:50:00 TV Drama Theatre (Jufeng Xingdong) 21:20:00 Happiness PK (Kuaile Online Games Anhui TV station and Wudi Da PK) Show Hangzhou Winger Online Technology Company (Hangzhou Bianfeng Wangluo Keji) 22:20:00 Love the New Host Talent Show Anhui TV station (Aishang Xin Zhuchi) (R) 22:45:50 Hello! Hollywood (R) Entertainment Meton Media (Meitian Report Meiyue) 22:52:00 English Premier League Sports

Table 24 Program schedule in Anhui Provincial Entertainment Channel on Nov 23, 2010 (AHTV 2010)

Time Program Genre Production 8:00 Legal Time (Fazhi News Shikong) (R) 9:00 Technology Discovery Imported (R) Documentary 10:05 Happiness Variety Comedy Variety Kaxiu Group (Kaxiu (Kaixin Yiyuan) Show Chuanmei) 10:30 China Legal Recording Current Affairs Film and Television (Zhongguo Fazhi Jilu) Centre of the Supreme (R) People's Court (State- owned) 10:50 Best Live (Zuijia Celebrity Talk Enlight Media Xianchang) Show (Guangxian Chuanmei) 11:25 Entertainment Live (Yule Entertainment Enlight Media Xianchang) Report (Guangxian Chuanmei)

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11:55 Couple Show (Fuqi Celebrity Talk Beijing Night East Film & Tianxia) (R) Show Television (Beijing Jiu He Cheng Yingshi) China Legal Recording Current Affairs Film and Television 12:50 (Zhongguo Fazhi Jilu) Centre of the Supreme People's Court (State- owned) 13:05 Technology Discovery Imported (R) Documentary 14:05 Technology Discovery Imported (R) Documentary 15:05 SAGA (Chuanqi) (R) Imported Beijing Continental Documentary Bridge Corporation (Beijing Dalu Qiao) (State-owned) 16:00 Happiness Variety Comedy Variety Kaxiu Group (Kaxiu (Kaixin Yiyuan) (R) Show Chuanmei) 16:30 Entertainment Live (Yule Entertainment Enlight Media Xianchang) Report (Guangxian Chuanmei) 17:00 Film & Television Entertainment Enlight Media Billboard (Yingshi Report (Guangxian Chuanmei) Fengyun Bang) 17:25 Rainbow Color Animation Theatre (Qicai Lu Katong Jvchang) 18:00 Happy Show (Kuaile Xiu)

18:35 Film & Television Entertainment Enlight Media Billboard (Yingshi Report (Guangxian Chuanmei) Fengyun Bang) 19:00 Legal Time (Fazhi News Shikong) 20:20 Super Interview (Chaoji Celebrity Talk Fleet Entertainment Fangwen) Show (Dongfang Fengxing) 20:45 Film & Television Entertainment Enlight Media Billboard (Yingshi Report (Guangxian Chuanmei) Fengyun Bang) 21:20 Travel and Know about Education Dingwen Multimedia Co., China (Zhixing Ltd (Dingwen Keji) Zhongguo) 22:00 TV Drama

22:55 Technology Discovery Imported Documentary 23:55 SAGA Imported Beijing Continental Documentary Bridge Corporation (Beijing Dalu Qiao)

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(State-owned)

0:50 Fabulous Nature Imported Animal Beijing Continental Documentary Bridge Corporation (Beijing Dalu Qiao) (State-owned) Table 25 Program schedule in Anhui Provincial Science and Educational Channel on Nov 23, 2010 (AHTV 2010)

6.3 The Value Chain in the Entertainment Program Market

In the entertainment program market, the majority of production is still done by TV stations. In 2005, TV stations produced over 54,000 hours of entertainment programs, which took up 90 percent of the market while independent production accounted for over 6,000 hours (CSM 2007, 92). Among the 54,000 hours, provincial TV stations contributed most – 59 percent of the total production (CSM 2007, 74). Some of that TV station self-production was actually outsourcing independent production companies. It is estimated that there was over 12 percent of production in CCTV outsourcing to independent production, five percent of production in provincial TV stations came directly or indirectly from independent production, and six percent of production was from capital TV stations.

Entertainment Self-produced Purchased Outsourced Transmit from Program other TV stations CCTV 74% 14% 12% - Provincial TV 65% 29% 5% 1% Capital city TV 48% 43% 6% 3% Local city and 32% 48% 2% 18% county TV Table 26 Entertainment program production share (CSM 2007, 75-81)

In comparison with the TV drama market, entertainment program production has still to build up a real market value chain. The government has not built up an independent management system, such as having applications for independent TV drama production

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Competition and Innovation: Independent Production in Chinese TV Industry coming directly from SARFT. From 1998, independent production companies in the entertainment market were able to apply for a general licence. The Radio and Television Program Production Licence was still restricted. Before then, most of the independent production was underground and illegal. Tang Dragon was suddenly announced to be illegal in 2002 by SARFT for operating without a licence. Actually, Tang Dragon had set up business in 1995 and had operated for over 10 years. The licence does not guarantee that programs will be broadcast. TV drama scripts are censored directly by SARFT, as are the finished programs. As the entertainment programs without scripts are rarely censored by SARFT before broadcasting, SARFT authorizes TV stations to censor entertainment programs themselves. If there is any problem during broadcasting, the TV station will be warned and SARFT has the authority to stop the programs directly. Therefore, TV stations generally produce such programs themselves so as to avoid taking responsibility for the independent production.

TV stations prefer self-production in order to maximize the use of their own production team. Under the planned economy, there were over 620,000 employers inside the broadcasting system by 2009 (SARFT 2010b, 190). Among these, over 60 percent belonged to the government establishment quota, which means they will be employed for life no matter whether they work well or not. In the cultural and art production centre in CCTV, there were over 500 employees, but that did not include employees who were not under the government establishment quota. Generally, TV stations cannot change the quota, so that they cannot change the quality of production team by adjusting their employees. In order to maximize the use of their own employees, TV stations sometimes refuse, without reason, to work with independents. Entertainment Live (Yule Xianchang), produced by Enlight Media used to be broadcast in BTV for over five years, but it was replaced by a similar program but self-produced by BTV in 2004.

The market for the distribution of entertainment programs is not as mature as the TV drama market. Generally, TV station entertainment programs have a one-off broadcast time, though some might be repeated on a different channel in the TV station. Art Life (Yishu Rensheng) on CCTV became one of the most famous brands in CCTV. It was broadcast on CCTV-1 first and then repeated on CCTV-3, CCTV-4 and CCTV‟s digital

122 Competition and Innovation: Independent Production in Chinese TV Industry channels weekly. Only recently have some of the provincial TV stations started to notice the second-round distribution market. In the distribution market, independent companies are in the majority. By 2005, Enlight Media had produced 12 entertainment programs and five and half hours every day, and distributed to over 300 TV stations and 600 channels all over the country. Joyful Cultural and Entertainment TV produced a total of 1000 hours, distributed to nearly 300 TV stations and 700 channels and Tang Dragon International TV produced programs broadcast six hours every day, distributed to over 600 channels (CSM 2007, 94). In the trading of distribution, advertising exchange still remains the major payment mode for independent production. Generally, the big-scale independent companies exchange programs by integrating advertising time in different regions. According to the different regions and different level of channels, advertising time is divided into different units attached with the programs: 15 second, 30 second, 60 second and 90 second. The production companies have to sell the advertisements themselves to get a return of the programs. Some middle and small independent companies take the contract for the total advertisement time in each program with individual TV stations and separate the share with TV stations. In the case of Lucky 52 (Xingyun 52), Cheerland signs the contract with CCTV to take the agency rights for all of the advertising time inside the program, including replacement advertisements, but Cheerland has to hand over 60 percent of the revenue to CCTV.

6.4 Case Study on Enlight Media and Cheerland Entertainment

Among these independent entertainment production companies, Enlight Media has become one of the most important benchmarks in the market. Even though Enlight Media was not the earliest established independent company, it has developed into one of the biggest in the market „at light speed‟ (Lu 2005, 49). Enlight Media survived through the last decade, which was the toughest of times for independent companies. As the owner of Enlight Media, Wang Changtian, said (Liu 2010),

Look around, not many companies who started at the same period with Enlight Media are still left. But Enlight Media still survives and makes a good life which is just a legend.

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In 1998, Wang left Beijing TV as the producer of a news report program, Beijing Express (Beijing tekuai), and co-founded Enlight TV Planning Centre with only 100,000 yuan to target the entertainment report show, which was still a new concept for most producers in China. The audience in China still had no familiarity with the entertainment program genre at that stage. Therefore, when Enlight Media‟s first program China Entertainment Report (Zhongguo Yule Baodao) came out in 1999, it rapidly attracted audience and market attention. By 2004, Enlight Media had become one of the largest independent entertainment program production companies in China, with 10 branded programs and 300 million yuan revenue (Huang 2005a). In 2005, in order to enhance the program packaging business, Enlight Media became the biggest investor for the famous visual effect company Beijing Yingshida Cultural Communication Company.

As the pioneer of entertainment programs in China, Wang Changtian created many records in the program production market. Firstly, the new format of the entertainment „news‟ report is one of most successful innovations in recent television program history. Considering the limitations on news reports and current affairs for independent productions, Wang started business report shows, which is related to his own profession but which is an entertainment area ignored by state-owned TV stations. Today, Enlight Media has set up report branches all over China to cover entertainment information, from mainland China to overseas. Secondly, the syndication-model distribution network of the local market is an important innovation. In the entertainment production market, most independent production companies produce programs for the individual TV stations, and the TV stations will buy off the program with copyright. Most independent companies focused on their collaboration with provincial or central TV stations and did not pay much attention to the local market before Enlight Media started its distribution network there. Enlight Media created an idea to ally the city-level TV stations all over the country and provided programs in a syndication model called the National TV Program Network. By 2009, over 100 TV stations had joined in the network and Enlight Media had set a target of 280 cities in 2010 (Enlight 2010b).

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Considering the success of Enlight Media, the previous employment relationship between Wang Changtian and BTV was certainly helpful for the start of the business1. Under the current censorship system, an entertainment program cannot be censored by the government directly so Enlight Media needed patronage from TV stations in order to go through the gatekeeper. Therefore, BTV was happy to obtain free programs as co- production partner without any investment. However, in 2004, Entertainment Live (Yule Xianchang), the most famous brand program in Enlight Media‟s stables, was moved out the schedule at BTV because BTV started to consider Enlight Media more as a competitor than a collaborator. Enlight Media had to change their collaborator to CETV-3 where ratings were much lower. The timeslot of Entertainment Live in BTV was filled by Daily Cultural Broadcast (Meiri Wenhua Bobao), an entertainment information report program with the same format but which is produced by the TV station itself.

With the growth of Englight Media, business was extended from entertainment production to host agency and TV drama and film investment and distribution. As with actors, all television hosts and presenters in China used to belong to state-owned TV stations. Enlight Media used young generation hosts/presenters who did not belong to any TV station and cultivated their images with the programs. As a result, Enlight Media is called the cradle of entertainment host/presenters in China. Meanwhile, by taking advantage of the distribution network for their entertainment programs, Enlight Media began to invest in TV drama and film from 2006. They promoted these productions by integrating them into their distribution channels. Since 2006, Enlight Media has developed subsidiary organisations to invest in TV drama production and film production and, in 2006, Enlight Media acquired Oriental Legend Media Company. By 2010, they had produced over 20 series of TV dramas and six films (Enlight 2010a).

In contrast to Enlight Media, which focuses on low-budget and fast-consumption production programs, Cheerland prefers high quality standard programs that are difficult to imitate, according to the owner of Cheerland Entertainment Organisation,

1 The content below is from the interview with Wang Changtian in the headquarters of Enlight Media in June, 2010 in Beijing. 125

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Yuan Mei (Liu 2010). Among their productions, the most famous entertainment program brand Lucky 52 (Xingyun 52) had become to the longest running game show in China. It survived for the whole decade from 1998 to 2008, a surprise in an environment where a program generally has a short-term life of around one or two years in China. Before Lucky 52, the format of the game show had started to become popular on some local TV stations, but Lucky 52 created a new era for game shows in the central TV station platform. Lucky 52 rapidly became the No.1 rating program in CCTV-2 from 1999, and CCTV-2 became the second highest rating channel in the entertainment program market (CSM 2007, 37). Cheerland also built up a reputation quickly in the industry from Lucky 52.

As a result of CCTV-2 broadcasting reform of production-broadcasting separation in 1998, Cheerland initially signed the contract with CCTV to take responsibility for total production and marketing of Lucky 52 while also paying CCTV hosts, producers and some of their production team as gatekeepers. Game show production had become popular in local TV stations, but most were direct copies of overseas programs. As the first game show broadcast on CCTV, Cheerland introduced the British game show GoBingo which was paid US$400,000 as the format fee1. Personnel from the UK-based production company ECM were paid 1000 pounds per hour to assist the production team to set up the steps and select the best host for the program. In the end, under the direction of British production, Lucky 52 created a high quality format in production, stage setting and game setting. However, at the beginning the program was not popular. One year later, Cheerland ceased collaboration with the British company and transferred the direction from the original format Bible to take account of a more localized milieu. Cheerland employed production talent outside CCTV and organized seminars with scholars and experts to discuss program design and planning. Cheerland innovated not only in content but also in marketing strategies. Placement of advertising in the program brought in annual revenue of 30 million yuan. During the height of Lucky 52‟s popularity, the total annual revenue reached 100 million yuan so much that

1 The content below is from the interviews with Yuan Mei, CEO of Cheerland Entertainment Organisation in June, 2008 and 2010 in Beijing.

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Lucky 52 used to be called the most profitable program in China. However, 60 percent of the revenue had to be handed over to CCTV.

Although one of the most successful entertainment production companies in China, Cheerland cannot be separated from its relationship with CCTV. The founders of Cheerland are the husband wife team Wang Wei, chairman, and Yuan Mei, CEO. Both used to work at CCTV as producer and editor. Before Lucky 52, they also worked for several other programs at CCTV in the packaging and advertisement agency. However, it is not easy to collaborate with CCTV. Before Lucky 52 was officially broadcast, the demos had been changed over 10 times and the official version demo was produced at least four times. After Lucky 52, Cheerland collaborated with CCTV to develop some other programs, no matter whether they were programs they liked or not, or whether they made money or not; this was an exchange condition. In the children‟s program Golden Apple (Jin Pingguo), Cheerland lost four million yuan in program development and marketing in addition to another three million yuan for other children‟s programs. Generally, CCTV required independent production companies to follow their direction and to take on the risky part of program R&D as exchange the advertisement agency rights once the program could be broadcast. R&D results have to be absorbed by the independent company itself and no one sees that broadcast on TV. Also programs produced for CCTV were not owned by Cheerland itself. In 2004, Cheerland started to develop a production business in animation and began producing TV drama and film. Ultimately they aim to own their production brands for themselves.

Index: About Enlight Media Business Foundation Program Title Genre Periodic Categories Time Frequency Entertainment 1999 Entertainment Live Infotainment Daily Program (Yule Xianchang) show (three times Production Formerly China a week in (autonomously) Entertainment Report 1999) (Zhongguo Yule Baodao) 2000 Overseas Entertainment Daily Entertainment Live infotainment (Haiwai Yule show Xianchang) Formerly named World

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Entertainment Report (Shijie Yule Baodao) 2000 Top Chinese Music Infotainment Daily (Yinyue Fengyun show Bang) 2002 Top Chinese Movie & Infotainment Daily TV (Yingshi Fengyun show Bang) 2002 BigStar (Zuijia Celebrity Talk Daily Xianchang) Show Formerly named Entertainment Star Weekly (Yule Renwu Zhoukan) 2003 Health Dictionary Health Daily (Jiankang Baodian) Infotainment 2005 Lady Training Class Entertainment Daily (Shunv da Xuetang) Variety Show 2005 Top Chinese Fashion Infotainment Daily (Shishang Fengyun show Bang) 2008 Art Skill Training Entertainment Daily Class (Quanneng Variety Show Zongyi Ban) 2008 Read More Happy Book Review Weekly (Yue Du Yue Haokan) 2009 I Loving Watching Film Review Weekly Movie (Wo Ai Kan Dianying) 2009 I Loving Watching Infotainment Weekly TV (Wo Ai Kan show Dianshi) 2010 SuperStar Party Celebrity Talk Weekly (Wangpai Qunxing Show Hui) 2010 Music Alliance of Entertainment Weekly University Students Variety Show (Da Xuesheng Yinyue Lianmeng) Forthcoming Legend Stories (Mala Health Talk Daily Kan Tianxia) Show Forthcoming Life Magician Lifestyle Show Daily (Shenghuo Mofashi) Forthcoming Top Medical College Health Daily (Wangpai Yixueyuan) Infotainment Show Table 27 Enlight Media Entertainment Program Production (Autonomously)

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Business Foundation Program Title Genre Broadcasting Categories Time TV Channel Entertainment 2006 Parents (Fumu Education CETV Program Daren) Show Production 2006 M. Music Club Music Show Shandong STV (Exclusive (Wuxian Yinyue Production) Julebu) 2007 Laughing at All Comedy Show Tianjin STV (Xiao Ao Jiang Hu) 2007 To Learn in Children Show Shanxi STV Examination (Bu Kao Bu Zhidao) 2008 I am a Legend (Wo Talk Show Changsha TV Shi Chuanqi) 2008 Music Academy of Reality Show Chongqing Top Chinese Music STV (Yinyue Xueyuan) 2009 Charity Concert Music Show Fujian (Cishan Gehui) Southern East STV Table 28 Enlight Media Entertainment Program Production (Exclusive Production)

Business Time Event Title Periodic Frequency Categories Events 2001 Top Chinese Music Award Annually (Yinyue Fengyun Bang Banjiang Shengdian) 2005 Top Chinese TV Drama Award Annually (Dianshiju Fengyun Shengdian) 2006 Entertainment Ceremony (Yule Annually Dadian) 2007 Top Chinese Fashion Award Annually (Shishang Fengyu Bang Banjiang Shengdian) 2007 Top Chinese Model Award Annually (Mote Dadian) 2008 30 Year Top Chinese TV Once Drama Award Table 29 Enlight Media hosted Events

Business Time Including

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Categories New Media 2000 Ewang.com TV Drama 2006 Enlight Media TV Drama Department, Investment Oriental Legend Company and „630 Theatre‟ Film Investment 2006 Over 15 films Agency 2008 TV Host, Actor/Actress, Singer Table 30 Enlight Media other businesses

6.5 Main Issues in the Entertainment Program Market

As I discussed in Chapters 2 and 3, there is always tension between broadcasters and independent production, no matter which country they are in. The broadcasters have to be regulated heavily to maintain fair competition and diversity in the market. Especially in the network era the broadcaster wants self-production to maintain its dominance in the market, but the broadcaster also needs the independent production sector to reduce budget costs. Broadcasters and the independent production companies depend on each other, but they also compete with each other. In the Chinese market, it is a similar situation as it is for the independent sector in the network era in developed countries. State-owned TV stations actively change their structure to increase production and distribution capability to compete for market position; however, they cannot control all of the market value chain. This kind of tension between broadcasters and independents is particularly illustrated in the entertainment program market because of the censorship system and copyright.

