CHINA’S TV AND DIGITAL VIDEO DISTRIBUTION MARKET March 19, 2015

Supported by TABLE OF CONTENTS

Methodology 1 List of exhibits Overview 1 Exhibit 1: TV and Video Industry Revenue, 2009-18 3 Key TV Regulations & Policies 1 Exhibit 2: Net FTA Advertising, 2009-2018 3 TV Industry Revenue Streams 2 Exhibit 3: Provincial TV Advertising, 2009-18 4 Terrestrial TV 3 Exhibit 4: Local/City TV Advertising, 2009-18 4 Provincial TV 4 Exhibit 5: Pay-TV TV Advertising, 2009-18 5 Pay-TV Channel Offering and Advertising 5 Exhibit 6: Pay-TV Subscriber and Penetration, 2009-18 6 TV Content in China 5 Exhibit 7: Cable TV Subscribers and Revenues, 2009-18 7 The Pay-TV Landscape 6 Exhibit 8: Public Cable Companies: Subscribers and Revenues, 2013 8 Cable Remains a Utility Service 7 Exhibit 9: Content Cost Comparison Between Major Internet TV DTH’s Limited Commercial Value 8 and Online Video Platforms and Satellite TV networks 9 SMG’s BesTV Drives IPTV Growth 8 Exhibit 10: Summary of LeTV Products and Services 11 Internet TV and Online Video -- the Largest in Asia 9 Exhibit 11: VOD Revenue, 2009-2018 12 Internet TV and Online Video Business Models, Exhibit 12: Broadband Subscriber and ARPU Trends, 2009-18 14 Players and Developments 10 Mobile TV 12 List of annex Broadband 12 Annex 1 – Premium Channel Lineup, Shenzhen Topway 15 Fixed Broadband and Mobile Growth 13 Annex 2 – Key Internet TV and Online Video Players 16 In-house Entertainment in 3-star and Above Hotels 14 Annex 3 – Top 10 TV Channels and Audience Share, Beijing, Concluding Summary 14 Shanghai, and Guangzhou 17 Annex 4 - Top 10 TV Programs and Ratings, Beijing, Shanghai, Guangzhou 17 Annex 5 - Channel Lineup in 3-Star and 5-Star Hotels 19 Annex 6 - Key Regulations 20

China’s TV and Digital Video Distribution Market II METHODOLOGY

Media Partners Asia’s analysis and forecasts are based on a number rates as economic and legal reforms are implemented and quality of of factors including (1) Discussions with video distribution companies life issues increasingly emphasized. As a result, China’s economy is and key groups in the value chain including broadcasters, investors, transitioning from its traditional dependence on fixed investment, platform operators, channel operators, technology suppliers, and heavy industry and exports to one more reliant on consumer demand media agencies, (2) Proprietary databases managed by Media Partners and the services sector. Furthermore, China’s 12th Five-Year Plan Asia including historical industry revenues and their components, and (2011 – 2015) identified the cultural industry, including media and (3) Analysis based on media industry metrics from Nielsen, GroupM entertainment, as a key focus of economic growth. The IMF forecasts and ZenithOptimedia as well as key local groups such as the SAIC that China’s real GDP growth rate will gradually decline from 7.7% in (The State Administration for Industry and Commerce) and SAPPRFT 2013 to 6.4% in 2018. (The State Administration of Press and Publications, Radio, Film, and Television). All advertising revenues are in net terms, after discounts Media Partners Asia estimates that the TV and video segments generated and commissions. revenues of US$30.7 bil. in 2013. TV advertising is the dominant ad media in China totaling US$15.9 bil. in 2013 and equaling 47% of total advertising. Media Partners Asia forecasts TV and video revenues OVERVIEW will grow from US$30.7 bil. in 2013 to US$47.2 bil. in 2018, a 9.0% CAGR. Future TV content and video demand drivers will be: (1) Robust China’s media sector is large and growing at a healthy rate that demand from TV channels including national, provincial satellite, generally exceeds nominal GDP growth. Television and video media provincial terrestrial, and city/local TV; (2) Spending and demand remain the key segments with growth driven by demand for films, from online video platforms; and (3) Spending and demand from fast dramas and entertainment. Monetization and business models are growing and emerging IPTV-based and Internet TV platforms. primarily advertising driven though subscription revenue streams and business models are growing. KEY TV REGULATIONS & POLICIES Over the past decade, the Chinese economy has expanded over 240% due to the government’s focus on rapid macroeconomic development The government views TV as a critical tool for communicating with and wealth creation. Market oriented reforms have boosted living China’s vast population of 1.37 billion people. All domestic TV standards, ensuring that China, a country with the world’s largest channels and platforms are state-owned and controlled. TV is the population, is the second largest global economy and remains a top dominant media, accounting for 47% of total advertising revenue. economic performer. Per the IMF, China’s purchasing power parity (PPP) adjusted GDP was 96% of the USA’s in 2013 and is forecast Several authorities regulate video content and its distribution. The to exceed the USA’s in 2014. Based on 2013 foreign exchange rates, State Administration of Press and Publications, Radio, Film, and China’s GDP totaled US$9.3 trillion for the year. Television (SAPPRFT) is the main regulator and oversees TV content, channels, broadcasting and pay-TV platform operations. The Ministry More recently, economic growth has slowed due to deliberate of Industry and Information Technology is responsible for Internet government measures and with the muted global economic rebound. infrastructure, including IPTV infrastructure and SAPPRFT oversees The Xi Jinping Administration has opted to accept lower GDP growth online content. Regulations emphasize cultural values, often to

China’s TV and Digital Video Distribution Market 1 the detriment of commercial revenues, while also serving to protect is discouraged. Broadcast of international channels is limited, and CCTV’s elite position as the national broadcaster. Channels self-censor program licensing is both capped and subject to government approval. to comply with government requirements. Sensitive topics include Government regulations have inhibited and will inhibit the growth of content dealing with political, religious, cultural, and moral affairs. television media. Thus far, these regulations have encouraged the flow Advertising is limited to 12 minutes per hour and a maximum of 18 of more original and entertaining content to online video platforms minutes from 11am to 1 pm and 7 pm to 9 pm daily. Approval for the such as Youku Tudou and to hybrid IPTV/ Internet TV platforms such launch of domestic pay channels is subject to SAPPRFT or its local as BesTV; however, new approval requirements and licensing caps equivalent’s approval. for foreign content will limit the relative freedom and operational flexibility that IPTV, Internet TV and online video platforms have Regulations for foreign media companies and channel operators are enjoyed thus far. more onerous. Landing permits are required for foreign channels and thus far, only 34 have received these permits The SAPPRFT controlled A more detailed summary of China’s media regulations is in Annex 6. China International Television Corporation manages uplinking and downlinking via its appointed subsidiary, the CTV-Satellite TV Program Co., Ltd. Foreign channels are only distributed via approved TV INDUSTRY REVENUE STREAMS provincial-level agents within a prescribed range, including 3-star hotels and above and foreign compounds, which significantly reduce As of year-end 2013, China had 450 mil. households and a television potential viewership. The licensing of foreign television and video penetration rate of 97.3%, equaling 438 mil. TV households. The content is subject to government approval, and foreign content channel landscape includes approximately 3,350 national, provincial broadcast on TV is effectively capped at 25% of total airtime for satellite, provincial terrestrial, regional and city FTA channels as well domestic free-to-air (FTA) channels and 30% for pay channels. as domestic and international pay channels. The government or key Foreign content is not allowed to air on domestic channels from 7 state-owned enterprises (SOEs) control all domestic FTA and pay pm to 10 pm daily. Foreign direct investment (FDI) in the television channels. sector, including FTA channels, domestic pay channels, pay-TV platforms and content companies is prohibited. With Internet TV and As of year-end 2013, TV industry revenues totaled US$29.3 billion. online video, foreign content will be capped at 30% of total licensed Key revenue components include FTA advertising of US$11.4 billion content in 2015. (39.0% of total TV revenues), pay-TV advertising of US$4.5 billion (15.4% of total TV revenues), and pay-TV subscription of US$13.3 With the licensing approval of foreign TV content implemented in billion (45.5% of total TV revenues). Total TV revenues are projected 2014 and the 30% cap on Internet TV and online video content to grow at an 8.1% CAGR from US$29.3 billion in 2013 to US$43.1 announced in 2014 and scheduled for implementation in April 2015, billion in 2018. Pay-TV subscription revenues are forecast to grow the regulatory regime is becoming more restrictive for international at a 10.3% CAGR which is largely attributable to IPTV households content providers. growing from 29 mil. in 2013 to 50 mil. in 2018. For 2013-18, TV advertising is projected to grow at a 6.1% CAGR, which reflects GDP Collectively, these regulations are the most restrictive of all Asian growth tempered with increasing allocations to online and mobile markets, excluding North Korea. Meaningful foreign investment advertising.

