Exploring the evolution of digital television in China: An interplay between economic and political interests

Telematics and Informatics 26 (2009) 333–342

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Exploring the evolution of digital television in China: An interplay between economic and political interests Charles G.C. Feng a, T.Y. Lau b, David J. Atkin c,*, Carolyn A. Lin c a b c

Communications and New Media Programme, National University of Singapore, Singapore Center for East Asian Studies, Stanford University, Palo Alto, CA, United States Department of Communication Science, University of Connecticut, 850 Bolton Road, Storrs, CT 06269, United States

a r t i c l e

i n f o

Article history: Received 3 April 2007 Received in revised form 10 May 2008 Accepted 19 May 2008

Keywords: Digital Telematics Television Broadcasting Political and Economic Progress

a b s t r a c t This paper argues that the primary obstacles facing the transition to digital TV involve: (1) administrative infighting, (2) heavy-handed policymaking processes, and (3) the pursuit of self-interest and centralized control by the state network. After profiling China’s television infrastructure, the paper concludes that the Communist Party’s current policy initiative for the development of its digital television industry is not feasible. Ó 2008 Elsevier Ltd. All rights reserved.

1. Introduction Global interest in High Definition Television (HDTV) has grown dramatically in recent years, with Asia, Europe and North America now implementing the technology to varying degrees (Bracken and Atkin, 2004; Dupagne, 2002; Dupagne and Seel, 2006). In the US – long a leader in TV set adoption – the FCC recently postponed a December, 2006 deadline for mandatory conversion to digital transmission for broadcasters (Grant, 2007). Although Western countries were the primary consumers of television sets in the 20th century – with the US accounting for half of screens, and the rest roughly split between Europe and Japan (e.g., Schaeffer and Atkin, 1991) – China is poised to become the largest potential HDTV receiver market. HDTV is part of a larger DTV umbrella that encompasses several DTV technologies that encompass a global set receiver market valued at several hundred million dollars. But given recent trends in technology convergence, leadership in digital TV impinges upon leadership in a range of interoperable telematic technologies (e.g., PC-TV’s). Perhaps owing to these economic ramifications, prospects for the emergence of a global digital standard were dashed when Europe, the US and Japan pursued their own unique (yet incompatible) TV standards during the 1990s. In order to gain a better understanding of industrial policy dynamics underpinning DTV’s development, it’s useful to explore the impact of policymaking on the diffusion of emerging receiver technologies in different contexts. When tracing HDTV’s genesis through the American context, Dupagne (2002, p. 280) noted that HDTV was designed to offer the following major improvements:

* Corresponding author. E-mail address: [email protected] (D.J. Atkin). 0736-5853/$ - see front matter Ó 2008 Elsevier Ltd. All rights reserved. doi:10.1016/j.tele.2008.05.002

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. . .sharper picture resolution using the 1080-line interlaced or the 720-line progressive format instead of NTSC’s 525 lines; multichannel distortion- free sound using six digital channels instead of NTSC’s analog stereophony; and wider and bigger images using 16:9 aspect ratio instead of NTSC’s 4:3 and approximating the theatrical motion picture experience. He notes that uneven policy implementation and viewer demand dynamics may render HDTV the ‘‘Edsel” of the information age (i.e., an anti-success story). 2. Background We begin our consideration of HDTV diffusion in China by profiling the country’s media infrastructure. Consistent with authoritarian conceptions of press systems (Anowkwa et al., 2003), the media in China represent a mouthpiece of the party state (e.g., Zhao, 1998). On one hand, foreign investment in the media was banned after the Communists seized power in 1949. On the other hand, the Chinese government emphasized building the television broadcasting infrastructure by providing full funding to ensure that their orders are effectively conveyed by television (Hu, 2005). A new broadcasting policy, determined in 1983, governs broadcasting at four levels: central, provincial, prefectural and county (Yu, 1990; Lu, 1999a,b). This spurred dramatic growth in the number of television stations, especially at the county level (Yu, 1990; Lu, 1999a,b; Yang, 2003). In order to increase the coverage of television more effectively, the Chinese Central government has encouraged local governments and big state-owned-enterprises (SOEs) to establish cable television stations since 1983 (Chen, 1999; Qian, 2002). By 1998, China claimed over 1300 cable TV stations and more than 4,000 cable network systems (Chen, 1999). Cable subscribership in China has continued to grow as well, reaching 125.69 million by 2005, the largest such contingent in the world (National Bureau of Statistics, 2006; CSM, 2006). However, this growth spike in the number of television stations placed an onerous financial burden upon governments, one that was not offset by coverage increases characteristic of past expansions (Lu, 1999a,b). The Chinese government realized that media – including broadcasting – could not be defined any longer as a mere ideological apparatus. Hence the attribution of industrial and economic dimensions in this realm was recognized after 1992, when China initiated reforms to usher in a market economy (Lu, 1999a,b). The sole state-funding model for media has changed gradually since that time (Zhao, 2000). The Chinese government stopped funding press outlets in 1994 (Zhao, 2000; Zhao, 2004), and decreased direct financial subsidies for radio and TV stations – from nearly 100% in 1983 and 70% in 1990 – to just 10.74% in 2004 (Sun, Huang, & Hu, 2005). In the wake of successful trials like that of the Guangzhou Daily Group – which represents the most profitable non-subsidized media institution in China – the Chinese government was emboldened to advocate and facilitate a wave of conglomeration both in the press and broadcasting (Zhao, 2000). With the exception of news divisions, media are encouraged to diversify their business operations, including establishing joint venture production companies with foreign capital and being traded in the stock market; TV network ventures like digital television are highlighted. Thus, many media groups – reminiscent of media conglomerates in the West – have emerged in China. As Table 1 notes, there are 511.5 million TV sets, 379.8 million TV households and 302 television stations in China. The digital TV market presumably embraces hundreds of billions of yuan in the terminal equipment market, and untold trillions of investment in the business to business market, including the hardware facilities, systems and network construction in which operators should invest (figures are based on RMB) (see Fig. 1). Most TV stations in China primarily depend on advertiser support. For example, the advertising revenue of China Central Television (CCTV), representing the only national TV stations in China, was over 8.6 billion RMB (over 1.1 billion US dollars) in 2005 (CCTV, 2006). This accounts for 92% of the network’s total operation revenue, excluding that of its affiliated companies. Moreover, 80% of CCTV’s total advertising revenue comes from Channel 1 (Yang, 2003). As a consequence CCTV operations face financial instability when the macro economic environment worsens (Huang and Ding, 2003). Moreover, other media – particularly the Internet – continue to erode TV station shares of both audience and advertising revenue (Huang and Ding, 2003). Therefore, TV stations in China hope to develop new revenue streams, embodied by such technologies as digital pay TV or Internet Protocol TV (IPTV). China inaugurated her digital television initiative in 2002, beginning with cable. The total number of subscribers of digital cable television service around the country by the end of 2005 was 4.15 million (NBSC, 2006), falling short of SARFT’s initial Table 1 The status of China’s television industry, 2005 Total TV sets