6.5.1 Censorship vs. Relationship

As I have mentioned previously, censorship on content is dependent on the program genre. For fictional genres, the degree of restriction is lower than it is for non-fictional genres. For TV drama, the government can censor the script and the finished product before broadcast. For an entertainment show like a talk show, reality show or a variety show, the government hardly controls any of the content before broadcast as it grants

130 Competition and Innovation: Independent Production in Chinese TV Industry censorship control to the TV stations themselves. The state-owned TV stations have to take responsibility for all content not censored by the government. As a result, directors of TV stations generally exert stricter controls than the government in order to keep their positions safe.

Censorship in TV stations is also different depending on the region. Censorship controls are more restrictive for the central and provincial TV stations than they are for local TV stations. It is also one of the reasons why the out-of-studio production programs take up a greater percentage of the local market. Under more restrictive censorship control, most central and provincial TV stations prefer to take the responsibility for production and do it in-studio, clearly shown in Table 24. Thus, for an independent company who wants to extend their market share, like Enlight Media, they have to focus more on the local TV market to build local networks and to make their programs more competitive with programs in the national market.

Because of the censorship issue, directors of TV stations have the power to decide what kind of program can be produced. There is a huge rent-seeking space between TV stations and independent companies. For independent companies, the relationship between their owners and the directors of companies becomes very important in order for them to gain program production rights at an early stage. Most owners of independent companies have a background of work experience in TV stations. Although both of Yuan Mei and Wang Changtian do not think the relationship is the essential factor impacting on independent companies, they still admit that they used their background in TV stations to leverage some advantage. For those investors outside of TV stations, or those without a media background, it is almost impossible for them to enter the market.

As the censorship controller for the entertainment program, TV stations provide a gatekeeper position for the program, even if it is produced by the independent company. No matter how many stations the program will be sold to, it needs a gatekeeper as the content controller. Most independent companies, like Cheerland Entertainment Organisation, cannot even own the copyright of the program because of the privileged position the TV stations hold. Most small independent companies in the entertainment

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Competition and Innovation: Independent Production in Chinese TV Industry program market totally depend on one particular TV station. This kind of censorship directly affects content supply, not only in quantity but also in quality.

As Wang said (Liu 2010),

In China, there are over 3,000 channels but there is not enough content, in some extent, because of the suppression on the content. The attitude (of the government) results in no one wanting to produce the content, especially the innovated content. That also results in there being no good content for the audience, so the audience will be not happy to pay for TV content. Although Enlight Media is not in a troublesome condition now, I still appeal the attention to improve the production environment.

As the echo to continuous regulation, both on the company and the content, Yuan does not expect too many changes from the government. Her only comment is that they just „leave us alone‟.

6.5.2 Copying vs. Copyright

In-studio production dominates the entertainment program market, but in contrast to the diversity and originality in the production of TV drama and animation, it is full of copy-cat formats and lacks innovation. The latest format is easily transformed from overseas and is spread to different TV stations all over the country because of the lack of copyright control. Without the copyright protection, independent production has to fall into the vicious cycle by creating fresh programs but not maintaining the current programs. With no risk or less risk of copying, low-cost copying production programs easily take the leading position in the market, especially for broadcasters.

Generally, in order to compete with other channels, and especially with CCTV in the national market, provincial satellite TV channels play the important roles in the copying market. An example is in the popular Idol reality show format, a format that has swept the world. The Chinese version is the hit talent show Super Girl (Chaoji Nvsheng) on Hunan STV, which swept into China in 2005. Following that, the talent show format

132 Competition and Innovation: Independent Production in Chinese TV Industry subsequently broke out all over China. My Style, My Show (Wo Xing Wo Xiu) and Oily! Good Boy (Jiayou Hao Nanhai) from Shanghai Oriental STV, Absolutely Singing (Juedui Changxiang) from Jiangsu STV and Dreaming China (Mengxiang Zhongguo) from CCTV. More than 10 similar talent shows quickly filled TV schedules throughout 2006 all over the country. In 2007 and 2008, following the format of Dancing with Stars from the US, the dancing show wave hit Chinese audiences with over 5 similar programs, and in 2009, following the Karaoke format, over 10 similar singing shows dominated the screen.

Although at the beginning of the reality show boom independent production companies were pioneers1, TV stations rapidly took over the role once they realized its huge potential. Reality shows require more investment and have high censorship risk, and there are legal issues to consider when copying an overseas format. Before the program is produced, independent companies will spend a long time on localisation and copyright trading issues, while TV stations generally do not consider it as such a big issue because of their government background. There is also huge potential for commercial revenue. Even though some independent companies produce shows for TV stations, like Super Girl (Chaoji Nvsheng), produced by EE Media, and Lucky 52 (Xingyun 52), produced by Cheerland Entertainment Organisation, the copyright and the majority of the revenue still belong to the TV stations, not the independent companies themselves.

6.6 Conclusion

In this chapter, I have examined the current situation of independent production in the TV entertainment program market. Importantly, I clarified the concept of entertainment

1 The first reality show in China was the survival-style show called Into Shanglrila (Zouru Xianggelila), produced by Beijing Weihan Cultural Company and broadcast in many local TV channels. But it only existed for one season. The first long-running reality show was Golden Apple (Jin Pingguo), produced by Cheerland Entertainment Organisation and broadcast in CCTV from 2003 to 2007. 133

Competition and Innovation: Independent Production in Chinese TV Industry programs in the Chinese context, which is a general term for many different genres. This concept is quite different with the general understanding in the western context. In order to explain the situation in the market more clearly, I categorised entertainment programs according to non-scripted production. Considering the number of restrictive conditions for non-scripted production in the market, many independent companies are limited in terms of their production options. In order to reduce production costs, many television stations outsource the entertainment programs to independent companies. As a result, the popularity of the entertainment programs stimulates the independent production in this market. However, the uncertain regulations for outsourcing, including censorship of content, increase structured risk. Therefore, many low-budget independent producers have to look for the easy way out by producing safe content through copying and imitation.

Meanwhile, a lack of copyright regulation has led to a flood of cloning and imitation of successful overseas and domestic programs. In order to share the risk and the cost, some co-productions between independent companies and television stations have appeared. However, this generally means that the independent companies have to sacrifice copyright ownership or the majority of the revenue. Some independent companies who have grown up and developed a higher innovation level have subsequently realized the importance of branding and have begun to target niche markets. Compared to the TV drama market, there are different issues in the entertainment market as far as independent productions are concerned. In Chapters 8 and 9, I will compare the Chinese and international entertainment markets.

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Chapter 7

Independent Production in the TV Animation Program Market

7.1 Introduction

In China, animation programs are considered to be a kind of children‟s program and as such should bear the responsibility for children‟s education and government propaganda. When the government realized that the animation market was occupied by imported images and that the quality of domestic animation was not competitive with the overseas product, it imagined that cultural security was under threat. Considering the success of the animation industry in Japan and Korea, the central government recognised that animation production could become a commercial market with a huge economic value. From 2004, the Chinese central government has officially launched policies to support animation production as a part of the cultural security construction. Animation production and its industry have increased faster than any other sector. By 2009, TV animation production in China had reached 170,000 minutes, which overtook production in Japan and became No.1 in the world, at least in quantity (Cai and Tang 2010).

7.2 The Development of the TV Animation Market

Chinese animation production did not start later than in other countries; the first silent animation in China was produced in 1926. After the foundation of the new government, animation production was considered to be an important part of propaganda. Production from state-owned animation organisations was the first of the new era, and from the 1950s to the 1960s produced Monkey King Makes Havoc in Heaven (Danao Tiankong), which is a classic of Chinese animation history and still is broadcast on television today. After the Cultural Revolution, animation production quickly recovered, with

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Competition and Innovation: Independent Production in Chinese TV Industry remarkable productions coming from Shanghai Animation Film Studio in the 1970s (Yan and Suo 2005). However, with broadcasting reforms, the state-owned organisations lost funding from the government and production declined from the late 1980s. Production from the non-government sector could not compete with imported animation. The first overseas animation, Astro Boy, was broadcast on CCTV in 1981, and then Mickey Mouse and Donald Duck started to be broadcast on CCTV from 1985. Most overseas animation was provided to TV stations for free and products deriving from the animation program saturated the market. Although there were already over 120 animation production companies, including independent companies, in 2002, some 5 times more than in the late 1980s (SARFT 2006, 178), the quality of the product could not compete with overseas animation. In a survey by CCTV before 2003, over 60 percent of children were not satisfied with the animation programs which were broadcast on television (SARFT 2006, 180).

In 2004, in order to improve the situation of domestic animation production, the central government announced the policy „Guideline on Further Strengthening and Improving Ideological and Moral Status for the Under-age‟, which opened a new era for the development of animation production, especially for independent production. According to the guideline, domestic animation production should be supported by all departments. Following up, SARFT developed policies to support the animation industry such that the broadcasting platform must be extended and the broadcasting percentage of domestic animations increased. By 2005, SARFT had approved 30 children‟s channels in provincial TV stations and 3 animation channels in Beijing, Shanghai and Hunan. There were over 200 animation TV columns (lanmu) that broadcast animation series. Meanwhile, regulations from SARFT also limited the amount of imported animation programs such that domestic animation would not be less than 60 percent of the total broadcast time. As with TV drama regulations, from 2006, stations were not allowed to broadcast overseas animation in prime time, between 5pm and 7pm. This series of policies directly improved demand for domestic animations.

In contrast with the TV drama and entertainment program market, animation production was considered to be part of the political landscape that needed to be developed from the central level to the local level. Policies encouraged independent

136 Competition and Innovation: Independent Production in Chinese TV Industry production companies to become actively involved in the market from an early stage. As part of the support policy, the animation distribution licence system was designed like the TV drama censorship system in 2005. All production companies, including the independents, were able to apply for a distribution licence to allow the programs to be broadcast on TV stations. By 2005, independent companies had already created 43,000 minutes of original animation, which occupied over 60 percent in the market (SARFT 2006, 179). Meanwhile, independent companies took 30,000 minutes of outsourced animation production from overseas companies. This improved the techniques of the domestic animation production.

The number of production companies increased from 120 in 2002 to over 500 by 2006 (SARFT 2006, 178) and the majority of production companies in 2005 were independent. Meanwhile, local government adopted a succession of policies in order to show their support to the central government‟s policy on animation production companies. Over 10 city governments, including Hangzhou, Nanjing, Qingdao and other main cities where the government set up the animation production bases, set up a special subsidy for broadcast programs. The subsidy rewarded a company an average of 500 yuan per minute for 2D animation and 1000 yuan per minute for 3D animation broadcast on city and provincial level TV channels, with a top limit of one million yuan (Liu 2010). If the program was broadcast on CCTV, the price would be doubled.

In recent years, support polices have been enhanced. In 2006, 10 central government departments jointly signed a policy to support the animation industry. These included the Ministries of Finance, Education, Technology and Information Industry, Commerce, Culture and the State Administration for Industry and Commerce, the State Administration for Radio, TV and Film, the State Administration for the Press. A succession of policies was announced to support animation production companies in tax and export concessions, especially those which produced original animation programs. By 2010, 100 animation production companies, including independents, had been certified to obtain benefits. Under such positive conditions, independent companies produced animation with huge enthusiasm. By 2010, there were 8 independent companies among the top 10 biggest original animation production organisations (SARFT 2010a). See as below.

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Company Parent Headquarter Foundation Famous Annual Name Company Time brand yield Blue Cat Changsha in 1999 Blue Cat 4 series; Animation Hunan Over 4000 (Formerly Province mins Sunchime Animation) Zhongnan Zhejiang Hangzhou in 2003 Ruby and 10 series Animation Zhongnan Zhejiang franchise Over 6000 Construction Province shop Ruby mins Group House Holding Great Dreams Hongmeng Changsha in 2004 Rainbow 9 series; Animation Group Hunan Cat and over 500 Province Blue Rabbit mins

Huaqiang Shenzhen Shenzhen in 2004 The Stories 8 series Animation Huaqiang Guangzhou of Chinese over 5000 Technology Province Zodiac mins Company Holding Extraordinary Shenyang in 2007 Dodo‟s 2 series; Creative Liaoning World over 2000 Animation Province mins (Feifan Chuangyi) Yitang Shanghai Wuxi in 2008 China Five 8 series Animation Shuimu Jiangsu Thousand; 7700 mins Animation Province 100,000 Design Why Co.,Ltd Holding Shuimu Shanghai Ningbo in 2008 China Five 6 series Animation Shuimu Zhejiang Thousand; Over 4000 Animation Province 100,000 mins Design why Co.,Ltd Holding Magic Mall Beijing Hangzhou in 2008 10 series (Manqimiao) Dayen Zhejiang 12000 mins Media Province Holding Table 31 Top Eight Independent Animation Production Companies in 2009

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A snapshot of the animation program on BTV Kaku animation channel on Nov 15, 2010 appears below (See Table 32).Almost all of these animation programs broadcast on BTV were produced by an independent production company, except New Journey to the West by Beijing International Science Film Television Planning Co., Ltd. (Beijing Keying Guoji Yingshi Cehua) which is a subordinate company of the state-owned Science Film Studio. In contrast to the popularity of the independently produced programs, audiences did not give very positive comments, especially parents who know the story well. According to the regulations on the limitation of imported animation from SARFT, imported animation is only allowed to be shown at midnight. Domestically made animation has totally replaced imported animation in prime time children‟s entertainment.