China’s TV and Digital Video Distribution Market 2 Exhibit 1: TV and Video Industry Revenue, 2009-18

% CAGR (US$ mil.) 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2013-18 Total TV Industry Revenue 17,260 20,159 23,064 26,181 29,251 32,329 35,118 37,926 40,631 43,126 8.1% TV Advertising 10,689 12,108 13,582 14,832 15,928 17,047 18,172 19,300 20,387 21,371 6.1% FTA 7,726 8,738 9,752 10,644 11,414 12,207 13,000 13,789 14,540 15,217 5.9% Pay-TV 2,963 3,369 3,830 4,187 4,514 4,840 5,171 5,511 5,846 6,154 6.4% Pay-TV Subscription * 6,571 8,051 9,482 11,350 13,323 15,282 16,946 18,627 20,245 21,755 10.3% Video revenue from AVOD 170 330 670 1,070 1,401 2,013 2,572 3,078 3,556 4,033 23.6% Total TV and Video Revenue 17,430 20,489 23,734 27,251 30,652 34,342 37,690 41,004 44,187 47,159 9.0% * Pay-TV subscription revenue includes SVOD and TVOD revenues Source: Media Partners Asia

Exhibit 2: Net FTA Advertising, 2009-2018

% CAGR (US$ mil.) 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2013-18 Terrestrial 7,726 8,738 9,752 10,644 11,414 12,207 13,000 13,789 14,540 15,217 5.9% CCTV 2,716 3,036 3,268 3,561 3,810 4,073 4,333 4,589 4,832 5,056 5.8% Provincial 3,010 3,421 3,887 4,253 4,599 4,939 5,288 5,651 6,017 6,359 6.7% City TV / Local 1,999 2,281 2,596 2,830 3,004 3,195 3,378 3,549 3,691 3,803 4.8%

Source: Media Partners Asia

Media Partners Asia notes that pirated pay services are available in multimedia broadcast (DTMB – a Chinese domestically-developed China. Discussion of these services is deliberately excluded from the standard). scope of this document. In 2013, terrestrial TV advertising revenues totaled US$11.4 billion which included CCTV (33%), provincial (40%), and city/local (26%). TERRESTRIAL TV FTA advertising revenues are projected to increase at a 5.9% CAGR from US$11.4 billion in 2013 to US$15.2 billion in 2018. Provincial Terrestrial channel operators include CCTV, provincial (satellite and satellite channels will be the fastest growing terrestrial sub-segment terrestrial), as well as city and local channels. Channels are broadcast as quality content and affordability drive advertiser demand. CCTV in both digital and analogue formats and the analogue switch off will remain important given its national reach but affordability for is scheduled for 2015-18, which is achievable. The DTT standard media buyers will limit growth. Content quality will remain an issue for China, as well as Hong Kong and Macau, is digital terrestrial for provincial terrestrial, city and local channels.

China’s TV and Digital Video Distribution Market 3 PROVINCIAL TV

The provincial broadcasters can be divided into provincial satellite to the city and local channels. As a result, provincial terrestrial TV and provincial terrestrial TV channels. Each of China’s 34 provincial- advertising is smaller than provincial satellite TV’s and stood at US$3.3 level administrative units operates at least one and up to six satellite billion in 2013. Poor content quality will continue to impact growth channels broadcast nationally via cable operators’ basic pack. In 2013, and provincial terrestrial TV advertising is projected to grow a modest the provincial satellite market totaled US$5.1 billion and it is forecast 1.6% CAGR to US$3.6 billion in 2018. to grow at a 9.5% CAGR to US$8.0 billion in 2018. Advertisers and media buyers are increasingly focused on these channels as they offer a City and local channels account for the vast majority of China’s TV competitive alternative to CCTV’s reach at lower costs. channels. While production values are lower and viewer demographics less appealing for national media buys, the sheer volume of these Unlike provincial satellite channels, which compete nationally, channels and media buyers’ ability to deliver geographically targeted provincial terrestrial channels are more numerous and feature advertising solutions aids city and local channels. City and local TV content targeting mainly provincial audiences. Production values advertising is forecast to grow from US$3.8 billion in 2013 to US$4.8 are lower and the channels suffer from content disadvantages similar billion in 2018, a 4.8% CAGR.

Exhibit 3: Provincial TV Advertising, 2009-18

% CAGR (US$ mil.) 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2013-18 Total Provincial 5,474 6,220 7,068 7,733 8,363 8,980 9,615 10,275 10,941 11,562 6.7% Provincial satellite 2,793 3,124 3,801 4,460 5,063 5,669 6,283 6,904 7,515 7,983 9.5% Provincial Terrestrial TV 2,681 3,096 3,267 3,273 3,300 3,311 3,333 3,371 3,426 3,578 1.6%

Source: Media Partners Asia

Exhibit 4: Local/City TV Advertising, 2009-18

% CAGR (US$ mil.) 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2013-18 Local / City TV 2,499 2,852 3,245 3,537 3,755 3,994 4,223 4,436 4,614 4,754 4.8%

Source: Media Partners Asia

China’s TV and Digital Video Distribution Market 4 PAY-TV CHANNEL OFFERING AND ADVERTISING

Basic and premium pay channel advertising totaled US$4.5 billion in Media Partners Asia also notes that foreign channels which are typically 2013 and is forecast to grow to US$6.2 billion in 2018, a 6.4% CAGR. only available in 3-star and above hotels and foreign compounds are Basic pay channel advertising will be the primary driver supplemented available to foreign nationals with passport identification in some with more limited advertising from premium domestic channels regions; thus enforcement of foreign channel regulations may not (usually about 60 channels per platform) and 34 foreign channels that be uniform. For example, Phoenix Satellite TV channels, which are have landing permits. Increasing GDP and expanding tourism will be unencrypted on Asiasat 7, are sometimes available in China. factors in pay channel advertising growth.

An indicative premium channel lineup is included in Annex 1 and TV CONTENT IN CHINA indicative 3 and 5-star channel packages are included in Annex 5. Per SAPPRFT, movies and dramas account for the largest genre of Media Partners Asia notes that limited leakage from 3-star and above content broadcast. News, entertainment, lifestyle and commercials hotels and foreign compounds does occur; however, the economic account for much of the balance of content aired. Dramas, both impact from other forms of piracy and informal channel distribution domestic and foreign, movies, news and game shows can all rate well. are probably higher. Regional differences in viewership exist.

Exhibit 5: Pay-TV TV Advertising, 2009-18

% CAGR (US$ mil.) 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2013-18 Pay-TV Advertising 2,963 3,369 3,830 4,187 4,514 4,840 5,171 5,511 5,846 6,154 6.4%

Source: Media Partners Asia

China’s TV and Digital Video Distribution Market 5 Exhibit 6: Pay-TV Subscriber and Penetration, 2009-18

% CAGR 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2013-18 TVHH ('000) 401,181 408,839 419,638 430,502 438,017 445,527 452,059 457,754 462,333 465,412 1.2% Pay-TV Subs ('000) 178,920 194,996 215,105 237,598 252,565 265,516 275,513 297,770 308,397 319,261 4.8% Cable Subs ('000) 175,220 187,290 201,520 214,590 224,000 231,146 235,799 239,292 242,406 245,471 1.8% Analog ('000) 112,010 99,310 89,332 76,823 62,974 47,269 31,354 24,571 18,259 12,235 -27.9% Digital ('000) 63,210 87,980 112,188 137,767 161,026 183,877 204,445 214,721 224,147 233,236 7.7% DTH Subs ('000) ------14,986 19,106 23,780 n/a IPTV Subs ('000) 3,700 7,706 13,585 23,008 28,565 34,370 39,714 43,492 46,885 50,010 11.9% % Pay-TV Pen./TVHH (incl. multiple subs)* (%) 43.8% 46.0% 48.3% 50.4% 51.8% 52.7% 53.0% 56.5% 57.6% 58.9% 2.6% Pay-TV ARPU (US$) 3.2 3.6 3.9 4.2 4.5 4.9 5.2 5.4 5.6 5.8 5.0% Cable (US$) 3.2 3.6 3.8 4.1 4.5 4.9 5.2 5.5 5.8 6.0 6.1% DTH (US$) ------0.9 0.9 1.0 n/a IPTV (US$) 3.9 4.3 4.5 4.7 4.9 5.3 5.6 5.9 6.3 6.6 6.3% * Analysis assumes approximately 90% of IPTV subs also subscribe to cable Source: Media Partners Asia

