Creating media empires is China's new obsession

State-run news media is being upgraded with an eye on overseas readers and viewers

An ambitious plan, set forth in guidelines last week by China’s State Council, envisions the creation of entertainment, news and culture companies with a market orientation and with less government backing. China, in short, would like to consolidate its industry into companies resembling Bloomberg, Time Warner and Viacom, analysts say.

“There appears to be a feeling at the highest levels of government that they need a media machine commensurate to the rising status and power of China,” says Jim Laurie, a former ABC News correspondent who teaches at Hong Kong University and recently met with Chinese state broadcasting executives.

Beijing hopes the moves will even improve the nation’s image overseas — part of a longstanding effort to use ‘soft power,’ rather than military might to win friends abroad. Along the way, Beijing will allow private and foreign companies to invest in everything from music, film and television to theatre, dance and opera productions — though largely through state-owned companies.

News Corp, Viacom and other western media giants have for years been frustrated by their inability to win approval to produce films and television programmes aimed at Chinese consumers; often, they have operated with Chinese joint venture partners and run into delays or political barriers. Several American companies said they were studying the new Chinese rules and declined to comment further.

Limited freedom
In its announcement last week, Beijing said that state-owned groups will be reorganised to allow outside financing so that they could “live on their own rather than being attached to government departments as parasites.” The companies will gain greater freedom to finance and produce a wider range of entertainment and cultural content for distribution inside the country, and even for export.

Though China has not provided a detailed plan yet, one exception is likely to be news programming, which falls under the control of the Communist Party. China has also been upgrading its state-run news media, with an eye on foreign language publications, wire services and television programmes to reach readers and viewers overseas.

Among the first companies to benefit from the new government policy will be Shanghai Media Group, one of the country’s biggest state-run news and media conglomerates. In August, the government gave the company approval to reorganise its operations and to issue stock to the public.

SMG, as it is known, has close to $1 billion in revenues and $100 million in profits last year. It also has partnerships with companies like News Corp, Viacom and CNBC, and profitable television units, including a home shopping network, an animation channel, fashion and lifestyle programming, as well as radio, newspaper, magazine and film production units.

The company is being split into a state-controlled nonprofit side that will house news programming and satellite transmission, and a profit-driven side focused on advertising, content development and distribution.

“The domestic media market is being changed dramatically,” says Li Ruigang, SMG’s 40-year-old chairman and chief executive. “This will be a new SMG In the future we’ll be a holding company, and there will be more than 10 subsidiaries.” To help the company bulk up, the China Development Bank recently agreed to provide $1.5 billion in financing over the next five years. The government policy bank will become a partner with SMG on a separate $735 million private equity fund.

That fund, China Media Capital, will invest in media and entertainment properties and is headed by Li, the chairman of SMG Michael Tung, the chief investment officer of China Media Capital, says the government is encouraging consolidation in the media and entertainment industry and that the fund will help develop bigger media groups.

“China’s market is very fragmented,” Tung said. “China should have four or five huge media groups. There’s nothing now like News Corp or Time Warner. But we’ll also be looking for overseas opportunities.”

Disappointment
Foreign media companies looking for greater access to China’s vast market may be disappointed, analysts say of the new guidelines. “This is not an invitation for stakes by international media companies,” says Vivek Couto, director of Media Partners Asia, a Hong Kong-based research firm. “But this may be an invitation for private equity and foreign capital to do more.”

But other experts warn of regulatory hurdles, because media and entertainment companies report to a variety of agencies, each with their own imperatives. Investments by media companies, if they come, are expected to be through partnerships — something already done with government scrutiny. “This is a good time for Western companies to come in and find partners,” says Zhu Mei, the head of Linden Consulting in Beijing.

Zhu says the policy seems likely to nurture partnerships like the joint venture formed by Gehua Cultural Development Group, a state-owned Beijing company, with Live Nation, the American concert and performance organiser. That may be one reason China Central Television, the nation’s largest broadcaster, was not selected for the first reorganisation.
CCTV is considered the mouthpiece of the central government and recently underwent a management shakeup after a fire severely damaged part of its nearly finished $700 million headquarters in Beijing, designed by Rem Koolhaas and Ole Scheeren.

Despite that setback, Couto and other analysts say some of China’s big media companies are flourishing, with film and other entertainment venues growing quickly as wealthy Chinese consumers seek leisure activities.

One of the country’s most famous film groups, Huayi Brothers Media Corp, recently won approval to sell stock to the public in an offering that is expected to raise $90 million on China’s new Nasdaq-style exchange, the Growth Enterprises Market. Over at SMG, Li admits that taking his company public has long been one of his obsessions. “This is to make the industry more market oriented,” he says. “We hope SMG can be a pioneer of this reform.”