Time Program Theme Production 00:05 Talk Show: Very Happy (Shifen Kaixin) (R) 00:34 Qins Moon (Qinshi Mingyue) Kongfu Hangzhou Mystery （9） Technology Co.Ltd (Hangzhou Xuanji Keji) 00:59 Pleasant Goat and Big Big Light comedy Guangdong Creative Power Wolf I (Xiyangyang yu Entertaining Company Dahuilang)（8-9） (Guangdong Yuanchuang Dongli) 01:49 Animation Talk Show (Shan BTV self-production Tianxia) (R) 02:14 Animation Infotainment Show BTV self-production (Kaku Quan Katong) (R) 02:39 Animation Storytelling BTV self-production (Manhua Tianxia) (R) 03:04 Kaku Classical Stories (16) 03:28 My Own Swordsman (Wulin Light comedy Beijing Union Film & TV Waizhuan)（85-86） (Beijing Lianmeng Yingye) 04:17 Kaku Toy Infotainment Show BTV self-production II (Wanju Zongdongyuan) (R) 04:22 Animation Program Report BTV self-production (Dongman Ku Didai) (R) 05:13 Animation TV Shopping (Kaku BTV self-production Qijiandian) (R) 05:37 Animation Talk Show (Shan BTV self-production Tianxia) (R) 06:03 Animation Storytelling BTV self-production (Manhua Tianxia) (R)

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06:29 Animation Infotainment Show BTV self-production (Kaku Quan Katong) (R) 06:52 Toy Infotainment Show I BTV self-production (Wanju Zongdongyuan) (R) 07:00 Talk Show: Very Happy BTV self-production (Shifen Kaixin) 07:30 In the Night Garden（9） Infant Imported from BBC

08:00 Arafat's Wonderful World Fairy Wuxi Brother Happy (Alafate de Qimiao Shijie) Animation Production (Wuxi （15） Xiongdi Kaiyue Donghua Zhizuo) 08:30 Cat Adventure (Shanmao he Light comedy Shanmao Animation Jimi)（53） (Shanmao Katong) 09:00 Sitcom: Who Has Children (Jia Cosmos Media (Tian Di Ren You Ernv) II（5-6） Chunamei) 10:00 Pleasant Goat and Big Big Light comedy Guangdong Creative Power Wolf I (Xiyangyang Yu Entertaining Company Dahuilang) IV (5-6） (Guangdong Yuanchuang Dongli) 11:00 Animation TV Shopping (Kaku BTV self-production Qijiandian) 11:25 Kaku Classical Stories（18） BTV self-production 11:55 My Own Swordsman (Wulin Beijing Union Film & TV Waizhuang)（89-90） (Beijing Lianmeng Yingye) 12:55 Kaku Toy Infotainment Show BTV self-production II (Wanju Zongdongyuan) 13:00 Animation Storytelling BTV self-production (Manhua Tianxia) 13:30 Warrior Armor (Kaijia Tokusatsu Shanghai Wo Shing Culture Yongshi) series Communication Co., Ltd. （35-36） (Shanghai Hesheng Wenhua Chuanbo) 14:30 The Stories of Tortoise Hanba Fiction Shenzhen Tang People (Hanba Gui de Gushi)（19- Animation Film & Animation 20） Company (Shenzhen Tangren Donghua Yingye) 15:30 New Journey To The West Chinese Beijing International Science (Xiyou Xinzhuan)（10） classical Film Television Planning Co., Ltd.(Beijing Keying Guoji Yingshi Cehua) 16:00 Animation Talk Show (Shan BTV self-production Tianxia) 16:30 Seven Rainbow Colour ( Qi Se BTV self-production Guang)

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17:00 Animation TV Shopping (Kaku BTV self-production Qijiandian) 17:25 Papaya Papaya (Mugua Fairy Huijia Animation Co.Ltd Mugua)（7-9） (Beijing Huijia Dongman Yingshi) 17:55 Qin‟s Moon (Qinshi Mingyue) Kongfu Hangzhou Mystery （41,42） Technology Co.Ltd (Hangzhou Xuanji Keji) 18:25 Kaku Toy Infotainment Show BTV self-production II (Wanju Zongdongyuan) 18:30 Pleasant Goat and Big Big Light comedy Guangdong Creative Power Wolf I (Xiyangyang yu Entertaining Company Dahuilang) Ⅱ（21,22） (Guangdong Yuanchuang Dongli) 19:30 Talk Show: Very Happy BTV self-production (Shifen Kaixin) 20:00 Qin‟s Moon (Qinshi Mingyue) Kongfu Hangzhou Mystery （11） Technology Co.Ltd (Hangzhou Xuanji Keji) 20:30 Pleasant Goat and Big Wolf: Light comedy Guangdong Creative Power Frankie Happy Year (Yangyang Entertaining Company de Kuaile Yi Nian)（12-13） (Guangdong Yuanchuang Dongli) 21:30 Animation Talk Show (Shan BTV self-production Tianxia) 22:00 Animation Infotainment Show BTV self-production (Kaku Quan Katong) 22:30 Kaku Toy Infotainment Show BTV self-production I (Wanju Zongdongyuan) 22:35 Parents‟ Class (Fumu xuetang) BTV self-production

23:05 Animation Cool Zone Imported (Dongman Ku Didai) animation programs Table 32 Program schedule of BTV Kaku on Nov 15, 2010 (BTV 2010)

7.3 The Value Chain in the TV Animation Market

In the animation market, the government adopts almost the same approval and censorship system as it does for TV drama, except that before production, animation companies need to apply for the project approval from SARFT or the provincial level

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Competition and Innovation: Independent Production in Chinese TV Industry department. The system is simplified and doesn‟t have long-term or short term licences. Any company with a reasonable project can obtain approval to start a production quickly and the approval percentage is higher than it is for TV drama projects. After production, the program has to be censored by the government before it can receive a distribution licence to TV stations. Without the distribution licence, the program cannot be broadcast but can be distributed to other new media platforms, like the internet or mobile networks.

From the content development perspective, topics have widened. The government censors content not in relation to the educational function but considers the entertainment function (excluding military and sensitive political topics). As the government thinks historic projects are popular themes in the market, Chinese historical stories provide the best scripts for animation production success. These historic stories need to be redesigned in an understandable way for children in modern life. There is, though, a lot of comedy relative to realistic topics in the market and these are popular with both children and adults. Animation is not considered to be a genre solely for children.

However, despite the scale of animation production increasing rapidly, the revenue of production companies has not followed; in fact it has declined. In the television market the distribution of animation production developed very similarly to TV drama. Generally, animations are distributed to TV stations in two ways. One is autonomous distribution and the other one is to commission the distribution to the specialised agency. Revenue comes from direct cast return or attached advertisement. With the professionalized value chain in the TV drama market, independent production companies already can make the revenue from the distribution to TV station in a direct cash return. But in the animation market, under the policy stimulation from 2003, animation production is leading to cut-throat competition and the production companies hardly get the cash return from the distribution. Before 2003, the price varied from 100 to 1000 yuan per minute depending on the different level TV stations while the production cost averaged around 3,000 yuan per minute (CSM 2005b, 82). After 2003, the maximum price gradually declined from 500 to 100 yuan per minute (CSM 2005b, 83).

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With the fierce competition in TV animation market, the value chain as part of distribution has developed quickly. Under such cut-throat competition, the distribution agency has developed dramatically in the market value chain and becomes more popular for the production companies in the animation market because the agency can distribute the program with the attached advertisement in several rounds nationally and locally to maximize the revenue. Meanwhile, animation companies actively extend distribution to overseas markets. By 2009, over 79 animation series representing 90,000 minutes of production were exported overseas, earning over US$30 million (SARFT 2010b, 89). It is China‟s biggest television export.

Compared to TV drama and entertainment programs, which get a major return from revenue by advertising and distribution, animation programs can derive a lot of related products that are more valuable than the broadcasting revenue. Therefore, the market value chain can be operated further upstream and downstream. In international practices, only 30 percent of the revenue comes from the distribution market and 70 percent depends on derivative products (Liu 2010). Today, the animation market is a full market value chain that includes multi platforms such as book, magazine, film, DVD, performance, internet and mobile, and derivative products such as toys, games and theme parks. For example, Fangte Animation was created by Shenzhen Huaqiang Animation. Its programs and images have spawned related products and theme parks that have been exported to South Africa, Iran and Ukraine.

In the animation market, co-productions with overseas companies are allowed. For example, Shanghai Fantasia Animation (Jinri Donghua) started their outsourcing business for French companies from 1996. Agrippine was outsourced by Ellipse Animation and Jack Palmer was outsourced by Les Animationeurs. Then they developed further business to co-produce Martin Matin and Shaolin Wuzang with Les Animationeurs. By 2009, Shaolin Wuzang had won 5 international animation awards and was distributed to over 34 countries and regions in the world (Lai and Che 2009). Today, the animation industry in China plays an important role in the international market as the largest animation production country.

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7.4 Case Studies: Its Cartoon

Its Cartoon (Qi Katong) is the subordinate animation production company under Cheerland Entertainment Organisation. This kind of animation production company is typical of the market, as illustrated in the table of the top 10 animation production companies. All of these animation companies developed under parent companies. As a result of the government support policy in the animation market from 2002, many film and television production companies took advantage of their production teams to build up an animation section. Cheerland is one such company. Its Cartoon was founded in 2002. It was one of the first animation production companies in the market, financed from Cheerland‟s buckets of gold from Lucky 52 (xingyun 52).

Lucky 52 (Xingyun 52) was Cheerland‟s golden egg, which it produced with CCTV. Cheerland always preferred to hold their own copyright and „leave their own marks‟ in history. As Yuan Mei said, „program production is just like making the dress for the others but you never can wear it yourself‟. After 2003, Cheerland transferred its business focus from entertainment program production to film, TV drama and animation production. As a good writer, Yuan Mei always had a literature art dream and she fulfilled this dream in animation production. Animation production is a high- cost industry and needs a lot of initial investment on equipment and human resources. So in Yuan Mei‟s words, her job was to spend the money while her husband was trying to make the money.

At the beginning of the foundation, Its Cartoon produced its first animation program Happy Stuff (Kuaile Dongxi) with a production team of only eight people. Cheerland itself had no experience in animation production so they chose to co-operate with Wang Yunfei and his team, and Yuan Mei was in charge of the stories and quality control. Yuan Mei was inspired by the American adult animation The Simpsons to design Happy Stuff as the Chinese version of the show. It had a difficult birth. Under high quality control, the first demo of Happy Stuff was produced several times, just like for Lucky 52. Yuan Mei moved into the studio with the production team and they discussed the images and the plot while sleeping in the studio. As Yuan Mei said, she enjoyed sharing the happiness and the pain with her teams and the motivation to work was

144 Competition and Innovation: Independent Production in Chinese TV Industry unparalleled compared with working for TV stations. In 2004, the first series of Happy Stuff was finished in 60 episodes and BTV Kaku animation channel signed the first contract with Cheerland. Happy Stuff became one of the best animation programs in 2004 in SARFT‟s list and achieved many national and international awards.

However, when Yuan Mei talked about that first contract, she did not show happiness in her face. On the contrary, she felt a little sad to have sold Happy Stuff at a low price in order to test the program in the market. She never let this kind of thing happen again. After the first series, Yuan Mei had learnt a lot about animation production. She is now very confident she can distribute her animation before production begins. Its Cartoon has now developed a full production and distribution chain: ideas – market research – calling on domestic distributors and derivative manufacturers by animation images and story summary – demo – international distributors – fulfilling production. Before production, they can obtain 20-30 percent of return, or higher.

In this production and distribution value chain, each link also has developed professional operations under quality control. Generally, the ideas come from the brainstorming of the production team, including Yuan Mei. One staff member of Cheerland said that Cheerland provided an equal work atmosphere so everyone liked to contribute new ideas. Once a new idea is passed through the production team, it will be tested in the market research. For the market research, Its Cartoon has several ways of testing their images, through the internet, through animation books, and by face-to-face testing. The face-to-face testing is called the rule, „7 multiple 7‟. As a children‟s program, each animation demo is tested by seven children. Their behaviour is recorded by seven experts. During the program testing, toys and snacks are placed before the children and their responses, such as when they are distracted by the toys and when they start to eat the snacks, are recorded. The production team takes account of the results and the end product is generally a success in the marketplace, especially in international markets.

Today, Its Cartoon has grown into a company with several production teams of over 200 persons all over the country and has produced over 6000 minutes of original animation. This includes the series Yippee Fruit, Anecdotes of Wind Flower Fairy, Happy Stuff, the animation film Olympics in My Family, which has been granted an 145

Competition and Innovation: Independent Production in Chinese TV Industry excellence award by SARFT, and Peculiar Kin, which has been distributed to many other countries and is authorized to be published in 40 types of publications. Its Cartoon also established production studios in the animation base in Shenyang, the capital of Liaoning Province, and signed a contract with Liaoning TV station to develop the animation market in Liaoning province. Once an independent company has developed enough, it comes to the attention of the government, and local governments actively provide generous subsidies and taxation breaks to attract investment to their local areas.

Index: Cheerland Entertainment Organisation and Its Cartoon Subsidiary Business Program company Category Cheerland Advertising CCTV-2 TV Guide (Daoshi); Advertising agency Business TV (Shangwu Dianshi); The advertisement agency of programs produced by Cheerland for CCTV Public service advertisement production Cheerland Film TV program Game show Lucky 52 (Xingyun 52); and TV Reality show Golden Apple (Jin Pingguo); Reality show Initial Lover (Qinmi Airen) Children game show Big Windmill – Doll One plus One (Da Fengche – Wan’ou 1 Qian 1); Children creativity show Blueprint Witness (Lantu Jianzheng); Children talk show Youth as the Accompany (Qingchun Zuoban); Health infotainment show Healthy Life (Jiankang Shenghuo); Film Peacock (Kongque); The Aunt's Post-modern Life (Yima de Hou Xiandai Shenghuo); Children From Huang Shi (Huangshi de Haizi) co- produced with Australian and German companies; The Third Person (Di San Ge Ren);

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TV film Genius Detective (Tiansheng Shentan);

TV Drama Urban Desire (Dushi Yuwang) 27 episodes; Princess Deling (Deling Gongzhu) 29 episodes; Women Line (Nvren Xing) 18 episodes; Wonderful Girl (Qimiao Nvhai) 28 episodes; Sewing Southern China (Zhizao Jiangnan) 22 episodes; The 5th Cosmopolitan Season (Dushi Di Wu Ji) 60 episodes; Fashion Circle (Shishang Quan) 260 episodes Theatre show Rich Dad, Poor Dad (Qiong Baba, Fu Baba)

Its Cartoon TV animation Happy Stuff (Kuaile Dongxi) 4 series and 240 series episodes; Happy Little Stuff (Kuaile Xiao Dongxi) 60 episodes; Happy Tea House (Dongxi Chaguan) 26 episodes; Yippee Fruit (Kaixin Guo) 26 episodes; Golden Apple (Jin Pingguo) 60 episodes, Anecdotes of Wind Flower Fairy (Fenghua Xianzi Waizhuan) 60 episodes; Flash animation Unbeatable (Xiao’ao Xuanyuan) co-produced with Taiwanese company, 18 episodes; Animation film Ma Xiao Tiao; Olympics in My Family (Aoyun Zai Wojia); Peculiar Kin (Qiyi Jiazu); Crane Dance (He Wu); Happy Running (Kuaile Bengpao) Animation Animation advertisement series of Stories on advertisement Dragon Card (Dahua Longka) for Volkswagen and and MTV China Construction Bank; Three MTV for singer Huang Weilin; MTV for singer Song Jia

Table 33 Cheerland Entertainment Organisation and Its Cartoon

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7.5 Main Issues in the TV Animation Market

Since 2002, when the central government made the decision to support this industry as a national policy, Chinese TV animation production has grown quickly, not only in the domestic market but also in the international market. Without the pressures of restrictive licence regulations and state-owned organisational pressures, independent companies in the TV animation market have developed in a free market space. As opposed to its strict regulations in other aspects of TV production, the government has shown extreme enthusiasm towards the animation market. Their supportive policies have been carried out in all aspects of the industry from the central level to the local level of operation, from broadcasting channel involvement to distribution networks, from tax deductions to office rental concession, and support financially from the domestic market into the international market. However, has the government gone from one extreme to the other, from extreme restriction to extreme support?

7.5.1 Subsidy or No Subsidy

Among the numerous policies in play, the subsidy for production companies whose program is broadcast is one of the most controversial. As vice-present of Beijing Film & TV Animation Association, Yuan Mei said,

They feel happy to get the support from the government, especially compared to the situation in other television genres‟ production, but the subsidy as a supportive policy only stimulates the quantity not the quality in the animation production. As a consensus in the industry, the competitive companies do not need the subsidy. Behind the prosperity of the animation production today, 90 percent of the current animation program is like the rubbish in the market.

Under the government subsidy, there is market chaos. For example, the children‟s TV column, Animation Sky (Dongman Tiankong) on the CCTV Children Channel is

148 Competition and Innovation: Independent Production in Chinese TV Industry broadcast at midnight when children are asleep, but many companies still compete for this time slot and even provide the program for free (Liu 2010). Some companies even make a living from subsidies alone so they need to maintain good relationships with TV stations. The relative new starter, Luo Xuan, the founder of Beijing BMC Animation, found the TV animation market to be very messy when he started his animation business in 2005. Therefore, he made the decision to avoid the TV animation market and target the internet and outdoor media. He described the subsidy from the government as „a chicken bone‟, which means somebody still cannot bear to throw it even though there is not much flavour left.

In contrast with the generosity of government subsidy for general animation programs, the government is very careful in considering awards for quality programs. For example, as the part of Sichuan TV Festival, The Golden Panda Award is considered as one of the top awards in animation production in China. But the highest prize for the award is only RMB 40,000 yuan (Tencent 2007), equal to around USD 5700 in 2007, which is even not as much as the broadcasting subsidy for one episode in Nanjing. In Nanjing, the capital city of Jiangsu Province, a company can gain subsidies of 2000 yuan per min for 2D TV animation if it can get it broadcast on CCTV. The prize money for the awards in each category of The Golden Panda Awards is 10,000 yuan to 2,000 yuan (Tencent 2007). In the market economy, although not the only stimulation for quality products, finance is one of the most important reasons for encouraging the industry to select the superior and to eliminate the inferior. The only argument is how the government can make use of methods in finance to balance the market.

7.5.2 Going Out

Under government support, the animation industry took just 5 years to develop as prosperously as TV drama industry had over 30 years. In 2004 animation production yield all over the country was only 23,800 minutes and the broadcasting demand was over 200,000 minutes (SARFT 2006, 193). In 2009, the production yield was over 170,000 minutes (SARFT 2010b, 84) and China had become the largest animation producing country in the world. Overseas markets have become an option for successful production companies. In 2009, the value of animation export was over USD 149

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30 million (SARFT 2010b, 89) and represented over 51 percent of all of film and television exports (Niu 2010). It was the first time that animation exports had overtaken drama exports in China.

The animation industry in China developed rapidly due to the government cultural institutions reform and „the 11th Five Year Plan‟ on cultural development from 2005 (Zhang 2008b). In 2006, the export of all television programs was RMB 16.9 million yuan, about USD 2 million, while the import of television programs was over RMB 33.7 million yuan. In order to balance the huge trade deficit, the government created the policy of „Going Out‟. As the most supported industry by government among all the cultural industries, the animation industry took the most active role in „Going Out‟.

Compared to TV animation in Japan and European countries, the quality of most Chinese TV animation is still lacking. According to the statistics from SARFT, the main overseas markets for Chinese animation are in the Middle East, South East Asia and Africa (SARFT 2009, 89). Zhongnan Animation is one of the biggest independent animation production companies in China. Zhongnan Animation took over 70 percent of the country‟s total animation export (Wang 2010), but the export market is located mainly in the Middle East and is dispersed throughout India, South East Asia, North America and into another 50 countries and regions (ICCIE 2009). In 2010 MIPCOM, Zhongnan Animation signed a contract with an Italian company for the first time to distribute programs into a mainstream television platform in Europe (Wang 2010).