THE PAY-TV LANDSCAPE

With 224 mil. subscribers (89% of pay-TV households and 51% of total in China’s largest ~100 cities. In general, the commercial relevance of TV households), cable is China’s primary pay platform. The mandated pay-TV platforms and DTH are limited due to the utility nature of the conversion to digital continued with more than 72% of cable households services. converted to digital as of year-end 2013. Media Partners Asia projects 87% digital conversion by year-end 2015. Remaining analog households The utility nature of these services has several defining characteristics. The will eventually be converted by 2020. More immediate conversion is not service is frequently low cost for viewers and low margin for platforms, feasible, as many rural or suburban subscribers cannot be cost effectively which is not surprising as the Communist Party views TV primarily as a converted to digital. Ultimately, these subscribers may be digitalized via means of communicating with its population and secondarily as a form the rural DTH offering in the future. Cable will remain the dominant of entertainment. VAS, while often offered, are not as actively marketed pay-TV delivery platform, serving 245 mil. homes by 2018. as in many other Asian countries. Pay platform service fees are frequently bundled with electricity bills which also highlights the utility nature of Platforms competing with cable include DTH and IPTV as well as the service. disruptive platforms such as online video offered via IP-based transmission and Internet TV, which is the digital distribution of TV content over the Given the conventional content aired on pay platforms, more original, Internet. DTH is expanding rapidly in rural regions but it is a free service entertaining and commercial content has often migrated to less (see below). IPTV will continue strong growth, eventually competing regulated content delivery systems such as online video and Internet

China’s TV and Digital Video Distribution Market 6 TV. Media Partners Asia expects that these delivery systems will play a nascent. Less than 1% of digital cable subs use DVRs while VOD larger role in the pay-TV ecosystem in the future, driven by players such adoption is growing at a decent rate from a low base. Revenues from as Wasu and BesTV but also notes that heightened government content HD and VAS totaled US$1.4 bil. in 2013, equivalent to 12% of digital oversight and licensing requirements will likely limit the potential of cable revenues. Going forward, Media Partners Asia projects that HD these platforms too. cable subs will grow from 29 mil. in 2013 to 77 mil. in 2018. Key drivers include falling prices of flat screen TV sets and HD STBs combined with the proliferation of local content, movies and sports in HD formats. CABLE REMAINS A UTILITY SERVICE While total cable platforms exceed 2,000, cable consolidation within Cable is a utility service in China. ARPUs are only US$4.5 and only the provinces continues but inter-provincial consolidation is limited. modest revenues flow through to channel operators. The typical digital National cable operators will emerge but the timing of their emergence basic pack includes over 60 domestic channels including 12 CCTV is difficult to estimate. Key large-scale and well managed cable platforms channels, 34 provincial satellite channels with provincial terrestrial and include Sichuan Cable, Jiangsu Cable, Shenzhen Topway, Guangdong city/local contributing the balance. Cable, Hunan Cable, Oriental Cable, Wasu Media, and China Cable Network, in which Wasu Media owns a ~42% stake. These companies According to Media Partners Asia, cable subs are expected to grow at a will be best positioned as consolidators going forward. CAGR of 1.8% from 224 mil. in 2013 to 245 mil. in 2018, driven mainly by continued urbanization. Cable ARPUs are projected to increase Wasu’s raising its stake in China Cable Network from 31% in 2012 to from US$4.5 in 2013 to US$6.0 in 2018, boosted by HD and VAS, 42% in 2013 was the largest interprovincial transaction for the year. including catch up services and VOD. Jack Ma and Shi Yuzhu’s US$1 bil. investment in Wasu was the largest media transaction of 2014. Wasu operates various cable systems with 13% of total cable subscribers used HD services in 2013. The adoption direct ownership of 2.6 mil. customers in Hangzhou City. It also operates of value added services (VAS), primarily DVR, catch up and VOD, is Internet TV services across multiple provinces. Its aggregate subscribers

Exhibit 7: Cable TV Subscribers and Revenues, 2009-18

% CAGR 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2013-18 Cable Subs ('000) 175,220 187,290 201,520 214,590 224,000 231,146 235,799 239,292 242,406 245,471 1.8% Analog ('000) 112,010 99,310 89,332 76,823 62,974 47,269 31,354 24,571 18,259 12,235 -27.9% Digital ('000) 63,210 87,980 112,188 137,767 161,026 183,877 204,445 214,721 224,147 233,236 7.7% Cable ARPU (US$) 3.2 3.6 3.8 4.1 4.5 4.9 5.2 5.5 5.8 6.0 6.1% Cable TV Sub revenue (US$ mil.) 6,423 7,754 8,913 10,323 11,818 13,287 14,455 15,586 16,628 17,668 8.4% Analog (US$ mil.) 3,633 3,488 3,168 2,841 2,433 1,939 1,397 1,004 776 558 -25.5% Digital (US$ mil.) 2,790 4,266 5,745 7,483 9,385 11,349 13,059 14,582 15,851 17,109 12.8%

Source: Media Partners Asia

China’s TV and Digital Video Distribution Market 7 (cable, interactive digital, and internet TV) totaled 20 mil. as of year- provincial terrestrial and city/local channels. DTH households, all end 2013. Wasu plans to invest US$240 mil. in content-related areas, of which are free, totaled 27 mil. as of year-end 2013. Subscription and US$180 mil. in Internet TV terminals. Further investment in cable services are expected to be launched in 2016 with paying subscribers operators and digital content are likely. increasing from 15 mil. in 2016 to 24 mil. in 2018. HD services will be a key driver in the uptake of pay DTH services. Media Partners In 2014, China Radio and Television Network (CRTN) was finally Asia expects monthly ARPUs to be approximately US$1/month incorporated and it is potentially being positioned as a national cable for 2016-18. SAPPRFT, provincial governments and China Mobile consolidator. Its progress thus far has been nominal. While its limited subsidize the DTH STBs. capital base of US$725 mil. may be one factor, other issues may include consolidation complexities associated with the incomplete integration of SOs within provinces and resistance from provincial operators and their SMG’S BESTV DRIVES IPTV GROWTH stakeholders. Accordingly, its near term impact is likely to be limited. Shanghai Media Group controlled BesTV operates a joint venture Exhibit 8: Public Cable Companies: Subscribers and Revenues, 2013 with CCTV affiliate China Network Television (CNTV). The BesTV branded service has positioned itself as the incumbent in the IPTV Cable Operators Cable TV Cable TV Revenue EBITDA space. It was available in 22 cities and it had 20 mil. subscribers as of (2013) Subscribers ARPU (US$) (US$ mil.) (US$ mil.) year-end 2013. BesTV’s offering is an add-on to fixed line broadband Wasu Media 2,590,000 4.0 285 119 (8-10 Mbps) services. Shenzhen Topway 1,123,400 4.0 146 55 China Cable Network 4,068,000 3.5 273 20 BesTV’s IPTV service is offered in partnership with China’s three Beijing Gehua 5,240,000 2.9 350 162 leading fixed line telecommunications providers – China Telecom, Source: Media Partners Asia China Unicom and China Mobile. Content is provincially localized and the company offers 160 channels in Shanghai. In 2013, the company Foreign channel operator revenues are derived primarily from (1) had 20 mil. IPTV subscribers and 1 mil. Internet TV subscribers. 2013 Distribution in 3-star and above hotels and foreign compounds, revenues from Internet TV services totaled US$25 mil. while the IPTV (2) Program specific advertising revenue share arrangements with business generated US$400 mil., adjusted for revenue sharing with provincial satellite channels, (3) Content licensing to premium digital the telcos and its JV partner. cable channels, and (4) Distribution on digital cable platforms. In 2014, BesTV announced its acquisition of Shanghai Oriental Pearl Group. Post-acquisition, BesTV will become SMG’s primary Internet DTH’S LIMITED COMMERCIAL VALUE vehicle. Concurrently, BesTV plans to raise US$1.6 bil. via a private placement to acquire additional SMG assets. China remains committed to the rollout of its ambitious DTH initiatives. The plans are designed to provide TV services to poor, rural Future IPTV subscriber growth is dependent upon regulators opening households, primarily in western China. DTH services were launched new cities as well as the infrastructure in expansion cities supporting in 2009 and the service includes 60 CCTV, provincial satellite, the service. Media Partners Asia envisions that IPTV will ultimately

China’s TV and Digital Video Distribution Market 8 be allowed into China’s largest ~100 cities where the IPTV platform However, other major players such as Tencent’s QQ Live, Sohu and the is technically feasible and scalable. Baidu-owned iQiyi along with internet TV/STB specialists (i.e. Wasu, LeTV, BesTV) continue to invest aggressively in external content, led by domestic TV dramas and variety shows as well as premium Asian INTERNET TV AND ONLINE VIDEO -- content, such as Korean dramas. THE LARGEST IN ASIA During 2013, Media Partners Asia estimates that out of the US$920 China is the largest market in Asia Pacific for Internet TV and online mil. spent on content by Internet TV and online video platforms, 30% video services. The market will benefit significantly from increased was allocated to overseas content, led by Hollywood, Korean and ex- smartphone usage. The operators’ combined subscriber base for mainland Chinese content while 70% was spent on domestic dramas and 3G and 4G networks totaled 417 mil. in 2013 and is expected to shows as well as in-house productions and partnerships. Expenditure on expand to 1.2 bil. by 2018, with 4G accounting for the majority of US or Hollywood content, totaled US$150 mil. or more than 15% of customers. total content costs for the Internet TV and online video industry.