In Yuan Mei‟s opinion (Liu 2010), the markets of Europe and Japan are more difficult to enter because local animation production has a good reputation for quality and content. Generally, in these areas, programs require high production standards and good stories with strong characters. The return from these areas is much better than for other overseas markets, and generally the purchase price is twice as high as other overseas markets. It is the target market of Its Cartoon, as compared to the other cheaper markets that other companies target. In Yuan Mei‟s words,

The market is always the seller‟s market for the good quality product. As long as your product is good enough, you do not need to worry that there is no

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market for it. Today, we always leave the contract to distribute to Japan and the Europe in end in case that we sell our product at a too cheap price again.

7.6 Conclusion

As I discussed previously, with the same trend of global trade (Havens 2006, 41-42), the most popular genres in the Chinese market are drama, entertainment and children‟s programs, particularly animations. Independent production in China has taken the most active role in the animation market with the advantage of supportive government regulations and a further liberalised market since the beginning. Although the animation market developed later than the TV drama and entertainment markets, it is a quite different situation for independent production in this market.

In this chapter, I have shown that independent production has successfully evolved with the animation market and the market value chain has developed professionally and maturely with the dramatic development of independent production. By investigating individual cases, this chapter has also illustrated that independent companies fulfil the market gap in production R&D, derivatives and international marketing strategies. In contrast with my assumption before my research that independent production companies would struggle in an unfair environment, I have found that independent production companies have an active and optimistic status in the TV animation market. They can see more opportunities than difficulties, and they have more passion to create and innovate than anyone else in the industry. This is evidence to show the importance of positive government intervention for independent production in the market.

In the next chapters, I will continue investigating special issues that impact on independent production in China and also compare these to the situations of independent companies in international markets.

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Chapter 8

Comparison with the Development of Independent Production in the International TV Market

8.1 Introduction

Compared to other developed markets, the Chinese television market is in the late developing stage, especially with regards to independent production. It is necessary to undertake a cross-national comparison of independent production to see how Chinese independent production compares with that of other countries. In this chapter, I chose the developed television markets in the US and the UK and as an Asian comparison chose Japan and Korea. The comparative dimension focuses on government regulation and market practice, especially for independent production in TV drama, entertainment and animation.

8.2 The Regulation of Independent Television Production in the US and the UK

As television is a heavily regulated industry, any alteration of regulations will lead to changes in industry structure and in the strategies of those companies in the industry. The changes in the regulatory framework in the 1980s allowed for more competitive entry for domestic start-ups, and there were significant changes in the media environment through privatization, mergers and acquisition, and strategic alliances (McKnight, Vaaler and Katz 2001, 5). In terms of regulation, there are two main types of broadcasting system in the world: one is the commercial-led system, exemplified by American commercial networks and the other is the public-service led system, typified by the British public broadcasting system. But no matter which kind of broadcasting system one operates under, there is a consensus that regulations should aim to shape industry structure and balance public interest and market driven motivation. As I

152 Competition and Innovation: Independent Production in Chinese TV Industry discussed in Chapter 2, broadcasters naturally want to dominate the market by controlling content providers and distributors. In order to improve diversity and innovation, it is best for content providers and distributors to work alongside broadcasters. One of the biggest support regulations is the „Financial Interest and Syndication‟ (fin-syn) rules in US, which changes the way studios finance, make and distribute programs, and also deeply impacts on the global expansion of Hollywood television production. Another is the change from the public broadcasting model to the dual public-commercial system in the UK, which has assisted British television production to catch up with Hollywood.

Fin-Syn Rules in American Commercial TV System

By the late 1950s, American Hollywood telefilm led the global film and television market (Boddy 1998). Half of the top ten shows in Japan in 1958 were US imports or Japanese-made clones of American programs (Boddy 1998, 36). By the beginning of the 1960s, American distributors, led by the Big Three networks, grew to become the largest exporters of telefilm in the world. Among them, CBS Film Inc. had became the world‟s number one exporter in 1963 (Boddy 1998, 36). However, with a series of regulatory changes in the 1960s and 1970s, the market structure moved from being a commercial network monopoly. This was a result of the UHF receiver act of 1963, federal support of public television in 1967, fin-syn rules restricting network syndication and ownership of programming in 1971 and the growth of cable television in the 1970s (Boddy 1998, 37). These regulatory changes were aimed at gaining a balance between market driven programs and public interest media, the integration of competition and diversity. Today, the American model, at least in production and licensing, has developed into one of the world‟s most influential telefilm industry models.

One of the fundamental elements of this international success was the fin-syn rules. The fin-syn rules introduced a competitive production environment which ushered in a move from the network monopoly to fair competition. This allowed more studios to make television programs, and it also affected the diversity of market ownership and program content, because it substantially shifted profits from the networks to the studios. The

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Competition and Innovation: Independent Production in Chinese TV Industry ultimate goal was to „limit network control over television programming and thereby encourage the development of a diversity of programs through diverse and antagonist sources of program services‟ (FCC 1993). With dramatic changes in the TV landscape, especially the rise of the fourth network Fox, and cable television, fin-syn was abolished completely in 1993. By then, it had given significant support to independent production.

Before the fin-syn rules, the Big Three networks, ABC, NBC and CBS, monopolized the American television industry, and the power of the networks restricted the development of the production market. Networks, as the only program buyers, obtained the majority of the profit in the market. By the mid-1960s, the profit by network participation occupied as much as 91 percent of programming (Lotz, 2007, 85), which finally led the government intervening with the fin-syn rules at the beginning of the 1970s. The rules involved three aspects: (a) to enhance the profitability of program producers; (b) to restrain or diminish network bargaining power; and (c) to prevent the networks from favouring programs in which they had acquired financial interests (Napoli 2001, 128). Consequently, FCC structured the rules to „foster diversity of programming sources and outlets that might result in a greater variety of programming‟ (FCC 1993) and promote diversity in three different ways: source diversity, outlet diversity and program diversity (Christian 1995).

Throughout the early 1970s and lasting until the mid-1990s, the Financial Interest and Syndication rules governed relations between television networks and production companies and created the boom of content and ownership diversity in US television production. During the 1970s, the Big Three controlled 90 percent of the TV audience, but by the mid-1980s twenty-five established independent TV production studios were producing three-quarters of all programming while the networks filled only about one- quarter of the schedule with their own productions (Curtin and Shattuc 2009).

The rise of independent studios provided a more vibrant and competitive content production environment. Under the rules, the networks made programming decisions based purely on the quality of the content as the rules had removed most financial considerations. In addition, the networks were more likely to select those shows that were independently produced or were produced by a competing studio although it decreased the network‟s stake in the revenue that a series might earn in syndication (Lotz 2007, 86). The ownership of rights belonged to the producer/production company after a specified number of

154 Competition and Innovation: Independent Production in Chinese TV Industry networks runs. Profits from any other sales, including syndication, generally benefited the production company. For this reason, many production companies were willing to produce original programs at a loss, betting on the enormous income that might rise from successful syndication. This directly inspired programming diversity.

With the arrival of cable TV and the fourth network, FOX, in the late 1980s, the market structure changed quickly in the 1990s. The fin-syn rules were loosened and the networks were deregulated. Although the fin-syn rules expired in 1993 and media consolidation impacted on „independence‟, the system of the studios, independent companies and syndication still plays an important role in both domestic and international marketplaces (Fletcher 2004; Kassel 2005; Taub-pervizpour 2004). The syndication of television programs is a fundamental financial component of television industries in the US. Syndication is the practice of selling the rights of television programs to more than one customer, such as a television stations, a cable channel, or a programming service such as a national broadcasting system (Fletcher 2004). As Fletcher (2004) points out, syndication has become not only a part of the American television industry, but also part of the worldwide television marketplace. Repeated sales of television programs, both within the United States and throughout the world, have long been central to the profitability of the US television industry… Moreover, many countries found it far more economical to purchase the syndicated rights to US television programs than to produce their own, opening a vast market for American producers. (Fletcher 2004, 2247)

By 2002, the US telefilm industry was in the hands of only five substantial production studios. Disney owned a movie studio, a broadcast network, ABC, and a cable network, ESPN; GE owned a movie studio, Universal, a broadcast network, NBC, and a cable network, USA Network; News Corp owned a movie studio, a broadcast network Fox, and cable networks; and Viacom owned two movie studios, Paramount and DreamWorks, a broadcast network CBS, and a cable property, MTV. Even though the media conglomerates were dominant in the market, the basic rules were changed by the fin-syn rules: broadcasters were not the controllers of the market anymore and the owner of the best content was king, which is also the market rule in the new media environment.

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Parent Media Main Television Other Subordinate Media Group Broadcaster Organisations Disney ABC Cable network ESPN; movie studio Walt Disney Motion Picture; etc GE NBC Movie studio Universal; etc

News Corp Fox Cable networks & satellite TV; movie studio 20th Century Fox; etc Viacom CBS Movie studios Paramount and DreamWorks; cable property MTV; etc Time Warner Cable networks HBO, CNN, CW network; movie studio Warner Bros; etc

Table 34 American major five media conglomerates who own the television broadcaster (compiled by the author)

Comparison with China:

Compared to American television industry development, the Chinese television market is still in the „network era‟ where state-owned TV stations dominate the market although the new technology in television has speeded up the development of the Chinese television industry dramatically. However, under the current regulatory structure, it is still hard to change the territorial situation and upgrade the industrial structure in China. As American fin-syn rules targeted, a break in the monopoly of the network leaded the market into fairer competition without territorial restriction even between the independent companies and TV networks. More importantly, the commercial network has to consider market rules to compete with competitors. In China, state-owned TV stations have much more privileges than the independent production sectors and the regulations generally concern censorship more than market competition. The market rules between the state-owned sector and the independent sector is unbalanced. Once the government realizes that the real threat to the enhancement of the television industry in the market is not from international media conglomerates like News Corporation, but from within, the television market will become an upper level playing field for the independent production sector in China.

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British Dual TV system and Independent Production

At nearly the same time as the growth of American telefilm prosperity, pressure from commercial interests in the UK and dissatisfaction with the BBC‟s approach to television resulted in the establishment of commercial TV, creating a duopoly of public and commercial system in Britain (Iosifidis, Steemers and Wheeler 2005, 8). After three decades of monopoly, the British Broadcasting Corporation (BBC) had to face a new commercial competitor, ITV in 1955. Since ITV‟s launch, the ownership of British television has changed and has adopted diverse operations. In 1982, the public owned Channel 4 commenced broadcasting, but it was totally self-funded by advertising. The last terrestrial channel, Channel 5, was granted in 1997, with a reduced set of public service obligations. Since then, the British government has set up a balanced television environment between public service and a market-driven commercial service.

Both ITV and Channel 5 are licensed commercial television stations. Historically, Channel 5 has had the lowest audience among the five terrestrial television channels, while ITV is the most popular commercial channel in Britain, but behind BBC 1 (CC 2000). ITV developed as a new commercial television model. ITV is a network in control of several licensed companies that share programs. Each licensee contributes to a collective budget for programs, and in return they receive the right to broadcast the programs in their own region (Doyle 2002, 48). The contribution to the collective budget varies according to the respective revenue shares of participants. All the partners in the network benefit from being able to share costs and by negotiating as a collective entity.

British government interventions were concerned that public interest should be protected by keeping the balance of ownership between public broadcasters and commercial networks and by protecting the diversity of the production. Commissioning programs to the independent production companies became a key part of the broadcasting system and media economy. In Britain, program production is composed of three types: a) part of an in-house vertically integrated supply chain controlled by the broadcaster; b) contracted by the broadcaster to make specified products; or c) contracted to a distributor whose function is to interest broadcasters in their producers 157

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(Sedgwick 2006, 3). In order to constrain the extent of vertical integration, the government legally limits a minimum of programs from independent producers. The Broadcasting Act in 1990 required 25 percent and in 1996 it introduced a 10 percent quota on their digital-only channels. Across the five main terrestrial channels, 44 percent was spent on original programs from external production companies in 2004. Channels 4 and 5 were the largest external commissioners with 90 percent and 80 percent of their programs respectively in 2005 (Ofcome 2006). Even the BBC commissioned over 20 percent of their programs in 2005 (Ofcome 2006), and by 2010 they had spent around 44 million pounds on commissioning programs annually in the previous three years (BBC 2010).

In Britain, the government considers commissioning programs from independents to be a significant contribution to the creative economy. The rise in the commissioning of programs by the BBC resulted in a change to television labour. BBC staff was substantially reduced and many of those who were made redundant set up their own independent companies or became freelancers (Bassett, Griffiths and Smith 2002). Bassett et al (2002, 169) pointed out that “a new managerial regime involving „producer‟s choice‟ also introduced elements of an internal market.” They describe the process of some independent production company in Bristol “typically started with independent producers coming up with ideas and projects that appealed to them and which they thought would attract funding from the channel controllers”. Further, the geographic concentration of production gradually grew into production clusters outside of London, e.g., Bristol and Manchester. On the main terrestrial channels, the value of out of London network production has grown by 8 percent per year since 2002 and accounted for 40 percent and 35 percent respectively for Channel 4 and BBC in 2004 (Ofcome 2006).

With the launch of the satellite network Sky TV in 1990s, British television experienced a deregulatory shift, from a protected and regulated environment to that of cross media competition. The reformulation of the media ownership rules in the 1996 Act created a new condition for the television industry to flourish and is regarded as the new framework that strengthened the economic performance of British media in the world (Doyle 2002, 113). In the competitive market for British terrestrial channels, spending on programs, especially on original programs, increased in order to maintain

158 Competition and Innovation: Independent Production in Chinese TV Industry its market share in face of a growth in demand for digital television. Over the period 1998 to 2003, production spending increased by 15 percent (Sedgwick 2006, 4). The increased production budget drove British companies to compete in the international market, and their high quality production values and their substantial budgets allowed British programs a competitive edge.

Comparison with China:

The British government has set up a supportive policy for independent production when opening up the commercial television market. In comparison, the Chinese government has made little effort to support the independent production at the beginning of the market reform to improve the television production capability. Particularly, the most important British policy on independent production is that the government considers it to be an essential part of the creative economy. As one of the earliest countries to raise the national creative economy policy, the British government considers independent production as a creative and cultural component. This supportive policy stimulates creativity and productivity. Most of the supportive policies on independent production coming from the Chinese government, like subsidies, do not provide protection for the investment and program originality which, however, is the essential part of the value chain for the majority of the SMEs in the television production. As a result, this breeds a lack of enthusiasm for creativity and originality.

8.3 The Role of Independent Production Companies in the Television Market in the US and Europe

No matter what other differences exist between the television systems in the US and the UK, it is obvious that the success of their television industries could not have occurred without the development of independent production companies beyond the direct control of broadcasters. Even though they are never completely „independent‟ of the broadcaster, their development is beneficial to market growth and production innovation for two reasons. Firstly, the growth of the independent production effectively reduces the monopoly of the broadcasters in the market so that there is more

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Competition and Innovation: Independent Production in Chinese TV Industry competition and diversity. Competition and diversity are the essential foundations for innovation. Secondly, the growth of the independent production improves how the market runs and assists value chain development. Once content is protected by branding and is professionally distributed, better and higher quality products will be created. Today, in the development of creative industries, there is the consensus that independents are driving the continuous growth of these dynamic industries in the world (Leadbeater et al. 1999, 9), even in the US. Although most independent production companies grew up or merged with large media groups or conglomerates with various distribution expansion and vertical integration in the US, the competition and innovation never stops inside these organisations. Most of them extend their international reputation and take an important role in the international market with their innovative ideas and production techniques.

Today, production companies play an increasingly important role in the international market. They specialize in the market value chain as producers, commissioners, buyers, distributors, brands and aspiring creators. As illustrated in 2004 MIPTV, there were 471 companies that operated in the business of TV program format and interactive format. Among them, 291 were in Europe, while 68 were in the US and 63 were in Asia (Moran and Malbon 2006, 86). The relationship among them is sometimes as rivals and sometimes as co-operators. They play more flexible and effective roles in the production market than do broadcasters, especially in entertainment content provision.

8.3.1 The Television Innovation of Independent Production Companies in the US

Today we only notice the media conglomerations in their status of market controller, yet most of them developed from the independent production sector not the broadcast sector. In their evolution, the independents involved themselves in most of the innovation in television production so that they could develop more power to take the control of broadcasters. One of the most famous American independent production companies is Desilu Productions, the predecessor of Paramount Television (Sanders and Gilbert 1993). Desilu studios are considered to be the first producers to film a regular TV series, and based on its successful production of I Love Lucy, Desilu

160 Competition and Innovation: Independent Production in Chinese TV Industry became the production headquarters of major TV hits in the 1950s and 1960s, such as Star Trek (Curtin and Shattuc 2009). Desilu studios standardized the model of program production American TV by establishing a television production process: the returning actors/characters, writers/formula and sets/settings each week, which allowed for a mass production system, later absorbed by the networks in their program production practices. Desilu led innovation in television by the creation of its productions using conventional film studio materials, production and processing techniques. By using conventional Hollywood filming and production techniques, the content and quality of Desilu productions was immediately of a high quality, and the techniques were easily adaptable to different forms of comedy or drama, indoor or outdoor sets, and special effects.

Independent producers have the flexibility to find a niche and to transform their businesses quickly. In the late 1950s, many independent producers left large film studios and formed their own production companies in Hollywood. One of those highly successful producers was Stephen J. Cannell who left Universal Television and founded his own production company. He is known for his 40 creations or co-creations for television series, and he is also a pioneer, being one of the first to develop his studios in Vancouver to reduce the cost of working with the large American studios in the last years of the 1980s (Curtin and Shattuc 2009). Today, Vancouver has become the third-largest film and television production centre in North American and is known worldwide as „Hollywood North‟ (VEDC 2010).

As the more flexible innovation unit, independent production companies have also contributed to successful format innovation in one or two hit ideas in the Hollywood landscape. For instance, Vin Di Bona Productions is considered as the pioneer of reality TV with its long-lived show, America’s Funniest Home Videos (AFHV). This show is so successful and popular that it is still running on the ABC today and has become the second-longest running program since 1989, and it has achieved success in the overseas market as well. Meanwhile, Vin Di Bona branded themselves based on this idea and created the spin-off show America's Funniest People. Many other programs have been inspired by AFHV's format The Planet's Funniest Animals, The World's Funniest!, The World's Funniest Moments, Funniest Pets and People. The independents focus on program branding, explore an idea and develop concepts better than broadcasters.

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In the American syndication system, some independent companies created distribution success. One of the most successful companies in the 1980s was King World. They brought three programs into the syndicated top shows with their creative marketing and promotional strategies. Wheel of Fortune was turned into well-known name, Jeopardy! was made into a mega-hit despite a number of similar game shows, and Oprah Winfrey was elevated to the American public from being a local talk show host. In 1983, King World acquired the pay-off syndication rights to Merv Griffin's game show Wheel of Fortune when no other studio would step in. Wheel became the most popular show in the history of syndication, and has continued to be so for over a quarter of a century. Shortly after that, King World launched Harpo Productions' Oprah Winfrey Show, and the spin-off series Dr. Phil. They have both become among the most successful programs in the world today.

Nowadays, most of the so-called independent production companies in the US have been absorbed into larger studios owned by the network‟s parent company, such as King World being absorbed into CBS Enterprises in 2000, MTM Enterprises absorbed by 20th Century-Fox Television in 1998, and Norman Lear and Bud Yorkin‟s Tandem Productions absorbed by Columbia Picture Television in 1985. The autumn 2003 network primetime schedule in the US included only one new program, Dinotopia, produced entirely independently of a network or its parent company (Taub-pervizpour 2004). However, within the vertical integration conglomeration, competition still remained. The performance of both the network and the studio is evaluated separately, even though they have a mutual interest in success (Lotz 2007, 87). The network would not take a substantial loss on a show from its sibling company just because it helps to decrease licence fee expenses, and most production companies have to target international distribution markets to extend their profit and reduce their production risk.

Comparison with China:

Compared to these small branded independent production companies in the entertainment production in US, most Chinese independent production companies have not specialized themselves specifically and some of them have only recently realized

162 Competition and Innovation: Independent Production in Chinese TV Industry the importance of branding in the market. On the one hand, the importance of content genre system still has been recognised by the industry well. Because of a lack of market operation, the independent production companies hardly accumulate enough capital to build up the brand in any particular area. Most production companies do not have enough support to target the niche audience market in the whole value chain. On the other hand, the importance of the content branding protection has not been paid enough attention yet. Because of a lack of copyright protection under the legal system, independent production companies hardly accumulate programs as their own brand. Furthermore, in the US and other international markets, mergers and acquisitions are considered as one of the most important approaches for extending business for production companies. But in China, it is rare to see such machinations because of a lack of a mature and regulated financial system.

8.3.2 Television Innovation of Independent Production Companies in Europe and the International Market

With the arrival of the ITV network and the launch of more channels between the 1970s and 1990s, competition encouraged the rapid rise of independent production in the UK. Most of these British independent productions positioned themselves in unscripted program genres such as game shows, with regard to the leading status of American studios in the scripted TV field (Curtin and Shattuc 2009). Action Time is one of these British independent production companies that rose with the arrival of Channel 4. In the beginning, the company acted as a broker of US game shows. It continues to concentrate on game-show formats, including the production of the big hit Survivor in the UK and outside the US (Moran and Malbon 2006). Celador is another independent production company which produces popular light entertainment shows, including the smash hit game show Who Wants to Be a Millionaire?

There is a common feature to the development of both Action Time and Celador. They formed in the 1980s and experienced acquisition from the larger media group in the 1990s.With the prosperity of the production market under the new British Broadcasting Act, the management team gradually took over the company‟s ownership and focused

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Competition and Innovation: Independent Production in Chinese TV Industry on branded program production in the 21st century. Meanwhile, these companies have more influence on the international market by franchising their branded programs. Who Wants to Be a Millionaire? has been adapted in over 80 different territories across the world (Moran and Malbon 2006, 89) and Celador also co-produced the big blockbuster film Slumdog Millionaire. Many independent production companies boomed with the commercialization of British television and gave rise to companies like Action Time and Celador in the international market.

As in the US, many British independent production companies have merged and been acquired by large media groups and have expanded quickly into the international market. One of the most famous European television production companies, which can never be ignored, is Endemol, the largest TV program format trading company in the world. This Dutch company was not only responsible for the astonishing growth of reality TV over the past decade but has also promoted the expansion of reality TV globally. Endemol is the result of the integration of two successful Dutch independent production companies in 1994. It expanded quickly in Europe after the opening up of commercial television in Western Europe. From Germany to France, from the UK to Italy, Endemol has more than 80 subsidiaries and joint ventures in 26 countries (Endemol 2010). Endemol build up its worldwide network by collaborating and acquiring local production companies, which provided the group with fresh blood and substantial new formats. With the extraordinary success of Big Brother, Endemol came to specialize in inexpensive reality TV shows to attract television executives in the modern multi-channel world. After several versions of Big Brother in many countries, the company made its most profitable program, Deal or No Deal, which has been sold to over 100 countries. Today, after several acquisitions, Endemol is not a small independent company anymore and is owned by Goldman Sachs, Mediacinco and Cyrte, which acquired the company in May 2007 (Endemol 2010).

The other international production company which has to be mentioned is Fremantlemedia, the second largest TV format trading company in the world, behind Endemol. Like Endemol, Fremantlemedia experienced several mergers and became a content and production division of the RTL Group in 2000. Europe‟s second-largest media company after the BBC, RTL‟s parent company is the German media conglomerate Bertelsmann. While RTL owns 39 TV channels and 31 radio stations in

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10 countries in Europe, it is also the largest independent distribution company outside the US and produces 9,500 hours of TV programming per year across 57 countries. It has more than 300 programs on air or in production worldwide, and produces the top primetime shows for major broadcasters in almost every major TV market in the world (RTL 2010) . Today, most independent production has some connection with a main media group and they also play a more professional role in the market.

Comparison with China:

Innovation in content plays a central role in the dramatic development of independent production in Europe. From game shows to reality shows, the world‟s new wave of television fashion mostly started from Europe in the last decade. In order to compete with the fictional genres from the US television market, Europe opened up a new market in TV format in non-fictional genres. Meanwhile, the multiculturalism of Europe also brought in fresh ideas for the creation of new formats or new programs. In comparison, the most popular Chinese program formats still follow the steps of the European and American instead of leading the way. This kind of innovation in the genre or the format is still deficient in television production in China. Without originality in content, programs will lack competitiveness in the market, especially in the international market. However, innovation cannot happen without the innovative environment combined with the comprehensive factors, including the freely creativity and supportive regulatory structure.

8.4 Television Production Innovation in Asia

Television developed quickly after World War II in most Asian countries. Although Japan began its experimental television service before World War II, regular television broadcasting started only after the war. Therefore, they had more chance to examine existing examples from the Western television system before they could decide how to develop their own television structure. They were especially confronted with the British public model and the American commercial model. There are similarities between

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Japanese and Korean television development. The economies of Japan and Korea grew rapidly as followers of the American model during the 1950s to the 1970s. As a result, their television industries and products transformed quickly and expanded into the whole Asian market and, eventually, globally. Their broadcasting model was, originally, similar to the British model. By the 1980s, Japanese television was the fastest growing system in the world, with their advanced technology and powerful economy, and was the second largest consumption market for television in the world, with only American viewers watching more hours of television a day than Japanese (Dunnett 1990, 119). NHK, as the world wealthiest public broadcaster, became the pioneer of cable, satellite and high-definition television, in co-operation with major electronics firms (Dunnett 1990, 172). However, Korea has caught up quickly since the Korean television system was reformed into the dual system in the 1990s.

8.4.1 The Rise of Japanese Television Program Production

The Japanese television system developed into a mix of the public system of Europe and the commercial system of America, and has been doing so since the 1950s. In content, NHK provides educational and cultural programs to serve the public interest and to meet minority demands, and the commercial networks. Fuji, TBS, NTV and TV Asahi provide light entertainment programs that complement NHK programming. As a follower of America, the Japanese used to have a high regard for American programs. Before the 1980s, American imported shows, like soaps and dramas, held major status on Japanese screens, but from the 1980s, the commercial television sector started to focus on their own productions, especially drama. Among these commercial television networks, Fuji T.V. is widely known as the inventor of the Japanese drama formula and trendy dramas (Stevens 2003). With the demand of commercial TV, independent production companies grew fast. In order to improve the influence of independent production with broadcasters, all independent production aligned to form the Association of All Japan TV Program Production Companies (ATP) in 1982, which has become the biggest production corporation in Japanese television production today (ATP 2010).

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With the growth of independent production companies, the television market grew quickly and the quality and content of television programming improved. During the 1990s, trendy Japanese dramas with young and popular Japanese actors/actresses swept through the Asian market quickly and even made inroads into Western markets with animation and entertainment shows. With the popularity of Japanese TV programs, Japanese pop culture influenced young people very much. This drove an increase of Japanese cultural exports (See Figure 16). Since the 1990s, when other Asian countries lifted the ban on Japanese program imports for political reasons connected to WWII, Japanese TV program exports have increased rapidly in the Asian region (McPhail 2010, 316), especially trendy TV dramas. Japanese dramas have become aligned with a modern style of screenwriting to which the term „trendy dramas‟ has been attached. In the late 1980s, the Japanese „trendy‟ drama formula was invented by screenwriters who decided to reach television audiences with realistic themes like teenage violence, child abuse and modern family life, at a time when the Japanese were experiencing a bubble in their economy (Iwabuchi 2004, 46). Today, the success of Japanese dramas is a result of sticking with the trendy-drama formula and it is still the biggest portion of Japanese TV program exported. Similar to the Hollywood global distribution pattern, the world is divided into five regions to distribute Japanese programs (See Figure 17). Nearly half of these programs were distributed in Asia, and among the genres, TV drama and the entertainment show are the most popular.

Figure 16 Japanese export by genre in 2005 (McPhail 2010, 317)

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Figure 17 Japanese export by region in 2005 (McPhail 2010, 317)

Japanese TV animation first started to be accepted all over the world in the 1980s. As a special term, Anime refers to Japanese animation. The characteristic anime style developed a global reputation, notably with the work of anime artist Osamu Tezuka, who is called a „legend‟ and the „god of manga‟ (Gravett 2003; Ohara and Shimbun 2006). His masterpiece of TV animation, Astro Boy, and his production company, Mushi Productions, have become the legend of Japanese Disney. Initially, Osamu Tezuka adapted and simplified many Disney animation-techniques to reduce costs and to limit the number of frames in productions. This production method allowed him to produce material on a tight schedule with inexperienced animation-staff (O'Connell 1999). Other anime artists adapted American-style design to produce TV animation in order to distribute not only to the Japanese domestic market but also to the international market. Generally, anime is produced by the production company and is licensed to distribution companies to handle licensing and distribution outside Japan.

Japanese anime production is specialized to TV anime, film anime and Original Video Animation (OVA). The biggest innovation from TV anime production is to shorten the TV anime production period. In order to catch up with the broadcasting pace and reduce the rating risk, Japanese production companies invented the process where production is done at the same time as the broadcasting. The anime background setting is built up in the database to reduce production work on every episode. Every episode will be broadcast immediately, to get the cost return quickly (Lv 2010). Once the ratings and the profit fall to unacceptable levels, the production ceases as soon as

168 Competition and Innovation: Independent Production in Chinese TV Industry possible to reduce the risk. The operation of the anime production is also specialized. At the planning stage, there are special companies in charge of marketing and finance; at the production stage, there are companies in charge of animating and video-audio work (Lv 2010). This kind of professionalism and specialization increases efficiency significantly.

Today, Japan has become one of the major players in the global media and entertainment industry and it especially plays an important role in Asia. Japanese companies are good at using the new communication technology. McPhail (2010, 316) explains that Japanese TV programs benefited from satellite TV station, STAR TV, which carries Japanese TV programs to neighbouring countries. Japanese drama is so popular in around 28 Asian countries, even in Iran, which is surprising given its low cultural proximity. Generally, cultural proximity is considered an essential factor in explaining the success of international television programs (Ksiazek and Webster 2008; Hoskins, McFadyen and Finn 1997). However, with the popularity of the global culture and cultural hybridity (Flew 2007, 162), mixing cultural elements with some common value has also become a successful factor in the international program market. This is one of the reasons why Japanese programs like the cooking show Iron Chef and the game show Brain Wall have become so popular around the world.

With the new communication technology, Japanese distribution and production companies can spread widely all over the world. The anime company, Toei Animation, distributes its animation titles through the internet and consumers can watch the program from its archives (McPhail 2010, 314). Many Japanese production companies take advantage of cheap Asian labour by outsourcing simple operations like colouring and animating to other Asian countries, particularly to Korea and Taiwan initially, and more recently to China. It is estimated that around 60 to 90 percent of anime production is outsourced to other countries (McPhail 2010, 314). The major Japanese anime production companies, like Toei Animation, Gilbli Studio, for example, all have their own subcontract production companies in other Asian countries.

Comparison with China:

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Compared to the US and Europe, the Japanese television market is much closer to the Chinese market in both cultural and geographical perspective. The Japanese television market has adopted characteristics of commercial TV and syndication distribution from the US as well as strong public service from Europe, and has also combined these characteristics with Asian culture. For Asian countries, the Japanese production model is easier to follow or imitate. From entertainment program format to TV drama genre and animation production, many characteristics from Japan appear in Chinese and Korean programs. From the Japanese market experience, competition and the freedom of producers are the most important factors. The producers from TV stations and the film industry are independent content providers, which improves the market environment for competition and innovation so that they can produce better quality programs and compete in the international market. With the organisational structure of the independent production alliance, Japanese independent production companies are united, and can present interests and rights to the broadcasters more powerfully which is one of the most important factors for the independent production growth. Until now, most independent production companies in China still have not found a good way of forming a united front for representing their best interests and protecting themselves against destabilizing forces.

8.4.2 The Rise of Television Program Production in Korea

At the turn of the 21st century, Korea became the fastest growing country in terms of cultural exports in the Asian area. According to data from the Korean Ministry of Culture and Tourism, the export of TV programs increased around 50 percent every year from 2000, while in 2005 it increased over 70 percent (Lee 2009, 189). In 2007, the value of cultural products exported reached USD 1.6 billion (McPhail 2010, 324). The term Hallyu (in Chinese, Hanliu), which means Korean wave, was coined by a Chinese journalist to describe the fast increase of Korean pop cultural exports throughout Asia in recent years. The Korean wave began with the success of Korean TV dramas across East and Southeast Asia and grew quickly, matched by Korean movies, Korean pop music, food and language. Today, Korea has become among the world's top ten cultural exporters (Kim 2008) .

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The landmark for the Korean Wave started from the popularity of Korean TV dramas in China and Japan. Following the Japanese trendy drama formula, Korean trendy drama, with the young handsome actors and beautiful actresses, rapidly captured East Asian audiences. Huge demand came from Cantonese, Taiwanese, Chinese and Japanese markets. By 2005, the export of TV drama was 92 percent of total Korean TV program exports, and 95.3 percent of the exports went to other Asian countries (Lee 2009, 189). China and Taiwan were the leading importers until 2003, until Japan caught up and became the biggest buyer.

Certainly, the sudden surge in popularity of Korean television dramas and other popular cultural products was not accidental. As Lee (2009, 191) pointed out, one of the most important factors was the rise of independent TV drama productions, which led to the transformation of the production system in the domestic market in Korea. In 1990, the Korean government amended broadcasting law to withdraw the ban on commercial television. Since then, the licensed commercial broadcasting company SBS has competed with two public broadcasting companies, KBS and MBC. The demand for television programs rapidly increased with the introduction of the new broadcaster and multi-channel cable TV. Most importantly, the government enacted legislation that made it compulsory for certain programming quotas to be outsourced to independent production. The quota increased from the initial three percent to 35 percent in 2006 (Lee 2009, 190).

These actions significantly changed the environment of TV production in Korea. The policy limited budgets and restricted commercial sponsorship for the broadcasting companies but provided more freedom to pursue commercial sponsorship and to hire celebrated actors/actresses and writers for independent companies (Lee 2009, 193). This efficiency resulted in the rapid growth of outsourced dramas and altered the situation from a monopoly by studio production inside broadcasting companies to a spread of production to independent producers. By 2006, about 50 percent of KBS dramas were produced by independent companies, while more than 90 percent were provided on MBC and SBS. The non-broadcasting sector brought more variety in revenues, not only from licence fees but also from the original soundtrack (OST) sales, celebrity and character merchandising rights, as well as multi-channel distribution (Lee 2009, 191). Thus more capital flowed into the production market. Meanwhile, capital 171

Competition and Innovation: Independent Production in Chinese TV Industry from the non-broadcasting sector also supported the independent production sector to reduce the financial reliance on broadcasters for production funds. This created a virtuous circle for the market.