Online video is an increasingly competitive market and is only a small In 2014, competitive bidding increased the cost of a number of local slice of China’s digital economy which includes search, games and TV shows including: (1) LeTV’s exclusive win of I’m A Singer, produced e-commerce as well as Internet TV technology and mobile applications. by Hunan Satellite TV; (2) PPTV’s broad program partnership with Large online companies (i.e. Alibaba, Baidu, Tencent, Xiaomi) have Jiangsu Satellite TV for a range of shows; (3) Tencent’s high cost win for started to invest in online video platforms in a bid to capitalize on the successful Voice of China Season 3, produced by the China Media growing online video content consumption. Exhibit 9: Content Cost Comparison Between Major Internet TV The market for Internet TV and online video totaled US$1.6 bil. in 2013, and Online Video Platforms and Satellite TV networks a 36.5% year-on-year growth, with advertising topping US$1.4 bil. and 300 subscription reaching US$191 mil. Media Partners Asia projects that the Internet TV and online video market will grow at a CAGR of 23.5% 250 between 2013 and 2018, reaching US$4.6 bil. in revenue by 2018 with subscription representing almost US$549 mil. and advertising totaling 200 US$4.0 bil. Online video consumption and monetization via mobile

US$ mil. 150 platforms will be a key catalyst for industry growth. 100 Content costs are significant, reaching approximately US$920 mil. in 2013. Content investment at some of the bigger Internet TV and online 50 video players is in the US$200 - 300 million range, on a par with top-tier 0 satellite networks. Internet TV and online video players such as Youku Youku Jiangsu Zhejiang iQiyi LeTV Tencent Anhui Dragon Tudou are gradually scaling down their exposure to external content Tudou TV TV Video TV TV (i.e. Asian and Hollywood content as well as domestic dramas) with the Note: Online video platforms shown in blue color, Satellite TV networks denoted in green color focus increasingly on self-produced content. Source: Company data, Media Partners Asia

China’s TV and Digital Video Distribution Market 9 Capital owned Star China and run first on Zhejiang Satellite TV; and traffic. Total content costs are still weighted towards acquired shows (4) iQiyi’s expensive acquisition of Where Are We Going, Dad?, a big hit and the overall content budget is set to reach US$400 mil. in 2015. reality show produced by Hunan Satellite TV. The company’s main goal is to ramp up its leadership position as a multiscreen video player. During 1H 2014, mobile contributed more INTERNET TV AND ONLINE VIDEO BUSINESS MODELS, than 50% of Youku Tudou’s traffic and over 30% of its revenue. The PLAYERS AND DEVELOPMENTS company is also partnering with all of China’s major Internet TV set manufacturers and STB makers to allow consumers access to the Key players in online video portals include Youku Tudou, Tencent, Youku App pre-installed. Baidu-owned iQiyi and Sohu. These players are dependent on advertising-supported AVOD services with ~1% of customers iQiyi launched in 2010 and is an online video platform owned by subscribing to SVOD. search giant Baidu. Baidu also acquired another online video business called PPS in May 2013. Baidu merged PPS into iQiyi in 2013. Since Youku Tudou is a leading online video portal in China. Youku this integration, iQiyi’s traffic has accelerated, and it is currently launched in December 2006. In March 2012, Tudou, the No.2 online competing with Youku Tudou for the top position in China’s online video portal at that time, merged with Youku. The new company video market. was named Youku Tudou. In May 2014, e-commerce giant Alibaba invested approximately US$1.1 bil. to acquire a 16.5% equity interest The company has experienced strong traffic growth on both PC and in Youku Tudou. In November 2014, Xiaomi, China’s second largest mobile in 2014, due to aggressive content acquisition. Total content smartphone manufacturer, invested in Youku Tudou through the open costs are estimated to have topped RMB1 billion in 2014, driven by market. The two companies agreed to jointly develop content and acquisition of external content. About 55% of its budget is allocated technology, including multiscreen online video services. to external content, led by domestic TV dramas and entertainment and followed by shows and movies from the US and Asia. About 30% of Youku offers a combination of licensed professional content, user- iQiyi’s traffic is generated by domestic TV dramas and variety shows. generated content and self-produced content. Most of the company’s revenue is derived from online advertising, followed by consumer In November 2014, Xiaomi invested US$300 mil. into iQiyi with the services, anchored to SVOD models. intention that iQiyi leverage Xiaomi’s strong hardware distribution and sales capabilities in smartphones and other hardware. Search Youku Tudou is increasingly focused on growing subscription revenues giant Baidu will remain the majority shareholder as it continues to through its consumer business, which had 800,000 customers at end- view video as an important vertical within the Internet space. Like September 2014. Annualized revenues are tracking at US$25 million. Youku Tudou, iQiyi plans to invest more in self-produced content. In 2015, the company plans to produce 2-3 series per month of drama The company plans to invest in original video content, allocating series as well as a number of talk shows. close to US$100 mil. to such content (essentially self produced) in 2015 versus ~US$50 mil. in 2014. In Q3 2014, Youku Tudou’s in- QQ Live is the online video platform of Chinese Internet giant house self-produced original content helped drive 10% of its total Tencent. The platform broadcasts TV programs from China’s major

China’s TV and Digital Video Distribution Market 10 TV stations, including dramas, variety shows, animation, sports, and Race, the latter being exclusively on Sohu Video. The two programs HD movies. Tencent is aggressively investing in video content for collectively generated almost 900m video views on its platform. QQ Live, forming strategic partnerships with Warner, HBO and Fox as it aims to become the exclusive online broadcasting platform for Key players in Internet connected TV include LeTV, BesTV and various US series and National Geographic Channel programming in Xiaomi. Sales of Internet connected TV sets or smart TVs continue China. The company owns the online rights to The Voice and is also to grow rapidly, providing a foundation for subscription-based video looking to deliver 50 online concerts in 2015. Another key investment services. Key players are selling branded TV sets bundled with SVOD area will be in-house production of TV dramas. libraries and various online premium services. Total accumulated internet TV set sales reached 88 million in 2014 (60% year-on-year In November 2014, Chinese content producer Huayi Brothers signed growth) while internet TV users are estimated to have reached 32 mil. an agreement with Tencent and Alibaba and separately announced Because of its aggressive bundling with content, the space has come that Tencent will participate in its private placement with total under increased regulatory scrutiny. investment of ~US$200 mil. LeTV produces branded TV sets (Super TV) and charges US$78 per Tencent will have priority in the adaptation of Huayi Brothers’ year for the use of its SVOD library. The company had about 1.5 drama and movie products for its online assets. Tencent and Alibaba mil. active users in 2014. Content investments totaled US$160 mil. and their related businesses will also have priority in obtaining the in 2014, leveraging external content acquisition; its own investments broadcasting rights (including PC and mobile internet, IPTV, smart or in producers such as FlowerTV and LeVision Pictures; and the internet TV, STB) for Huayi dramas and movies. licensing of sports rights. LeTV has come under increased regulatory scrutiny in late 2014 as SAPPRFT announced that companies without Tencent will also have the right to invest 5-10% in Huayi’s movie integrated Internet and TV broadcasting and content services licenses products. In the next three years, Tencent and Huayi will cooperate in cannot provide video apps on smart TV terminals. Accordingly, LeTV producing five movies. is applying for these licenses, which it expects to receive in 1H 2015. Until this time, the company has halted marketing and selling its Sohu is the last major player in the AVOD-based online video base Internet TV services. but has faced a challenging time due to growing competition among industry players.. Sohu does not have a major competitive edge over Exhibit 10: Summary of LeTV Products and Services players such as Youku (backed by Alibaba), iQiyi (backed by Baidu) and Tencent video. The company continues to spend about US$100 App Content Platform Terminal mil. a year on content, mostly on acquired shows (domestic and Smart terminal international). Sohu Video generated US$176 mil. in AVOD revenue LeTV store Content producing E-commerce (Super TV + STB) during 2014 and its online video services remain unprofitable with Video cloud open LeTV User Interface losses expanding due to the increasing scale of content costs. More Web browser Content operating platform (App) than 60% of Sohu Video traffic is generated via mobile. In Q4 2014, the company broadcast two highly rated TV variety shows, the SBS Video searching Korea owned Running Man and the Chinese version of Amazing Source: Media Partners Asia

China’s TV and Digital Video Distribution Market 11 Exhibit 11: VOD Revenue, 2009-2018

% CAGR (US$ mil.) 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2013-18 Total VOD Revenue 271 540 1,000 1,543 2,051 2,819 3,535 4,214 4,826 5,435 21.5% AVOD Revenue 170 330 670 1,070 1,401 2,013 2,572 3,078 3,556 4,033 23.6% SVOD Revenue 15 20 50 96 191 256 325 398 482 549 23.5% TVOD Revenue 86 190 281 377 459 550 637 737 788 853 13.2%

Source: Media Partners Asia

BesTV, the IPTV leader in China, has 1 mil. Internet TV subscribers include the live streaming of multiple TV channels via the CMMB with ARPUs of US$2.4 a month in 2013. BesTV is increasingly standard as well as video downloads. Revenues from mobile TV are focused on its Internet TV platform. In November 2014, the company derived from data streaming. While specific revenues for mobile TV announced its plans to merge with sister company, Shanghai Oriental are difficult to disaggregate, mobile video consumption is increasing Pearl. Once merged, it plans to invest US$800 mil. in Internet TV rapidly with the proliferation of smart phones and with the launch of while also increasing its investment in other content acquisitions. 4G services in 2014.