However, in other genre production areas, in-studio production still dominates the production market in entertainment programs. The free-to-air Big Three, MBC, SBS and KBS, still occupy most of the production market. In order to improve competition from the independent production with the Big Three, the Korean government carried out some supportive policies for organisations relevant to investors, independent production companies and the content providers. The Cultural Content Industry Office, under Ministry of Culture, Sports and Tourism (MCST), aims to stimulate content production and copyright protection (MCST 2010); the Broadcasting Revitalization Research Centre, under the Korean Broadcasters‟ Association, aims to provide information to independent producers and the content providers (KBA 2010); the Korean Creative Content Agency, similar to the Japanese ATP as an independent corporation, promotes Korean content on the global market (KOCCA 2010). The government also provides several funds to independent production companies like Cultural Industry Fund and Broadcasting Revitalization Fund to support projects (Liu 2003).

Comparison with China:

Compared to the television production in US, UK and Japan, independent production is still not totally independent in Korea. Similar to the Chinese TV market, TV stations still dominate the market in the most areas. However, with supportive government policies, especially in TV drama production, independent production companies and independent writers have started to play an important role in the market. Due to the mature development of the whole entertainment industry, including the music industry and agency operations in Korea, content production, including television production, is operated on a more professional basis. Market value in television production and other content industries such as music and game has developed more efficiently. Compared to the developing situation of Chinese entertainment industry, the celebrity and agency

172 Competition and Innovation: Independent Production in Chinese TV Industry system has been developed much more maturely across the whole content industry in Korea, and that has proven to be helpful for independent producers.

8.5 Conclusion

In this chapter, I have compared the situation of independent production companies and the development of regulations on the independent production in the US, the UK and the Asian countries, including Japan and Korea, with China. Comparative study across countries can provide a mirror to pick up advantages and disadvantages. Generally, if you look closely and carefully in the mirror, you can find your own shortcomings more quickly and improvements can be made more efficiently. A relevant Chinese saying is, „draw on the other's merits and improve your own shortcomings‟ (qu chang bu duan). At most of the time, it works for the policy makers too.

In different countries, there are different regulatory and competitive environments at play for independent production companies. However, overall, no matter the expired syn-fin rules in the US or the current independent TV policy in the UK, most countries have realized the importance of independent production and the contribution of the independent production which brings to diversity and competition in the market. The countries where a supportive environment is provided to develop independent production have achieved success in the economy and social benefit from the creativity. For China, there is still a long way to go to develop the television production market and to compete in international markets.

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Chapter 9

Characteristics of Innovation and Competition Environment for Independent Production in China

9.1 Introduction

In China, scholars and the government like to use the term „Chinese characteristics‟ to explain special situations and conditions applying to the Chinese market. The television market in China has developed in unique circumstances and independent companies have experienced specific competition and innovation environments. However, in the era of market globalization, the television market in China is taking steps to compete in the international market. In this chapter, I discuss the complex mix of Chinese government regulatory approaches, domestic broadcasters‟ dominance and international influences on independent production in China.

In total, television production in China is still predominately located in the level of low- value outsourcing and cloning. The key issue is: how this can be developed to target high-valued niche markets or other demographics. One answer is found in the idea of the media cluster effect for independent production: the fifth stage of innovation ecology. While companies compete with each other, the media cluster can help build networks, make links, save money and share risks. However, the essential foundation for this solution is a supportive regulatory environment and fair competition in the industry.

9.2 Regulatory Environment: Policy Market

When people talk about the television industry in China, generally they still mean the state- owned television organisations. State-owned television organisations operate in the

174 Competition and Innovation: Independent Production in Chinese TV Industry ambivalent structure of a commercial model under state ownership. Under the „one ownership – two operation‟ (yiyuan tizhi, liangzhong jingying), the pattern in the television market takes on aspects of competition and monopoly, propaganda and commercialization. Competition represents the power of the market. Local television is trying to break the monopoly of central television, while the propaganda function restricts competition to such a degree that the government remains in firm control of television ownership. Directors in the state-owned television stations say1 that they are in a dilemma, that they have to look after both propaganda and the market, but generally there is conflict between propaganda and the market. If they do not listen to the propaganda directions well, they will quickly lose their jobs; but if they do not follow the market, they will lose their jobs. It is a complex situation. The television production market in China is a hybrid of market competition and dominance by broadcasters. Government policies reflect the complexity; some are restrictive while others are designed to stimulate the industry.

9.2.1 Rule by Law or by Person

As has been discussed in this thesis, the media has always been considered to be part of the state-owned system of government. Therefore, comments related to television or other media in China are directed by government requirements. Compared with the protection of the law in advertising or other enterprises, there is no particular Act or Law for communication in China. The regulation of the television industry totally depends on the government department SARFT at the practical level. The macro-level direction is supervised by the Publicity Department of the CPC Central Committee. Neither have legal criteria to follow, so regulations can be issued quickly and be quickly superseded. The only law that government officers can follow is the law of government administration. Instead of a legal system, the regulation system in SARFT and the Publicity Department of the CPC Central Committee depends on supervision from senior leaders. The content censorship system is monitored by retired senior government officials called lao ganbu.

1 The interviews were conducted with some directors in TV stations, including the producers, the vice- president and president from 2008 to 2010. 175

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Regulations on television cover all aspects of the industry from transmission to reception, from imported programming to censorship. In a collection of government regulations on television, radio and film in 2008 edited by the Beijing Department of Television, Radio and Film (BRFT 2008), there were 50 valid rules and 45 abolished rules issued by SARFT and other state departments. Many regulations and notices were not included, ranging from regulations on particular programs to warnings to TV stations. In 2007, cosmetic show was totally banned on all TV stations and the talent show was regulated in the contest period, including the hosts‟ expressions and even the costumes of the contestants. Some of these regulations were issued and abolished so quickly that the market had no time to react. As for overseas investment in the production market, in late 2004, industry experts were surprised by No.44 regulation that allowed overseas investment to take up to 49 percent of holdings in production companies in China. But suddenly in early 2009, this regulation was cancelled without any explanation. Certainly, in the opinions of government officers1, this situation allows for policy flexibility to take account of changing circumstances. For example, in 1995, SARFT expressed the terms for the banning of independent production from private capital in Document No. 16, and then switched to support independent production after the publication of Document No.105 from the State Council. This document acknowledged that independent media organisations should be entitled to the same national treatment as state-owned organisations.

This kind of regulation alteration leads to uncertainty in the market. Brenznitz and Murphree (Breznitz and Murphree forthcoming) regard this as „structured uncertainty‟ which is defined as an agreement to disagree about the goals and methods of policy. Because of this huge amount of regulation, it is hard to clarify the goals of the television reform. That is why scholars in China are appealing to the government for a communication law. As Professor Lu Di pointed out2, under the direction of the law the

1 The anonymous interviews were conducted with the officers in Media Organisation Management Department in SARFT and Beijing Radio, Television and Film Administration Department in June of 2009 and 2010. 2 The interview was conducted with Professor Lu Di in his office in Journalism and Communication Faculty in Beijing University in 18 June, 2010

176 Competition and Innovation: Independent Production in Chinese TV Industry production market will follow a particular criteria and achieve the goal of the government. In fact, the law for the telecommunications industry in China has already been listed in the schedule of the central government (Sina 2005b). As many countries have done, the government should follow foundational principles to issue regulations that lead the industry to a balance between the public interest and market-driven commercial imperatives, to improve diversity of ownership and content, and to protect fair market competition and local services. One of the most difficult things for communication law to achieve will be clarification as to whether state-owned and private enterprises will be treated equally in the market.

9.2.2 State-owned vs. Private

As with other monopolized industries in China, the core of media still belongs to state- owned organisations. It is only within the last decade that „private-capital friendly policy‟ (Zhao 2008, 205) has been developed. The landmark policy was issued by the central government in 2001 and the door was opened to print media and film production and distribution. Then it was the turn of the television market from 2003; but the open area was limited to production and distribution. Although private-capital policy was issued by the central government, structured uncertainty was still the main influences on the market at all times. Private media in socialist China is still a new term and remains in an inferior position compared to the privileges of state-owned organisations. For the independent television production, regulations touch every aspect of production and it is hard to draw attention to this kind of unfair treatment.

Structured uncertainty also illustrates the different treatment of state-owned and private companies in the market. It is obvious that independent production companies did not start at the same benchmark as state-owned organisations. In the licence system, the independent production companies used to be the smugglers in the market, without identification or security. Before 2003, the licence for television and radio program production was only granted to state-owned organisations. Therefore, independent companies before then were illegal, though most had been in business from the late 1990s, including the large-scale Tanglong Media. In 2002, SARFT surprised the industry by inspecting some independent companies and shutting them down for not

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Competition and Innovation: Independent Production in Chinese TV Industry having a licence. Although Tanglong Media survived, the company gradually went into terminal decline thereafter. This period is described as the darkness before the dawn by the industry, and today many surviving independent companies still express sympathy towards Tanglong.

In fact, the term „darkness before the dawn‟ comes from a vigorous „groupalization‟ (jituan hua) campaign by the government. During the period from the late 1990s to the early of 2000s, the government started to strengthen the state-owned media all over the national media system by integrating state-owned television, radio and newspaper organisations into media groups as a response to a perceived threat from international media conglomerates. Local city and provincial TV stations reacted quickly to the central government‟s direction and formed the Radio and TV Group. Each local TV market was quickly monopolized by the so-called media group. In Beijing, Shanghai and Hunan, the city or provincial Radio and TV Group or Media Group was powerful enough to monopolize the local market and to broadcast their own produced programs. Therefore, independent production was squeezed in the market space. In Beijing, in 2003, purchased programs decreased from 51 percent to 40 percent (Editorial 2003, 37). The campaign did not have a happy ending and it disappeared from the government reform schedule when the government realized that administrative power could not compete with market power; a sentiment summed up by Yuan Mei, in the comment that independent production does not expect special supportive policies, it just wants the government to leave the market alone and give independent production equal status as the state-owned enterprises1.

Regulation is executed in different degrees towards independent companies and state- owned organisations. Because of its overseas investment, the government strictly monitors the private sector, while ignoring the machinations of state-owned organisations. The media organisation under People Daily (Renmin Ribao), which is the biggest state-owned propaganda newspaper, Daye TransMedia Group (DYTM), was established to extend business in the TV production and distribution market in 1997 as

1 The interview with the CEO of Cheerland Entertainment Organisation, Yuan Mei was conducted in June of 2009 in Beijing.

178 Competition and Innovation: Independent Production in Chinese TV Industry a result of broadcasting reform. DYTM achieved a licence for television production easily because of its benevolent security umbrella. In 2002, the Hong Kong publicly- listed company Roadshow invested 100 million yuan in DYTM to take over 49 percent of the shares (ETnet 2010) and became the first joint-venture production company in China in the name of advertisement business. This overseas-capital company existed two years before the regulation in 2004 that allowed overseas capital to invest in the broadcasting production business. Even today, it is also hard to find this background to DYTM. As the senior staff from DYTM said1, the state-owned background can bring many special advantages, like a big political security umbrella, which will provide the priority for policy most of the time and will always mean that they will lead reform in the industry.

Under the current censorship system, there are many restrictions on independent production in visible and invisible ways. An example is the early stage of Enlight Media who had to change the names of their branded programs, China Entertainment Report (Zhongguo Yule Baodao) and World Entertainment Report (Shijie Yule Baodao). They were obliged to change the name by SARFT because they could not use the words „China‟ and „world‟ which could only be used by the state-owned media. In order to cover the fact that the independent company produced the content for the state- owned TV stations, the term „joint production‟ was invented, instead of commission or outsourcing. The independent companies could do nothing about this as they needed the state-owned TV station for policy support and as an editorial gatekeeper. In order to keep up a good relationship with the government, Wang Changtian used to provide the TV news program free to the Beijing City Council. In summary, independent companies have to try everything at their disposal to reduce their risks, politically, financially and regulatory.

9.2.3 Regulated or Deregulated

1 Anonymous interviews with senior staff from DYTM in 2008 in International Television and Film Expo in Beijing and in 2009 at the Shanghai International TV Festival. 179

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With the development of communication technologies, the deregulation of broadcasting systems has spread. In particular, new media have converged with traditional media. In China, the challenge for the traditional control of television comes not only from inside the broadcasting system but also from outside it. The current structures for communication and telecommunication in China are under tension from artificial regulation. In 2001, the biggest news agency, Xinhua Net, and the biggest telecommunication company, China Telecommunication, jointly founded a television company, Shanghai Xinhua Telecommunication Network Television Company. In 2004, SARFT announced that audio-visual content broadcast on any platform, should be under the control of SARFT. This applied to all audio-visual content production businesses, internet and telecommunication networks. This shows that the government has started to pay attention to the development of multi-media content.

Market liberalisation has proceeded under such conditions and television still plays the role of „national medium‟. However, deregulation does not necessarily imply a Western-style free market and privatization of TV stations. The degree of openness is contingent on regulation that is reactive; that is, once the government notices the effect of particular reforms. The deregulation process in the Chinese television industry has happened gradually, from the four-level TV station policy to the introduction of advertising. It consequently created a boom in the television industry beyond the absolute control of the central government and CCTV. Deregulation also impacted on the independent production company licence system, which has stimulated TV drama and animation production. Further, regulations on co-productions, investment and co- ownership with overseas capital demonstrate that the government is gradually opening the door to the market. Although the pace of deregulation has continuously changed, the trajectory is forward. As Professor Lu Di explained1, this kind of instability of regulations can be described as „three steps forward and then one step backward‟ but in the end, the progress still goes two steps forward.

1 The interview was conducted with Professor Lu Di on June 10, 2010 in the office of Communication and Journalism Faculty in Beijing University.

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The market is clearly affected by the instability of such regulatory circumstances, and not only for independent production but also for state-owned TV stations. Some local or provincial TV stations are trying to break the dominance of central stations but compared to the independent sector, TV stations have a political shelter as they are completely state-owned. For the independent sector, instability increases the structured uncertainty. The double risks results in unfair competition between broadcasters and independents and narrows the market and creative space. However, most of the independent owners think „Heroes emerge in troubled times.‟ There is full awareness of the risk, but also awareness of opportunities.

9.3 Competition Environment: Competition plus Monopoly

According to the market structure factors discussed in Chapter 2, the television production market in China has developed to a stage somewhere between monopolistic competition and an oligopoly. But despite heavy regulation it is relatively easy for new competitors to enter the market. Any individual or company can set up a production company if they have enough capital to meet the standard criteria for an enterprise. As a result, there are numerous production companies in the market, and ownership varies from state-owned to independent and joint-venture. However, because of the limits defined by the regulations, production mainly focuses on TV drama, entertainment shows and animations. Even although there are many products and categories, they are not too differentiated. Moreover, the price of the different categories is controlled according to various business models. While broadcasting platforms are dominated by state-owned entities, these TV stations perform differently in local and national markets. CCTV and STV dominate in the national market, local provincial channels and city channels dominate in local markets. Independent production has to adopt different business strategies and play different roles in the market.

9.3.1 Business Models with Chinese Characteristics

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In summary, business models of independent production companies can be divided into three kinds: the first is to produce outsourced programs or part of the production, including pre-production planning, packaging or placement advertisement agency. This model is similar to the commissioning program to independent production houses in the UK. Under this model the independent company cannot own the copyright to programs. It is also the reason why it has become the most popular model between TV stations and independent companies for production of entertainment shows. In contrast with the British commissioning system, where independent production is protected by contract and funding security, independent production in China generally is not protected because state-owned TV stations have to take responsibility as political gatekeepers for these non-censored programs. Most TV stations can have the exclusive rights to the program, but most never redistribute these programs. Generally, independent production can only obtain minimal funding from TV stations for low-budget production programs, averaging 30,000 to 100,000 yuan per episode. If they want to make more profit, they have to obtain advertising agency rights for the program and sell advertising time. Such was the case of the game show, Lucky 52, mentioned in the previous chapter.

The second model is to co-produce programs with TV stations and share the copyright and some part of the distribution rights. A few column programs are produced according to this model. For example, Police Life (Jingcha Rensheng) was „co- produced‟ by the Guanhua Centenary Media Company, Gold-Shield Media and Shanghai Oriental TV (Sina 2005a). Gold-Shield Media is a private and state-owned joint venture under the film and TV production unit of the Chinese Ministry of Public Security to produce TV and film programs relating to police topics. Gold-Shield Media‟s background in the state-owned organisations provides the necessary permissions for access to people and for interview rights. As a co-production partner, Shanghai Oriental TV is entitled to the first-round broadcasting rights. Guanhua produced the program and distributed it to TV stations with the budget from Gold- Shield Media and obtained some revenue from the distribution. This model can be applied to many programs even for TV drama and animations. It reflects the difficulties facing independent producers operating in the market gap between broadcasters and investors. Because of budget restrictions from TV stations, independent companies share their program copyright to get return on investment. Alternatively, because of the

182 Competition and Innovation: Independent Production in Chinese TV Industry platform dominance of TV stations, independent companies have to reduce their share of the profits to share the broadcasting platform.

The final model is to produce programs autonomously and then sell them to TV stations. In this model, there are different situations for TV dramas, animations and entertainment shows to navigate. At the early stage of the TV drama market, in order to save on budget, most TV stations provided advertising time in programs as the financial return; it was a way that independent companies could find sponsorship for themselves. With the development of the TV drama market, the TV stations realized the importance of integrated marketing. The price of the TV drama distribution quickly matured into exclusive rights and first-round rights in the national market, and second and later rounds in the local market. The first-round rights could be sold to several TV stations together, generally to provincial TV stations. In the animation market, it was nearly the opposite situation. At the beginning of the development of animation, TV stations generally paid a price per episode, but with the increase in production and government subsidies for broadcast programs, animation programs began to be distributed with more exchange of advertising time. Most animation production companies do not want to be bothered by distribution, so they choose to distribute the programs by using an agency. In the entertainment program market, more large-scale production companies have started to develop this kind business model, for instance Enlight Media and Fleet Entertainment. In this model, however, independent companies still have to find a major partner, such as a TV station. As I discussed in the previous chapter, Beijing TV acted as the censoring gatekeeper for Enlight Media and Travel Channel for Fleet Entertainment; they also took the risk that the program could be replaced at any time by TV stations as they did not have a co-production relationship as a guarantee.

From these three models, it is obvious that the business relationship between broadcasters and independent companies is not really fair in most situations. This kind of relationship looks similar to the early stage of the US television production market, before the fin-syn rules were issued by the government to protect the rights of the independent production houses. As a result of that particular policy, the production sector in the US developed strongly and dominated globally. American production proved that „Content is King‟ and that television broadcasters played a support role for the content production sector to take the leading role. The real media conglomerates 183

Competition and Innovation: Independent Production in Chinese TV Industry today grew from the independent production sector to become the core of market competitiveness.

9.3.2 Chinese Competitiveness

In the Chinese market today, competitors are more diverse than they used to be due to the openness to independent production and the involvement of international organisations. The independent television companies play a multi-functional role. Compared with international media organisations they have less investment but more local resources, which is the most important factor in China‟s market. One of its most important resources is the relationship with the TV stations. Most of the owners of independent production companies in the entertainment program production market began their careers in the state-owned media system. In the previous chapter, I discussed Yuan Mei of Cheerland Media, who used to work for CCTV and built a close business relationship with CCTV; Wang Changtian of Enlight Media used to work for Beijing TV and he forged a co-production relationship with BTV at the beginning of the business; Li Jing of Fleet Entertainment used to work for BTV and CCTV as a program host. This kind of relationship provides a good start in the business as their experiences tell them what the TV stations need. The relationship with TV stations is the first threshold for many starters. Many independent producers wander outside the door of the relationship, even though they may have good ideas. Li Feng1, a co-owner of a typical small-scale independent production company in Beijing, is an example. His company has planned several travelling game shows with a Taiwan production team, but they still struggle to get a foot in the door of TV stations.

In TV drama, it seems the relationship with TV stations is now not so important for owners or founders. However, most directors and editors still come from TV stations or state-owned organisations. In the opinion of Li Mangye and Xu Haitao, the most important competitive factor in the TV drama market is a good script and investment.

1 The interviews were conducted with Li Feng, the co-owner of Beijing Red Wind Marketing Consulting Company in June of 2008 and 2009 in Beijing

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That is the reason why they survived in the market for many years. In fact, investment is the dominant factor in the TV drama market according to official opinions1. Domestic investors have realized the huge profit potential of TV drama production. Most of the owners in the TV drama market today are capital investors. Fang Shengzhong, of Botaitianming International Media, is a successful businessman originally from Wenzhou, a city in Zhejiang Province famous for its millionaires and billionaires. He has developed business interests in Spain. In 2009, he joined in an investment group who felt optimistic about the prospect of the content production industry in China and became a typical new starter among many investors. Although he has invested millions of yuan in TV drama and film production, for him the problem is not investment but how to build up the production and distribution network.

The animation market is very similar to the drama market. Investment is very important for production. Sometimes investment even leads production in the market. Shanghai Restyle Studio used to produce an animation series for the requirements of a Guangdong toy factory. Restyle Studio was paid several million yuan for the copyright of the animation. The toy factory distributed the programs with their product promotion in the different regions. It has become a very popular marketing promotion in the toy market. The market operation is very important for the animation market. In the opinion of Luo Xuan, the founder of Beijing BMC Animation, there is not a lack of good designers and directors who understand creativity, but the market needs more good producers who understand the market and its operation. He is trying to become one of the best producers and is trying to understand the market and operate his business according to market rules, including signing good designers, market promotions and packaging, copyright protection and the derivative development.

9.3.3 The Relationship with Overseas Companies: Collaborators or Competitors

1 The interviews were conducted with the officers in SARFT and Beijing Television, Radio and Film Department on June 13, 2009 and on June 20, 2010. 185

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With China‟s entry into the WTO in 2001, China‟s TV market became more global. The relationship between China‟s media organisations and overseas companies has been controversial and sometimes competitive (Shi 2000). Although the first policy allowing overseas media production companies to invest in China was promulgated in 2004, international media groups had been involved in the media market in China for a long while, particularly international media conglomerates. However, the government changed its position on several occasions. Concerned about „cultural security‟ (wenhua anquan)1, they closed the door. In early 2009, the policy was repealed. To date, no international media has successfully entered the TV market in China, including the tycoon Rupert Murdoch, who has experienced the whole reform progress in China since he started to become involved in Chinese TV production in the late 1990s2.

According to government policy, overseas media companies are not allowed to produce programs themselves. Therefore, all international media companies have to find a Chinese partner if they are interested in entering China‟s TV market. Since the first animation programs from Disney, Mickey Mouse and Donald Duck, were broadcast on CCTV in 1986, Disney has claimed to be the biggest overseas television content provider in China (Disneybox.com). The localized animation program of Disney, The Dragon Club (Xiao Longren Julebu), has been distributed to over 40 city TV stations since 1994. Viacom and News Group have also made their way into broadcasting platforms. The Nickelodeon Channel, under Sumner Redstone, with their co-production partner in China, Tang Dragon International Media Group, began business in China in 2001. Starry Sky TV (Xingkong Weishi), under Rupert Murdoch entered into the cable network in the Pearl River Delta in 2002. The same rules applying to the American networks were carried over to Starry Sky TV in China, namely that they should mainly outsource programs to local production companies. On the whole, overseas companies

1 Hu Jintao established the policy „Ensure National Cultural Security‟ (quebao guojia de wenhua anquan) at the Political Bureau of the Central Committee on August 12, 2003. In the ensuing Fourth and Sixth Plenary Session of the Sixteenth Central Committee, the term of cultural security joined political security, economic security and information security as official national discourses.

2 The interview was conducted with Rowan Simons, the partner consulting advisor of CMM Intelligence in June of 2008 in Beijing. Rowan Simons started to moderate International TV Programming Conference of Sichuan TV Festival in 1997 and the clients of CMM includes National Geographic.

186 Competition and Innovation: Independent Production in Chinese TV Industry have collaborated with local broadcasting organisations in two ways: one is by collaborating with TV stations directly, the other by collaborating with local TV production companies.

The broadcasting field will be the last area to be opened to the international market. Even under the mostly state-owned system, TV stations have consistently taken a careful attitude to collaboration with overseas companies, particularly as some were punished by SARFT after some incidents. Qinghai Satellite TV, which used to sell part of the operation share to Murdoch and broadcast overseas Star TV programs directly, stopped all business when the situation heated up. Compared with international media groups, Chinese independent companies have more local connections and a better understanding of the Chinese audience. And compared with state-owned TV stations, independent companies have a more flexible system and follow market rules more. In further collaborations, it seems clear who will have advantages in the market. It would be a better option for overseas companies to collaborate with local companies if they want to keep their brands unique, to manage their programs locally and to become the competitors for the services of local content production companies.

While international companies are often reluctant to release their core Intelligence Property and market access, this knowledge provides valuable opportunities for Chinese independent companies „to learn from their experience, quality standard and management methods, as well as help attract and maintain talents with a big revenue due to high price of overseas animation industry‟. Nelson Chu, Vice-President of Sandman Animation, a company located in Suzhou Industrial Park, says, „From a development point of view, when the animation industry in China is very young in the beginning, companies do some service and production work as a start while learning through cooperation; then they gradually seek to shift the focus to creativity‟1.

1 The interview was conducted by Michael Keane on 23 Oct, 2008. 187

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9.4 Innovation Environment: Market Power vs. Administrative Power

Today the Chinese government has realized that innovation is the core of global competition. The terminology of innovation has been adopted into government guidelines for enterprises and innovation has become the most fashionable word in every field. However, how do you create an innovation environment for the television industry? How do you make it more competitive in the world market? It seems that this is still unclear. My argument is that, although the government still considers the state- owned media organisations to be the drivers of the market, the leading innovation power comes from the independent production sector. Since the economic reform in China in the 1980s, the environment of the television industry has changed dramatically with market liberalisation, technological innovation and restructured regulations. This has resulted in great innovation for television, not only in content but also in the market value chain. The diversity of ownership and capital in television has brought more competition to the market. Competition has gradually improved the market value chain and has led the industry to greater prosperity. However, in China, market power always has to compete with administrative power. In the television industry it represents a trade-off between the independent sector‟s market power and the state-owned sector‟s administrative power.

9.4.1 In-studio Production vs. Out-of-Studio Production

In the Chinese context, broadcasters with a state-owned background have a dominant positioning due to government support in everything from human resources to facilities. In order to make their content more competitive compared to content from the other stations and independent production, the TV stations have tried to reform their production structure. Some competitive provincial TV stations have set up program R&D centres or department units to increase program production. In 2004, the first program R&D centre was set up in SMG, and in 2007 Hunan provincial TV station integrated their production team to create a new R&D department for program innovation. In these areas, the local TV market is dominated by the broadcaster‟s own productions. The TV stations would also like to dominate distribution channels. In

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SMG, the subordinate companies are registered under the group to operate different types of content across all media platforms, including production, distribution and broadcasting platforms. Enjoyoung Media Co. Ltd has developed lifestyle content and Fivestar Sports has developed sports content and so on. In the animation market, state- owned TV stations still set up their own production department, or units, such as BTV Kaku, SMG Toomax, Hunan Golden Eagle Animation and Guangdong Jiajia Animation, which covers all business of animation production and distribution inside and outside the TV stations. Until now, even though CCTV‟s advertising revenue has reached to 12.6 trillion yuan (Sina 2011), it can still obtain the annual six million yuan of hardware investment by the central government.

Compared with state-owned TV stations, independent companies have less support from the government in terms of political regulation and financial support; however, independent production provides more flexibility and a creative atmosphere for innovation. As I mentioned in the previous chapter, many owners of independent companies, or the directors, used to work in senior positions inside the state system. They left that system to start their business or join independent business and exposed themselves to more risk and tougher conditions. Why? Their answer is that they enjoy the freedom of creativity and the work environment; they can make decisions on their own and have to consider the market, not just the leaders or the administrative powers. Wang Changtian could not fulfil his journalism dream in BTV for political reasons, as producer of the current affairs program Beijing Express. After several alerts to topics on the program from the government, Wang lost confidence in his dream. In his own business, he has built up a successful enterprise in a free and creative atmosphere. He encourages everyone at Enlight Media to contribute new ideas within the innovative environment. In contrast, staff at the R&D centre in SMG1 said the creation of new programs or channels was mainly under the direction of the leader inside the TV stations or the government. The Human Art Channel of SMG was set up under the direct supervision of the SMG president, under the direction of the Shanghai government in 2008, in order to exhibit the art of Shanghai. Under such a bureaucratic

1 The anonymous interview was conducted with the staff in program R&D centre of SMG on June 12, 2009 in SMG headquarters in Shanghai. 189

Competition and Innovation: Independent Production in Chinese TV Industry system, the staff„s main task at the R&D centre is to write reports about recent overseas programs or packaging styles.

The difference in innovation between TV stations and independent production is also reflected in the market. As the TV stations have the broadcasting platforms, they do not need to worry about distribution and the subsequent value chain. Under administrative regionalism, most TV stations still take on the role as the regional player so that generally they have to remain a once-off consumer. But independent producers do not only consider the production but also the distribution for their programs and brands. In the past, when TV stations could not afford to pay for the purchase, the independent companies figured out a way of attaching advertising or sponsorship; when the individual TV station could not satisfy the production provider, the independent companies integrated the national and local market themselves. When the TV stations felt satisfied with their first-round advertisement revenue, the independent companies thought about the second-round, or further, distribution. The independent companies not only fulfil the market value chain but they also contribute to professional branding. When TV stations started the reform of structure, the independent companies had already focused on special genre production branding and when TV stations started to brand themselves in some special areas, independent production had already built up professional production and distribution in these areas. When TV stations noticed the importance of the market, the independent companies had already understood how to take the advantage to strengthen themselves. In the progress of television reform development, the independent sector has always been a step ahead of state-owned organisations. Generally, when people talk of how important administrative reform is to the development of the television industry, it is clear that the continuous innovation of the independent sector contributes the greater market power to push reforms forward.

9.4.2 Creativity vs. Imitation

In the Chinese television production market, innovation in content generally comes from two main resources: one is from Chinese traditional themes, like historic subjects; the other is from successful overseas programs, like urban fashion themes and modern lifestyles. Chinese traditional themes have become ubiquitous subjects. There is a large

190 Competition and Innovation: Independent Production in Chinese TV Industry amount of historical material to provide ideas for content, no matter whether it is for TV drama, an animation or for traditional Chinese folk art and entertainment forms. The content of Chinese traditional themes and forms is very familiar to the audience; so it minimizes both the market risk and the censorship risk for the production sector. Meanwhile, with globalization, overseas television format and themes have heavily impacted on audiences and producers. Imitating overseas program ideas has become one form of program innovation in the industry, whether by broadcasters or independent producers. In the Western context, this is regarded as uncreative production. However, in the minds of Chinese producers, innovation in production is considered in a different way.

Actually, this innovation is similar to the definition of second generation innovation as discussed in Chapter 4. In one Chinese producer‟s words, innovation happens when they localize the overseas idea with local culture, adjusted to suit the local tastes. Compared with the long history of television development in other countries, independent television production in China is still a young industry. Most content, and even the distribution system from outside China, is still new for producers. They absorb existing knowledge like a sponge, from modern fashion and romantic drama themes to fiction animation characters, from interactive game shows to reality formats. As a result, Chinese television production as a whole is still in the stage of imitating successful overseas programs. As I discussed in Chapter 4, imitation resides in the innovation circle and occupies the lower-level of the innovation ecology.

However, in contrast, the independent production sector plays a different role to that of the broadcasters. In TV drama and in animation markets, which are now led by independent production, production has gone through the copying and imitation stage. From the sitcom genre to the idol genre, from the Japanese style animation characters to the Korean style animation design, independent production has moved on. By co- producing with overseas companies, independents have rapidly caught up with international standards in production quality. In the TV drama market, initially, independent companies improved their production techniques by co-producing with companies from Hong Kong and Taiwan. Now the producers in Hong Kong and Taiwan have started to imitate ideas from mainland China. The historical sitcom drama, My Own Swordsman (Wulin Waizhuan), produced by Beijing Union Film & TV 191

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(Beijing Lianmeng Yingye), which combined internet slang with popular topics for the young generation has became so popular that it created a ratings record in its second- round distribution. As a result, a Taiwanese production company has produced a Taiwanese version, Jianghu.com.

In the animation market, independent companies have developed high-quality production teams by producing outsourced programs from overseas and have begun to export content, such as Blue Cat (Lan Mao), produced by Sunchime Animation, and Vegetable & Fruit Baby (Xingxi Baobei), produced by Hengfeng Animation. Animation exports reached USD 30 million in 2009, over 50 percent of the TV program export, more than TV drama exports (SARFT 2010b). By owning copyright autonomously, the independent animation producer pays attention to their copyright protection. As Sean Law (Luo Xuan), the CEO of Beijing BMC Animation Company, said, clients have to sign all of the legal contracts to protect the animation images when he sells his animation programs. He also authorized the copyright of all derivative products from the cartoon images produced by BMC Animation in legal contracts. Essentially, independent production has become one of the most important powers in the domestic market to improve copyright protection in the Chinese market.

In the non-fiction program market, as in entertainment programming led by broadcaster production, production mainly stays in the one-off consumption and imitation stage. They take more of an interest in market-driven blockbusters than in creative ideas for their programs. For broadcasters, one of the most important functions of their program R&D centre is to monitor the successful of programs from the US to the UK, and from Asia to Europe. Some TV stations employ people who have overseas studies backgrounds. Some TV stations choose to pay for program recording collections from overseas, and some even pay commissions to independent companies to do this special job. The program R&D centre in SMG, researches overseas formats, which they analyse in detail, and produce a publication like the production format bible. After the research, the format is localized to the Chinese version or is changed to reflect the local style. The talent show GoGo! Good Boys! (Jiayou! Hao Nanhai) from SMG challenged Super Girl (Chaoji Nvsheng) in Hunan STV with its imitation of the Idol format. Hunan STV produces Metamorphosis (Bianxing Ji) where kids are swapped into different

192 Competition and Innovation: Independent Production in Chinese TV Industry families, imitating the idea of Wife Swap, a format originally from UK independent producers and introduced by the ABC to the US market.

Even though some independent companies would like to imitate overseas programs, a different situation exists for broadcaster production and independent production. In TV drama and animation markets, copyright disputes of scripts or images generally can be solved by the legal system. The independent production sector would like to follow the professional market rules to solve their issues. The drama Like Falling in Love (Haoxiang Haoxiang Tan Lian’ai), which was produced by Tongle Organisation, had trouble with Cheerland Media because the original novel was written by Yuan Mei, the CEO of Cheerland Media and Tongle Organisation. It did not clarify copyright trade before they started to produce the program. After a legal process, both Tongle and Cheerland confirmed the trading of the copyright.