Other Internet connected TV players include online operators partnering with technology vendors and TV manufacturers, including BROADBAND Skyworth, Haier and TCL. Total broadband subscribers, including wireless, will grow from 816 mil. Key players participating in Internet TV via STBs include Wasu Media, in 2014 to approximately 1.5 bil. by 2018, according to Media Partners BesTV and LeTV while others such as Tencent, Youku Tudou and iQiYi Asia. Increasing 4G adoption and smartphone usage will provide a are also entering the space. Sales of STBs to access Internet TV and significant boost to online video consumption. Key trends include: online video services are also growing with an almost 17 mil. subs in 2013 and a growing percentage is buying through to SVOD services. The combined subscriber base for 3G and 4G networks reached 593 mil. in 2014, according to Media Partners Asia analysis, and Details for key Internet TV and online video license holders are is expected to swell in the future, with 4G accounting for a greater included in Annex 2. share of customers. Both China Mobile and China Telecom have accelerated their respective 4G network deployment plans, with China Mobile leading the industry in terms of 4G network coverage. MOBILE TV China Mobile’s large scale 4G deployment plan covers over 300 cities and extends into rural areas. China Telecom meanwhile is targeting China has three key mobile and fixed line telephony companies coverage in the 100 largest cities where over 75% of mobile data - China Telecom, China Mobile and China Unicom with over 1.2 traffic is generated. China Unicom plans to expand its 4G network billion users (including multiple accounts). Their service offerings deployment in 2015 with 330,000 new base stations.

China’s TV and Digital Video Distribution Market 12 In terms of pricing, China Mobile has been actively driving 4G and urban areas by 2020, with connection speeds of 50 Mbps for urban smartphone retail prices down to RMB800-1,000 and expects 4G areas and 12 Mbps for rural areas. Rollout of 4G is crucial in connecting handset prices to decline to RMB 600 in early 2015. rural areas where fixed-line infrastructure is not commercially viable. 4G services were launched in 2014 and the MIIT announced the services will The Ministry of Industry & Information Technology (MIIT) formally be available in more than 300 cities by year-end. announced the ‘Broadband China Strategy and Implementation Scheme’ in August 2013. The plan targets 50% fixed household Fixed broadband, including cable, ADSL and FTTx, will remain dominant penetration by 2015, and aims to ensure comprehensive broadband in China, although growth will slow due to increasing competition from coverage in rural and urban areas by 2020, with connection speeds wireless networks. Media Partners Asia projections indicate that fixed of at least 50 Mbps for urban areas and 12 Mbps for rural areas. broadband household penetration will increase from 46% in 2013 to Rollout of 4G will be crucial to connecting rural areas where fixed- 57% by 2018. With increased competition, Media Partners Asia projects line infrastructure is not commercially viable. monthly fixed broadband ARPU to decline at a 3.8% CAGR from US$9.3 in 2013 to US$7.3 in 2018. In December 2013, China Mobile was granted a fixed line and broadband license from MIIT, shaking up the legacy duopoly Within fixed broadband, cable operators are competitively disadvantaged structure between China Telecom and China Unicom. To jumpstart versus telecom incumbents, as financial constraints limit large-scale its fixed broadband business, China Mobile is offering aggressive network upgrades. As a result, cable broadband household subscribers promotional broadband pricing, with discounts of up to 40% versus will grow moderately from 6 mil. in 2013 to 11 mil. in 2018. the China Telecom and China Unicom offerings. Fiber rollout remains a key focus for China Telecom, which has promoted fiber network Uptake of ADSL and fiber will be driven by the expansion of China and bandwidth upgrades in cities. More than 90% of its urban homes Mobile into the fixed line landscape and by price competition between passed are capable of having broadband speeds of 20 Mbps. Fiber the three telcos. In December 2013, China Mobile was granted a fixed customers will account for 35% of the total fixed broadband market line and broadband license from MIIT, shaking up the legacy duopoly by 2020. structure between China Telecom and China Unicom. To jumpstart its fixed broadband business, China Mobile is offering aggressive promotional pricing, with discounts of up to 40% versus the China FIXED BROADBAND AND MOBILE GROWTH Telecom and China Unicom offerings.

Total broadband subs, including wireless, will grow from 269 mil. in Fiber rollout remains a key focus for China Telecom, which has promoted 2013 to 368 mil. in 2018 as telco operators leverage 4G mobile networks; fiber network and bandwidth upgrades in cities. More than 90% of its fixed networks compete with pricing, and FTTx is rolled out. urban homes passed are now capable of having broadband speeds of 20 Mbps. Media Partners Asia projects fiber adoption in China to grow The Ministry of Industry & Information Technology (MIIT) formally from 55 mil. subs in 2013 to 92 mil. subs in 2018. announced the ‘Broadband China Strategy and Implementation Scheme’ in August 2013. The plan targets 50% fixed household penetration by While ADSL will continue to be the most popular broadband technology 2015, and aims to ensure comprehensive broadband coverage in rural in 2018, it will experience a significant slowdown in subscriber growth

China’s TV and Digital Video Distribution Market 13 Exhibit 12: Broadband Subscriber and ARPU Trends, 2009-18

% CAGR 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2013-18 Total Broadband Internet Subs (000) 117,906 150,527 255,497 377,816 525,044 815,933 1,025,953 1,180,890 1,328,002 1,461,105 22.7% Cable (000) 2,299 3,185 4,386 5,303 6,228 7,269 8,242 9,128 9,991 10,840 11.7% ADSL (000) 83,896 101,205 119,247 131,307 143,938 151,382 157,340 162,312 165,484 168,322 3.2% FTTx (000) 18,471 21,902 32,854 43,876 54,858 64,302 72,921 80,890 87,217 91,723 10.8% Wireless (000) 13,240 24,235 99,010 197,330 320,020 592,980 787,450 928,560 1,065,310 1,190,220 30.0% % Fixed Broadband Pen./ Total HH (%) 24.9% 29.6% 36.0% 40.8% 45.6% 48.7% 51.5% 53.9% 55.6% 57.0% % Wireless Broadband Pen./Population (%) 1.0% 1.8% 7.3% 14.6% 23.5% 43.3% 57.3% 67.2% 76.7% 85.2% Fixed Broadband ARPU (US$) 10.6 10.3 9.9 9.7 9.3 9.1 8.7 8.2 8.0 7.7 -3.7% Cable (US$) 8.1 7.9 7.7 7.4 7.2 7.0 6.9 6.7 6.6 6.4 -2.4% ADSL (US$) 10.1 9.9 9.6 9.3 8.8 8.6 8.1 7.7 7.5 7.3 -3.8% FTTx (US$) 12.7 12.2 11.7 11.3 11.0 10.6 10.1 9.5 9.1 8.8 -4.5% Wireless Broadband ARPU (US$) 7.4 7.4 7.1 6.9 6.7 6.5 6.3 6.1 5.9 5.7 -3.2% Source: Media Partners Asia

due to competition from fiber and wireless. ADSL subs will grow from CONCLUDING SUMMARY 144 mil. in 2013 to 168 mil. in 2018. Wireless broadband subscribers will increase from 64 mil. in 2013 to 97 mil. in 2018 as the convenience China is the largest TV and video consumption market in Asia with total and speed of the 4G service and rural demand drive growth. Wireless per revenues of US$30.7 bil. in 2013 and forecast to grow at a 9.0% CAGR capita penetration will grow from 5% in 2013 to 7% by 2018. to US$47.2 bil. in 2018. China’s TV and video regulations are among the most stringent in the region for foreign media companies. Specifically, (1) landing permits are required, (2) foreign content caps exist for both IN-HOUSE ENTERTAINMENT IN 3-STAR AND ABOVE HOTELS domestic free-to-air and pay channels, (3) foreign content is not allowed to be aired during prime-time, (4) all foreign television and video content China has approximately 100,000 3 star and above hotels with must be approved by SAPPRFT, (5) licensed foreign content is capped at approximately 2 mil. total rooms. 3-star hotels generally offer in-room 30% of VOD service providers’ inventory, (6) legal distribution is limited pay-TV services which includes ~50 channels and about 10 of these to 3-star hotels and above as well as foreign compounds and (7) FDI is channels are international channels. CNN, HBO, NHK and Phoenix largely prohibited. As a result, foreign media players’ China revenues Infonews are well represented. 5-star hotels offer ~56 channels and the are significantly smaller than the overall country and sector economics international offering is usually expanded to include ~15 international might allow. channels. Indicative 3-star and 5-star channel lineups are detailed in Annex 5.

China’s TV and Digital Video Distribution Market 14 Annex 1 – Premium Channel Lineup, Shenzhen Topway

International Domestic Channel Channel Channel Channel [V] Music Asia News Fa Zhi Tian Di Qi Cai Xi Ju AXN Bao Bei Jia Feng Yun Drama Qi Mo BBC World Cai Fu Tian Xia Feng Yun Music Ren Yu Zhi Nan Bloomberg Cai Min Zai Xian Feng Yun Soccer Sheng Huo Shi Shang Celestial Movies CCTV-Collectibles Gaming Channel Shi Jie Di Li Channel News Asia CHC Animation Golf and tennis Shu Hua Channel Cinemax CHC Family Movie Golf Channel TianYuan CNBC Chinese Food Hua Cheng Movie Urban Construction CNN Classic Huan Qiu Qi Guan Urban drama Diva Universal Comedy drama Ji Shu Qi Che Wei Li Yin Yue Eurosport Contemporary Women Jin Se Pin Dao Wei Sheng Jian Kang HBO Defense and Military Jing Bao Ti Yu Xing Fu Cai KBS World Documentary Lao Gu Shi You Xi Feng Yun National Geographic Channel Dong Fang Cai Jing Lao Nian Fu Zao Qi Jiao Yu NHK World Dong Man Sou Chang Li Yuan Zheng Juan Info Channel Phoenix News Drama No.1 Lian Zhuang Zhong Xiao Xue Tong Bu Fu Dao Star Movies Elderly Health Liu Xue Shi Jie CHC Star Sports English Education Nu Sheng Shi Shang Wen Guang Star Sports 2 Eurosoccer Photography Xin Shi Jue TV5 Fa Xian Zhi Lu Pioneer Documentary TVG Source: Media Partners Asia

China’s TV and Digital Video Distribution Market 15 Annex 2 – Key Internet TV and Online Video Players

Company Website Year Established Description Investor / Parent Youku Tudou www.youku.com Youku: 2006; Market leader with the largest unique user base, Listed as NYSE:YOKU Tudou: 2005 with ~30% share of online video market. Youku and Tudou merged in 2012 iQiYi/PPStream www.qiyi.com iQiyi: 2010; Baidu, parent of iQiYi, acquired PPStream for Baidu (NASDAQ:BIDU) PPStream: 2006 US$370 mil. in 2013. iQiyi and PPStream combined holds a market share of 17% of the online video market. iQiyi follows a purely Hulu subscription model, whereas PPStream is P2P based platform with an installed base of more than 350 mil. Sohu Video tv.sohu.com Video service launched in 2008 Video site of Sohu and third largest video site in Sohu (NASDAQ:SOHU) China, with substantial investment into copyrighted content since 2009 LeTV www.letv.com 2004 LeTV follows a free+paid model for years and has Listed as SHE:300104 a 9% market share of the online video. LeTV is the first Internet Company to launch its own self- developed and branded smart TV. PPTV www.pptv.com 2005 #2 P2P service provider by user base with over 200 Softbank China mil. installed base. PPTV operates P2P software- and web-based streaming and live video services (branded PPLive), video search, a web game platform and an e-commerce site Tencent v.qq.com Video service launched in 2008 Tencent has about 9% of the online video market. Tencent (HKG:700) It recently announced a strategic partnership with HBO to distribute exclusive content on its platform. BesTV http://www.bestv.com.cn/ Internet TV service launched in 2010 BesTV has about 20 mil. IPTV users and 1 mil. BesTV New Media (SHE:600637) Internet TV subs.. 2013 revenues from Internet TV services totaled US$25 mil. while the IPTV business generated US$400 mil., adjusted for revenue sharing with the telcos and its JV partner. Wasu www.wasu.cn Internet TV service launched in 2009 Wasu is among the first in China to receive an Wasu New Media (SHE:000156) Internet TV license. Since July 2013, Wasu partnered with Alibaba to produce STBs and develop online content for internet TV services. Wasu’s internet TV service has nationwide reach, making its aggregate subscribers across its various platforms (cable, interactive digital, and internet TV combined) at near 20 mil.

Source: Media Partners Asia

China’s TV and Digital Video Distribution Market 16 Annex 3 – Top 10 TV Channels and Audience Share, Beijing, Shanghai, and Guangzhou

BEIJING SHANGHAI GUANGZHOU Rank Shr % Rank Shr % Rank Shr % 1 Beijing Satellite 11 1 Shanghai TV Entertainment Channel 12 1 Guangdong TV Zhujiang Channel 8 2 Beijing TV Film and TV Series Channel 6 2 Shanghai TV News Channel 11 Guangdong TV Movie & Drama 2 Channel 7 3 Beijing TV Science & Education Channel 5 3 Dragon TV 8 3 Guangzhou TV General Channel 7 4 CCTV-5 4 4 East Movie Channel 5 4 Guangzhou TV News Channel 5 5 Beijing TV Life Channel 3 5 Shanghai TV Drama Channel 4 Guangdong TV South Satellite 6 Beijing TV Entertainment Channel 3 6 Shanghai TV Young Channel 3 5 (Non Satellite) 5 7 CCTV General Channel 3 7 Shanghai TV Great Sports Channel 3 6 Guangzhou TV Movies Channel 3 8 CCTV News Channel 3 8 CCTV-4 3 7 Guangdong TV Public Channel 3 9 CCTV-4 3 9 CCTV-5 3 8 CCTV General Channel 3 10 CCTV-3 2 9 Hunan TV Satellite Channel 3 Jade Channel Note: Data reflects period from 2014-09-28 to 2014-10-11 10 3 Source: CSM Media Research (Chinese, Guangzhou Cable)

Annex 4 - Top 10 TV Programs and Ratings, Beijing, Shanghai, Guangzhou

BEIJING Rank Program Title Channel TV Rating 1 Weather Forecast Beijing Satellite 9.3 2 CCTV News Beijing Satellite 6.5 3 The Red Beijing Satellite 6.5 4 All Quiet in Peking Beijing Satellite 6.4 5 The Red Beijing Satellite 6.2 6 Beijing News Beijing Satellite 5.6 7 BTV Sports: 2014 CFA Super League Round 26 Beijing TV Sports Channel 4.5 8 The Voice of China Zhejiang Satellite 4.5 9 Law in Action Beijing TV Science and Education Channel 4 10 Law in Action Special Beijing TV Science and Education Channel 3.8

continue overleaf

China’s TV and Digital Video Distribution Market 17 Annex 4 - Top 10 TV Programs and Ratings, Beijing, Shanghai, Guangzhou (continued)

SHANGHAI Rank Program Title Channel TV Rating 1 News Perspective Shanghai TV News Channel 8.7 2 News Perspective National Day Special Shanghai TV News Channel 8.5 3 News Perspective Special Shanghai TV News Channel 8.5 4 Come from the Audience Shanghai TV News Channel 8.1 5 News Coverage Shanghai TV News Channel 8 6 Weather Forecast Shanghai TV News Channel 7.1 7 Na Xie Nian Wo Men Zhui Guo De Zong Yi Shanghai TV Entertainment Channel 6.3 8 Oriental 110 Shanghai TV News Channel 5.7 9 Shang Hai Shi Kong Qi Zhi Liang Shi Kuang Shanghai TV News Channel 5.3 10 Hua Yang Nian Hua Dian Shi Da Ka Xiu Shanghai TV Entertainment Channel 5.2

GUANGZHOU Rank Program Title Channel TV Rating 1 Shadow Warrior Guangdong TV Movie & Drama Channel 3.8 2 The Voice of China Zhejiang Satellite 3.5 3 Guang Shi Xin Wen Guangzhou TV General Channel 3.5 4 Shadow Warrior Guangdong TV Movie & Drama Channel 3.4 5 G4 Chu Dong Guangzhou TV News Channel 3.4 6 Wai Lai Xi Fu Ben Di Lang Guangdong TV Zhujiang Channel 3.4 7 Line Walker Jade Channel (Chinese, Guangzhou Cable) 3.4 8 Tao Lady Guangdong TV Zhujiang Channel 3.3 9 The King of Guns Guangdong TV Movie & Drama Channel 3.3 10 The King of Guns Guangdong TV Movie & Drama Channel 3.2 Note: Data reflects period from 2014-09-28 to 2014-10-11 Source: CSM Media Research

China’s TV and Digital Video Distribution Market 18 Annex 5 - Channel Lineup in 3-Star and 5-Star Hotels