Imitation issues between TV stations are seldom clarified. In 2009, the singing format craze swept the world, including China. A war arose between I Love Remembering Lyrics (Wo Ai Ji Geci), from Zhejiang STV, Who Dares Singing (Shui Gan Lai Changge), from Jiangsu STV, and Challenging Microphone (Tiaozhan Maikefeng), from Hunan STV. The conflict between them for copying each other on this singing format never stopped and sometimes the copying and the fighting also becomes a way to get the media and audience attention for TV stations. In contrast, independent companies are more cautious about imitation because of the legal risk and lack of protection of state-owned backers. Independent production still tries to find creativity from blind spots in the market, like the entertainment report show from Enlight Media and the lifestyle show from Yinhan Communication, as discussed in Chapter 6. Generally, independent production becomes the victim of copying and imitation by the state-owned TV stations without legal protection.

9.4.3 Diversity vs. Market-driven

Since market liberalisation of television production, program content and distribution have changed dramatically in China. There are some negative opinions and complaints blaming independent production for over commercialization. In fact, if these objections 193

Competition and Innovation: Independent Production in Chinese TV Industry are explored deeply, the result is the opposite. Some scholars and some educated audiences complain that market-driven content has occupied the majority of the program market and the high-quality documentary and other genres have been squeezed out because of reliance on the ratings. However, because the independent production market is restricted to a few genres, the program market only looks prosperous in these special genres. The diversity of the program market is directly proportional to the openness of program production.

Firstly, the government has regulated the different production markets according to different policies. From banning to allowing the TV drama production market has undergone all kinds of regulation experiments and has developed the licence system. The non-fictional programs production is still struggling with its restrictive regulation. For the cartoon market, the government jumped into the subsidy system straight away with supportive policies, from one extreme to the other. With government support, programs will be plentiful. As a result, as the Chinese saying goes, the market will die once the government tightens the policy, but the market will be in flood once the government loosens the policy. Overall, the government has not treated the market with fair rules but has relied on administrative management. Administrative regulation cannot cover every corner of the market and results in unbalanced development, even abnormal development.

Secondly, the balance of content diversity is controlled by the state-owned TV stations as owners of the broadcast platforms. However, TV stations consider market-driven content as the best option for commercialization; more variety comes from independent production. Today, most TV stations make little effort to innovate on genres other than entertainment programs, like documentaries, which are only produced by CCTV or some other central, state-owned production organisation. In addition, because of the high structured risk, independent production is kept away from many rights, which remain the preserve of state-owned media. Independent production companies cannot touch genres that have sensitive political topics. Independent production also can not challenge the authority of government regulations and the dominance of state-owned TV stations.

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Meanwhile, diversity of content is limited by self-censorship inside the production sector and censorship from the government. As discussed in Chapters 4 to 7, independent production focuses on TV drama, animation and entertainment production. Even in these genres, independent production companies have to censor themselves to avoid structured risks, while also considering market risk. As I discussed in the innovation process of content in Chapter 3, diversity of ideas, before production, is very important for the market. However, if this innovation process is applied to Chinese production, there will be another two censored lines during the process that limits less ideas through the innovation tunnel, namely that will reduce the innovative and diverse degree. See the figure below.

Figure 18 The innovation process under censorship in China

In the Chinese context, the production process is initially filtered by government censorship. Under this censorship line, any sensitive topics can be censored out. Some topics that have passed through censorship can still be prohibited during broadcasting. The TV drama, Dwelling Narrowness (Wo Ju) tells a story about the struggles of two sisters to make a living in the metropolis of Shanghai. It was a hit series broadcast nationally, but it was suddenly prohibited by SARFT due to its sexual scenes. It was very popular with audiences for its realism on topics such as rising property prices and the younger generation‟s urban struggle. It created new terminology, like „property slaves‟ (fang nu) for people enslaved by their mortgages and the „little third‟ (xiao san’er) for young girls in an extra marital affair. The production process is filtered by

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Competition and Innovation: Independent Production in Chinese TV Industry self-censorship. As independent business owners said, they are even more politically sensitive than the state-owned production sector because they have no government in the political background and have to take more risks both in regulations and in the market. Therefore, in order to reduce these risks, they censor themselves more harshly than state-owned organisations. Under these censorship concerns, the innovation process in television production has suffered by a lack of diversity.

Innovation processes of television production, the foundation of creativity, come from a diversity of ideas. If there are more new ideas to launch in the market, there will be more chance of success. Within the market, self-censorship has blocked certain ideas. Within the regulated market, censorship will block even more new ideas. In the Chinese television market today the submarket has performed according to the extent of government censorship. Comparing different genre submarkets, diversity in the entertainment program market is less evident than in the drama and animation markets, but it is better than in the documentary genre. As shown in the TV schedule in Anhui provincial TV channels in Chapter 5, most documentaries broadcast in the local market are imported from Discovery, BBC or Australian companies. In the national market, CCTV produces the bulk of documentaries concerning governmental issues Most TV stations prefer to focus on competition in the drama and entertainment markets.

Certainly, the market cannot resolve all problems either while it is driven by the majority of the audience. If the government wants to resolve the problem of diversity, a balance between the market-driven content and the public interest has to be secured by regulations or law, as is the case in most international television systems. The government or the legal system will need to force TV stations to address diversity of content and the interests of the minority, whether that is through commissioning independent productions or by producing their own in-studio productions. The aim of regulations or the law should be to protect the public interest, diversity and competition in the market, which leads to virtuous cycle in production innovation.

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9.5 Conclusion

In this chapter, I have analysed the influence on the whole Chinese TV industry in two main aspects: regulatory power and market power. The industry has changed significantly during the past two decades and the balance of power between regulation and market autonomy has shifted. Independent production companies have to compete and innovate while facing the tensions of regulatory policy and market dynamics. After comparing international and Chinese markets, we are able to see some obvious key issues for the independent production sector in China. Overall, regulatory powers still determine market structure in the Chinese television industry. As discussed frequently in this thesis, regulations are restrictive for the majority of independent production companies. Furthermore, the television market is dominated by the state-owned system, even though capital investment is more diversified and competition has increased.

Certainly, independent production has developed strong Chinese features under complicated conditions; these features are different from the broadcasters‟ production. Independent companies produce programs according to relevant regulations and in accordance with the Red Title Document. They also take account of changes in demand and audience taste; their success in competing for business depends not only on relationships with senior executives in TV stations but also their capabilities in production and distribution; they seek to extend their market in the international market as well as domestically. It is evident that the independent production sector is more competitive and innovative than the broadcasters‟ production. Although the most important part of the value chain, the broadcasting platform is still state-owned, the independent production sector has created a more dynamic market atmosphere. The only way for government to promote further content innovation is to liberalise the market to release more space for independent production and not to discriminate against these companies. This raises the question that I will address in the last chapter. With ongoing conflict between market power and regulatory power, what is the future for Chinese independent television production?

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Chapter 10

Conclusion

10.1 Introduction

In this final chapter I will summarize my main research findings and clarify several points. This thesis has sought to examine how the television industry has reacted to challenges under pressure from the international market. In particular the thesis has attempted to identify the market forces that promote innovation in the television market in China. In the introduction I noted that the objectives of this research were to:

• explore the inter-relationship of competition and innovation;

• compare the environment of competition and innovation in the television market between China and other countries;

• investigate tensions and relationships between independent companies and state- owned stations in China;

• review the emergence and influence of the independent television sector on the television market in China;

• analyse the social, political, economic, and legal factors impacting on the future development of independent television production in China.

I have explored market dynamics to answer these questions. The thesis has concluded that while competition is getting stronger, creativity in content production is not keeping pace with the change. There are many reasons for this, which I have discussed. I have concluded that significant change for the industry more likely comes from the independent production sector by providing an upper level playing field than from the

198 Competition and Innovation: Independent Production in Chinese TV Industry state-owned TV stations. For this reason the thesis makes a valuable contribution to knowledge.

10.2 Research Summary

In the first part of the thesis I established the foundations for the research. I discussed the concepts of market structure and value chain. I introduced the concepts of competition and diversity and showed how governments intervene in the market through regulation and other methods. Chapter 2 concluded that television companies seek to balance risk and creativity. In Chapter 3, I discussed how television innovation applies to this thesis. I argued that the process of production and distribution has undergone dramatic changes in the era of „post-broadcasting‟. In this era of multi- channels and new interactive platforms there is more competition.

In this thesis I have argued that competition emerges with consolidation of the market value chain. In order to explore the structure of the television market and the market value chain in China, I have used a media economics approach. Under traditional market structure analysis, the media market is defined according to degrees of competition and monopoly. In the current media environment, the media market is too complex to describe in one particular model, especially in China. Even though many television entities compete in the market, the market is restricted by government intervention. For both broadcasters and independent production companies, competition is not the only factor at play. Like television firms globally, there is the challenge of creative risk and structured uncertainty from government regulation.

In Chapter 4 I described the historical development of the television industry in China, together with the historical development of independent production. In Chapters 5, 6 and 7, the current situation of independent production was explored by reference to three submarkets dominated by independent production. These were the TV drama, entertainment and cartoon markets.

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In order to contextualize the experiences in the Chinese television market, I then examined US, UK, Japanese and Korean markets in Chapter 8. I focused on regulation and the practices of independent companies in TV drama, entertainment programming and animation in these countries. I discussed the influence of regulations on independent production and pointed out the advantages or disadvantages when compared to Chinese regulations.

In Chapter 9 I discussed my findings in the Chinese television market, which can be summarized as follows:

 In the regulatory environment, the television production market in China is still a policy market heavily influenced by government regulations and policies. Under such a condition, market rules are sometimes decided by the policymakers, not by supply and demand. Independent production struggles in an environment dominated by state-owned TV stations and is expecting deregulation on limitations and restrictions;

 In the competitive environment, the business models of Chinese independent production companies have developed their own styles under a complex media environment. Competition exists between independent companies but a relationship with state-owned systems is a key business factor for independent producers. Meanwhile, under a globalise media environment, independent production companies consider overseas companies as their most important collaborators and competitors;

 In the end, the environment around innovation is discussed under the conflict between market power and administrative power in the Chinese context. I analyse the situation for independent production with regards to international standards by comparing in-studio production and out-of-studio production, creativity and imitation, diversity and market drivers. Some situations are unique to China, other situations exist globally. Independent production develops in both contexts.

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10.3 Findings

This research has highlighted the significant contribution of independent production to the television industry globally. As part of the creative economy, the television industry is impacted by global and local culture, by technological development, by market structure and by government intervention. Independent production has played an important role in innovation and competition in the television market. I chose the two main factors which impact on television production companies: the degree of market liberalisation and the influence of government intervention. With changes in these two factors, there is constantly dynamic innovation in both production and distribution. Independent production companies contribute by adapting to new regulatory and market environments and developing new strategies.

Innovation is evident not only in content diversity but also in integrating the market value chain in production, distribution and copyright protection. Independent production in the US, the UK and some Asian countries, has illustrated its importance in the development of content, from high-end Hollywood TV drama to British format franchising, from Japanese animation to the Korean wave. Behind this progress, one of the most important motivations for television innovation is diversity. Today, market liberalisation and deregulation have become the trend for television industries globally. The role of television has moved from nation-building to commercialized service industries. China is no exception.

Importantly, the Chinese government has realized the important role of independent production in the development of the television market. The influence from overseas media can no longer be ignored and in the new era of multi-media, China cannot exist in isolation. When imported animation, TV drama characters and overseas reality shows began to influence audiences in China, the Chinese government believed that domestic production would compete. But the reality is that better quality domestic content was needed to renovate the state-owned broadcasting system. Therefore, diversity and competition has to be introduced into the market. The television

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Competition and Innovation: Independent Production in Chinese TV Industry production market has been gradually opened for the independent sector. Although independent production has been restricted, especially at the beginning of the television reform period, this sector has matured with changes in the policy environment in the last decade.

With the development of China‟s TV industry in the past decade independent production has shown its capability to deliver innovation and competition in the market. Today, independent production has assumed a leading position in the market value chain, especially in the three submarkets I discussed in this research. Under the double effects of market liberalisation and governmental policy stimulus, TV drama and animation production have taken the bulk of the market. Entertainment programs have developed quickly to become popular genres as propaganda content has waned. Although much production still imitates overseas programs in many ways, the process of localisation can be regarded as a form of innovation. Unprecedented innovative activity is seen in content creation and in production and distribution, but whether or not this kind of „second generation innovation‟ will make Chinese television internationally competitive remains to be seen.

Although the government has acknowledged the importance of independent production, the Chinese television market has still developed unevenly. The dominant position occupied by state-owned broadcasters in the market originated from the ingrained notion that the media is the „throat and mouth‟ of the government. Therefore, all great expectations for future prosperity were placed on the reform of state-owned media and broadcasters. Independent production is regarded as complementary and a „minority‟ of the market. In this thesis, I have questioned the assumption that state-owned TV broadcasters are the future of television in China. I have shown how independent production in China has become the source of much creative content while the state- owned broadcasters have remained conservative. Therefore, I believe that independent production is capable of taking the television market forward to compete with other international television industries. My research has identified the emergence of independent production as a market force and its influence on competition and innovation.

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In China, even though the government has recognised the important role of independent production, there is still an unresolved question: does the Chinese government really understand how to create a fair competitive environment for both the state-owned and the independent sector to generate innovation? Certainly, from 1994 to today, from the local market to the international, tensions between broadcasters and independents have existed. Therefore, in order to balance this tension and to make competition fairer, I have argued that certain regulations and supportive policies for the independent sector are necessary. American fin-syn rules and compulsive percentages for independent production allocation in the UK and Korea are ways that can assist the Chinese market. If the government wishes Chinese television to move forward in the global arena, it is necessary to put away its prejudices against independent production.

Meanwhile, regulation should follow market rules and protect creativity and innovation. When the market is too restricted by regulation and „red-title documents‟, innovation and creativity are limited. While market research and development can reduce risk for the business, it is still difficult to guarantee the success of programs due to structured uncertainty. Innovation is more likely to occur when the market environment for diversity and competition is improved. Even though the state-owned media are becoming larger under administrative control, they cannot become competitive in the market without developing creative capability. The examples of Enlight Media and Cheerland Entertainment illustrate the growth and success of independent production innovation in the Chinese television market.

Furthermore, I have argued that the market cannot address all problems. Under such complicated environmental conditions, independent producers have to be careful in order to survive as innovation is allowed limited market space. The minority of independent production generally follows the interest of the market majority in the commercial market environment. As public goods, television programs have to represent the public interest. In order to balance public interest content and market driven content, the market requires regulation in certain areas. In this regard the public function should be the principal responsibility of public media, that is, media funded by the government. Independent production is generally driven by the market, not only by the majority but also by minority audiences. In China, moreover, it also needs to

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Finally, this research on independent television is a contribution to Chinese television studies which in the past has focused on state-owned media. Certainly, much further work still remains in order to deepen this research. This project has been limited in its objectives due to the time frame of the PhD candidature. Future research could extend the scope of research on more independent production companies in China and could reach into the global television market.

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Appendix - Interview Questions

Questions for independent production business owners: About policy: A. How does government policy impact on the development of independent television? B. What do you think about the current policies for independent television production development in China? C. Are you aware of independent television production models overseas, especially in the US and the UK? Which model do you prefer to develop in China? D. If one suggestion could be adopted by the government as soon as possible now, what would it be? About business: A. Which stage (or stages) of development do you think China's TV industry is positioned in? (6 stages: low-value outsourcing; imitation; co-production and formatting; niche market; media cluster; peer community) How does this apply to independent television? B. What kind of business models are there for independent television in China's TV industry? C. Do you think network effects are important? To what extent do relationships with government or TV stations impact on the business of independent television companies? D. Comparing production organisations inside the state system with overseas companies, what advantages and disadvantages do independent companies have? E. Comparing the production between the independent companies and TV stations, which pays more attention to copyright problems and program innovation? F. Do you think the development of new media technology impacts on the business of independent production? What kind of impacts are there on your business?

Questions for the policy makers: A. How do you evaluate television production in China‟s current TV industry? B. What will be the perspective for the reform of the TV market in China in a few years?

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C. How important do you think the development of independent television companies is in China's TV industry? To date, have they played an important role or just shared a small piece of the market? D. What attitude does the government take to the expanded development of independent television companies? Will there be any advantageous or disadvantageous regulations announced by the government in relation to independent television companies? E. Between the independent companies and overseas companies, will any privileged policy be announced for the development of Chinese independent companies? What percentage of production do you think is reasonable for independent television companies and overseas to share in China's TV market? F. Does the government encourage innovation? Is there any standard for such innovation? G. How does the government monitor the copyright problems in China's TV industry? Do you think strict regulation of copyright will restrict innovation? Considering more cloning of programs in the screen, will there be any copyright regulation announced in this field?

Questions for the directors of TV stations: A. What is your opinion on the reform of China's TV industry? Which stage of development do you see the Chinese TV industry in? (6 stages: low-value outsourcing; imitation; co-production and formatting; niche market; media cluster; peer community) B. What is your opinion on reform of TV stations? Is it good for the development of the TV station or not? C. What is your opinion on innovation in China's independent television companies? Is it lower or higher than TV stations? D. Do you think network relationships are more important when you choose programs from independent TV production companies? If not, what is the standard for the collaboration with independent TV production companies? E. How do you think about cloning in China's TV industry? Do you think there should be some regulation for the copyright? Or do you think the copyright regulation will restrict innovation?

Questions for the directors of overseas television companies:

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A. What is your opinion about the reform of China's TV industry? B. What is your opinion about the innovation system in China‟s TV stations and independent television companies? C. What is your opinion about China's policies about TV market? What kind of perspective do you think will be good for the development of overseas television companies in China? D. Will you prefer to develop business autonomously or collaborate with local partners? Comparing TV stations and independent television companies, who would you like to choose as the collaboration partner? Why?

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