3-star Hotel Channel Listing 5-star Hotel Channel Listing Channel Number Channel Channel Number Channel Channel Number Channel Channel Number Channel 1 CNN 29 KAKU 1 CNN 29 Beijing TV Entertainment 2 HBO 30 GuangXi TV 2 BBC 30 Beijing TV Science 3 Cinemax 31 TianJin TV 3 HBO 31 Beijing TV Movie 4 ESPN 32 DongNan TV 4 Cinemax 32 Beijing TV Finance 5 NHK 33 ChongQing TV 5 AXN 33 Beijing TV Sports 6 DW-TV Asien 34 Sichuan TV 6 Discovery Channel 34 Beijing TV Lifestyle 7 Phoenix Infonews 35 LiaoNing TV 7 Star Sports 35 Beijing TV Public 8 Channel [V] 36 HuBei TV 8 ESPN 36 AnHui TV 9 CCTV-1 37 HeBei TV 9 KBS World 37 ChongQing TV 10 CCTV-2 38 MASTV 10 NHK 38 GuangDong TV 11 CCTV-3 39 GuangDong TV 11 TV5 39 GuiZhou TV 12 CCTV-4 40 ZheJiang TV 12 Phoenix Chinese 40 HeiLongJiang TV 13 CCTV-5 41 GuiZhou TV 13 Phoenix Infonews 41 HuNan TV 14 CCTV-6 42 NingXia TV 14 Channel [V] 42 JiangSu TV 15 CCTV-7 43 HuNan TV 15 TVB8 43 LiaoNing TV 16 CCTV-8 44 YunNan TV 16 CETV 44 NingXia TV 17 CCTV-10 45 JiangSu TV 17 CCTV-1 45 ShanDong TV 18 CCTV-11 46 ShangHai TV 18 CCTV-2 46 ShangHai Oriental TV 19 CCTV-12 47 AnHui TV 19 CCTV-3 47 ShenZhen TV 20 CCTV-13 48 XinJiang TV 20 CCTV-4 48 SiChuan TV 21 BTV-1 49 ShenZhen TV 21 CCTV-5 49 TianJin TV 22 BTV-2 50 JiangXi TV 22 CCTV-6 50 ZheJiang TV 23 BTV-3 51 ShanDong TV 23 CCTV-7 51 Tourism TV 24 BTV-4 52 QingHai TV 24 CCTV-8 52 CCTV Children 25 BTV-5 25 CCTV News (English) 53 KAKU Cartoon 26 BTV-6 26 CCTV-10 54 Golden Eagle Cartoon 27 BTV-7 27 CCTV News (Chinese) 55 Airport TV 28 BTV-8 28 Beijing TV 56 Hotel Channel

Source: Media Partners Asia

China’s TV and Digital Video Distribution Market 19 Annex 6 - Key Regulations

National Regulator »» Synopses for films must be submitted to SAPPRFT.15 For Sino-foreign »» Overlapping government-controlled regulatory agencies joint productions and domestic films on sensitive topics, a full script including the Ministry of Industry and Information Technology must be submitted.16 (telecommunications and broadcast satellite and internet »» Content dealing with political, religious, cultural and moral affairs infrastructure) and the State Administration for Press, Publications, face a high degree of scrutiny and censorship17. Radio, Film and Television (television, radio and online content and coaxial cable infrastructure), in the areas of general responsibility1, Copyright Protection satellite TV2, and new media3. »» While copyright law legally protects audiovisual works, enforcement remains an issue, particularly with online piracy. Channel Uplink/Downlink Policy »» Illegal overseas DTH services are readily available. »» Uplinking and downlinking permission is required for all foreign channels4. License Fees »» All foreign channels are required to use the SAPPRFT controlled »» No industry-specific license fees are required. China International Television Corporation for uplink/downlink via its designated subsidiary5. Authorization of Alternative Distribution Platforms »» Launch of domestic pay-TV6 and FTA channels7 is subject to approval »» IPTV and mobile TV services require a SAPPRFT license and foreign by SAPPRFT or its local counterparts. entities are prohibited from providing these services.18 »» Live broadcast without delay (including live sporting events) Restrictions on Channels and Content channels, except for sports, are not allowed.19 »» Retransmission of foreign channels is generally prohibited, though »» Convergence of telecommunications, broadcasting and Internet is there are some exceptions particularly in Guangdong province.8 government supported. BesTV’s IPTV service launched in coordination »» SAPPRFT approved foreign TV channels may be distributed only with China Telecom is a key example. Other tangible examples within a prescribed range, such as foreign-related hotels at the three- may take some time to emerge as China’s telecommunications star level or above, and foreign-related flats (apartments) provided infrastructure is more developed than its pay-TV infrastructure.20 exclusively to foreigners as offices or residences, and other specified areas9. Rate Regulation »» Foreign content licensed for TV10, Internet TV and online video11 »» Local National Development and Reform Commissions (NDRC) broadcast requires SAPPRFT approval. determine basic cable prices in consultation with SAPPRFT. »» SAPPRFT or the local equivalent’s approval required for domestic »» Subscribers must be allowed to subscribe only to the basic package. pay12 and FTA channels13. »» The operators determine pricing of value-added cable or digital TV »» Domestic pay-TV channels self-censor to ensure programs comply services. with government requirements14.

China’s TV and Digital Video Distribution Market 20 Advertising Restrictions 1 Provisions on the MIIT’s main responsibilities, internal organizations, and staffing - Effective »» TV advertising is capped at 12 minutes per hour with no more than date: 2008-07-11 and Provisions on SAPPFRT’s main responsibilities, internal organizations, and staffing - Effective date: 2013-07-11 18 minutes from 11 am – 1 pm and 7-9 pm.21 2 Measures for Administration of Designated Production of Ground-Based Reception Equipment »» Advertisements during dramas are not allowed.22 for Satellite Television Broadcasts - Effective date: 2000-04-30; Measures for the Administration of the Transmission of Radio and Television Programs via Satellite - Effective date: 2004-08-10 »» Alcohol and tobacco advertising restrictions exist.23 3 Telecommunications Regulations Originally issued on 2000-09-25; amended and effective on »» Advertising on foreign channels must comply with Chinese 2014-07-29; Administrative Measures for the Communication of Audio-Visual Programs Through the Internet or Other Information Networks - Effective date: 2004-10-11 advertising laws.24 4 Administrative Measures for the Reception of Foreign Satellite Television Channels - Effective »» Advertising restrictions are not fully enforced. date: 2004-08-01 5 More specifically, the agent that must be used is CTV-Satellite TV Programs Co. Ltd, a subsidiary of China International Television Corporation. The official website of the China International Local Content Quotas Television Corporation states that the subsidiary is the entity designated by SAPPRFT to act as the agent for all foreign channel landing matters. Although there is no explicit legal »» Broadcast of foreign films, TV drama, and animation capped requirement in this respect, the “designated entity” status plus confirmation in practice that between 25% to 30% for FTA channels, and 30% for domestic pay CTV-Satellite TV Programs Co. Ltd is the only active agent confirms that in practice this is a requirement. channels.25 6 Provisional Management Measures for Radio Cable Digital Pay-channel Business (Trial) – »» With Internet TV and online video, foreign content will be capped at Effective date: 2003-12-01 7 Management Provisions of Radio and Television, originally effective as of 1997-09-01; amended 30% of total licensed content in 2015.26 on 2013-12-07. 8 Administrative Measures for the Reception of Foreign Satellite Television Channels 9 Administrative Measures for the Reception of Foreign Satellite Television Channels FDI for Pay-TV Distribution Platforms, Domestic Pay Channels and 10 Provisions on the Administration of Import and Broadcasting of Overseas TV Programs - FTA Channels Effective date: 2004-10-23 11 Measures for the Administration of the Publication of Audio-Visual Programs through the »» Foreign direct investment prohibited. While variable interest entities Internet or Other Information Network - Effective date: 2004-10-11; Circular of SARFT on (VIEs) are frequently used to circumvent FDI caps and restrictions, Strengthening the Administration of Transmission Films and TV Series - Effective date: 2007- 12-29; Circular of SARFT on Strengthening the Administration of Internet Audio-Visual VIEs are typically used with the regulating authority’s explicit or Programs - Effective date: 2009-3-30; Circular of the State Administration of Press, implicit approval. VIEs allow foreign investors to enjoy the economic Publication, Radio, Film and Television on Further Implementing the Relevant Provisions on the Administration of Online Foreign Films and Teleplays - Effective date: 2014-09-02 benefits of ownership via contractual arrangement versus direct 12 Provisional Administrative Measures for the Radio and Television Cable Digital Pay Channels equity ownership. As the media sector is a particularly sensitive Trial) 13 Management Provisions of Radio and Television sector, VIEs are not typically used. Other investment mechanisms 14 Provisional Management Measures for Radio Television Cable Digital Pay - Channel Business may be used to facilitate small, typically passive equity stakes.27 (Trial) 15 The Regulations for Administration of the Records of Screenplay (Outline) and Films - Effective date: 2006-06-22 FDI Limits on Wholesale Provision of Pay TV Programming 16 Administrative Provisions on Sino-Foreign Cooperative Production of Films - Effective date: 2004-08-10 »» Foreign investment prohibited.28 17 The Regulations for Administration of the Records of Screenplay (Outline) and Films; Provisions on Management of Content of TV Dramas - Effective date: 2010- 07-01; Circular about Change the Administrations on Shooting Filing and Censorship of Finished Films and TV Dramas Must Carry Related with Important Theme of Revolution and History - Effective date: 2003-07-28; »» Although not required under written law, in practice, state-owned Provisions for the Administration of the Production and Distribution of Radio and Television Programs - Effective date: 2004-08-20 provincial satellite channels must re-transmit the CCTV evening 18 Administrative Measures for the Communication of Audio-Visual Programs Through the news.29 Internet or Other Information Networks - Effective date 2004-10-11 19 Provisions for the Safety of Radio and Television Program Broadcasts - Effective date: 2010-02- 06; The Notice on Delayed Broadcasting of Live Radio and TV Programs - Effective date: 2007- 02-27; Notice Regarding Key Issues for Radio and Television Propaganda for 2005

China’s TV and Digital Video Distribution Market 21 20 The State Council Issued an Overall Plan to Promote the Tri-network Integration in 2010, which Glossary established the SARFT entities are responsible for the establishment and administration of IPTV Analog (or analogue) television is the analog transmission that involves integration, and broadcast and control platforms, while the telecom entities are responsible for the transmission and deployment of IPTV the broadcasting of encoded analog audio and analog video signal. 21 Measures on the Administration of Broadcasting Radio and Television Advertisements - The information to be transmitted is represented by rapid variations of Effective date: 2010-01-01 22 Supplemental Provisions to the Administrative Measures for the Broadcasting of Radio and either the amplitude, frequency or phase of the signal. Television Advertisements - Effective date: 2012-01-01 23 Measures on the Administration of Broadcasting Radio and Television Advertisements 24 Measures on the Administration of Broadcasting Radio and Television Advertisements Asymmetric digital subscriber line (ADSL) is a type of digital subscriber 25 Provisions on the Administration of Import and Broadcasting of Overseas TV Programs; line (DSL) technology that enables faster data transmission over copper Provisional Management Measures for Radio Television Cable Digital Pay-Channel Business (Trial) telephone lines than a conventional voiceband modem can provide. It 26 The Notice to Further Enforcement of the Administration Rules of Online Foreign Films and TV does this by utilizing frequencies that are not used by a voice telephone Series 27 Catalogue for the Prohibited Foreign Investment Industries - Effective Date: 2012-01-30; call. Measures for the Administration of Examination and Approval of Radio Stations and Television Stations; Provisional Management Measures for Radio Television Cable Digital Pay-Channel Business (Trial); Provisions for the Administration of the Production and Distribution of Radio ARPU refers to average revenue per user, which is a measure used and Television Programs; primarily by pay-TV platforms, consumer communications and 28 Ibid 29 Provisional Management Measures of Cable TV - Effective date: 1990-11-16 networking companies, defined as the total revenue divided by the number of subscribers.

AVOD means advertising-supported video on demand by adding advertising in some manner to the video on demand.

Broadband is wide bandwidth data transmission with an ability to simultaneously transport multiple signals and traffic types. The medium can be coaxial cable, optical fiber, twisted pair, DSL local telephone networks or wireless broadband.

Cable television is a system of broadcasting television programming to paying subscribers via radio frequency (RF) signals transmitted through coaxial cables or light pulses through fiber-optic cables. This contrasts with traditional terrestrial television, in which the television signal is transmitted over the air by radio waves and received by a television antenna attached to the television.

CCTV is China Central Television, which is the main state television operator in China.

China’s TV and Digital Video Distribution Market 22 CMMB is China Multimedia Mobile Broadcasting, a mobile TV data. Fiber optic cables are less susceptible than copper cables to standard developed by SAPPRFT in China. interference. Fiber optic cables are much thinner and lighter than copper wires. CNTV is China Network Television, an affiliate of CCTV. Fixed broadband means a connection to the Internet, such as DSL, cable or T1. CRTN is the China Radio and Television Network. Fixed line refers to a phone that uses a metal wire telephone line for transmission as distinguished from a mobile cellular line, which uses Digital cable is any type of cable television distribution using digital radio waves for transmission. video compression for distribution. Free-to-air (FTA) TV is a TV services broadcast in clear (unencrypted) Digital terrestrial multimedia broadcast (DTMB) is the TV standard form, allowing any person with the appropriate receiving equipment to for mobile and fixed terminal used in China, Hong Kong, and Macau. receive the signal and view or listen to the content without requiring a subscription, other ongoing cost or one-off fee (e.g. Pay-per-view). Digital terrestrial television (DTT) is a technological advancement over analog television. DTT broadcasts land-based (terrestrial) signals. The High-definition television (HDTV) provides a resolution that is advantages of digital terrestrial television, are similar to digital versus substantially higher than that of standard-definition television. analog in platforms such as cable, satellite, and all telecommunications; the efficient use of spectrum and provision of more capacity than Internet Protocol television (IPTV) is a system through which television analog, better quality images, and lower operating costs for broadcast services are delivered using the Internet protocol suite over a packet- and transmission (after the initial upgrade costs). A terrestrial switched network such as a LAN or the Internet, instead of being implementation of digital television (DTV) technology uses an aerial to delivered through traditional terrestrial, satellite signal, and cable broadcast to a conventional television antenna (or aerial) instead of a television formats. Unlike downloaded media, IPTV offers the ability satellite dish or cable television connection. to stream the media in smaller batches, directly from the source.

A digital video recorder (DVR), sometimes referred to by the Internet television (or online television) is the digital distribution of merchandising term personal video recorder (PVR), is a consumer television content via the Internet. Internet television is a general term electronics device or application software that records video in a digital that covers the delivery of television shows and other video content format to a disk drive, USB flash drive, SD memory card, SSD or other over the Internet by video streaming technology, typically by major local or networked mass storage device. The term includes set-top traditional television broadcasters. boxes (STB). MIIT is the Ministry of Industry & Information Technology, which Direct-to-home (DTH) television is a method of receiving satellite is responsible for regulation and development of the postal service, television by means of signals transmitted from direct-broadcast satellites. Internet, wireless, broadcasting, communications, production of electronic and information goods, software industry and the promotion Fiber network is a fiber optic cable network. Fiber has a much greater of the national knowledge economy. bandwidth than copper cables. This means that they can carry more

China’s TV and Digital Video Distribution Market 23 Mobile television is television watched on a small handheld or mobile Value-added Services (VAS) refers to advanced and/or additional services device. It includes pay TV service delivered via mobile phone networks or a content provider (network operator) offers to possibly increase their received free-to-air via terrestrial television stations. Regular broadcast revenues, or make their offering more competitive. Typically these are standards or special mobile TV transmission formats can be used. non-essential. VAS type services might include e-mail, Internet access, Online video is video content offered by means of the Internet or other text messaging, enhanced TV, VOD, DVR, T-commerce, tele-shopping, Internet Protocol (IP)-based transmission. communal gaming, TV Mosaics, interactive advertising and subscription gaming. SAPPRFT is the State Administration of Press and Publications, Radio, Film, and Television, which was formed with the merger of SARFT (The Video on demand (VOD) is a system that allows users to select and State Administration of Radio, Film, and Television) and GAPP (the watch video content when they choose to, rather than having to watch at General Administration of Press and Publications). a specific broadcast time.

Satellite television is a system of supplying television programming using VIE is a variable interest entity. VIEs are frequently used to circumvent broadcast signals relayed from communication satellites. The signals FDI caps and restrictions. VIEs allow foreign investors to enjoy the are received via an outdoor parabolic reflector antenna usually referred economic benefits of ownership via contractual arrangement versus to as a satellite dish and a low-noise block down-converter (LNB). A direct equity ownership. satellite receiver then decodes the desired television program for viewing on a television set. Receivers can be external set-top boxes, or a built-in television tuner. Satellite television provides a wide range of channels and services, especially to geographic areas without terrestrial television or cable television.

Subscription-based television services, usually include pay television, premium television, or premium channels including cable and satellite television, but also increasingly via digital terrestrial and Internet television. Subscription video on demand (SVOD) is a service offered by pay systems, which charges their subscribers a monthly fee for accessing unlimited programs.

Terrestrial television is a type of television broadcasting using radio signals for transmission and television antennas and tuners for reception.

Transactional video on demand (TVOD) is the opposite of subscription video on demand (SVOD). With transactional VOD the customer pays for each individual video on demand program.

China’s TV and Digital Video Distribution Market 24