More than 511.5 million

TV sets per one hundred urban households TV population TV population coverage Cable subscribers TV Households TV stations Cable Networks

134.7 sets 1238 million 95.8% 125.69 million 379.8 million 302 Around 4000

Source: the National Bureau of Statistics of China (NBSC, 2006), the State Administration of Radio Film and Television of China (SARFT, 2005), CVSC-Sofres Media (CSM, 2006).

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Fig. 1. An overview of China’s TV infrastructure.

projections. From Table 2, we can see the penetration rate of digital TV was only around 1% by the end of 2005. This is also much lower than the global average of 13% (R&TI Research, 2005). Although much has been written about digital television in the Chinese media (e.g., CSM, 2006), there remains a paucity of academic work in this area. The Deputy Minister of SARFT classified the constraints influencing the progress of TV digitization into four factors; namely: (1) traditions of viewers, (2) immature technologies, (3) disputes over economic interests, and (4) social institutions under transition (Zhang, 2003). The insufficiency of cash flow is the most frequently mentioned barrier to development (Lu, 2004; Qiao, 2005; Yan, 2005a,b; He, 2005, cited in Broadband Business Forecast, 2005). Others (Huang and Ding, 2003; Qiao, 2005; Yan, 2005a,b; Ma, 2005) point to the lack of a unified technical standard, the underdeveloped industry chain, and deficiencies in content as critical constraints in DTV policymaking. Qiao (2005) argued that China’s burgeoning IPTV business also stalled the development of digital television, competing for growth capital and regulatory attention. Yan (2005a,b) maintains that still other factors are in play, such as the fledgling homemade core technologies of digital television, institutional barriers between the broadcasting and telecom industries and the entrenched viewing habits of audiences. Huang and Ding, 2003 and He (2005, cited in Broadband Business Forecast, 2005) both cited the scattered management of domestic cable networks as a hindrance to Chinese government policymaking in DTV. Lu (2004) presumed that both insufficient coverage of cable TV and the need of a number of quality programs were the two primary challenges to developing digital TV in China. This echoes findings in the US, where the problem of DTV diffusion has been one of consumer acceptance, rather than technology availability (e.g., Atkin et al., 2003; Bracken and Atkin, 2004; Dupagne, 2002; Dupagne and Seel, 2006; Grant, 2007). Huang and associates (2005) summarized reactions to the difficulties of developing digital television – including those mentioned above – from the 49 local operators designated as the tentative digital paid TV regions by SARFT. The general manager of the Interactive TV Corporation – affiliated with Shanghai Media Group (SMG) – noted that the pivotal catalysts to the development of digital paid TV involved offering brands for the various channels, flexible price packages at different tiers, and strategic cooperative models based on the divisions of business and revenue (Zhang, 2003). Drawing from DTV development examples in Western countries, Hu and Tang (2003) observed that vertical integration between content providers and operators, deregulation and branding were crucial to the development of digital TV. Generally speaking, research in the Chinese context has yet to fully explore social, aesthetic and economic implications of DTV adoption, having focused instead on variegated dimensions – encompassing policy, institutional, technology, content, business and consumer demand factors – due to constraints imposed by ideology, methodologies and research framework. 2.1. Evaluative criteria By way of evaluating alternative models for DTV development, it’s useful to focus on key measures of feasibility. Drawing from Starr and Atkin (1989, p. 193), we outline a set of evaluative criteria that include the following: (1) administrative feasibility, or ‘‘. . .the ease with which a policy can be implemented in terms of cost, manpower and supervisory resources;” (2)

Table 2 Subscribership for digital television in China (millions)

NBSC figures Numbers planned by SARFT

2002

2003

2004

2005

0.09 0.5

0.276 1

1.22 10

4.15 30

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political feasibility, or the extent to which an initiative can ‘‘gain both congressional and executive level support,” (3) legal feasibility, or ‘‘the degree in which a policy is consistent with the Constitution and the tradition of communications regulation;” and (4) social desirability, ‘‘or the degree to which a given initiative promotes the public interest.” Applying this model to the formative era of DTV development in the US, scholars (Schaeffer and Atkin, 1991) concluded that a coalition of Congress, the courts and selected industry groups were able to overcome opposition from commercial broadcasters when setting standards for advanced television. Focusing on the US context, Krasnow et al. (1982) evaluate political feasibility with a multi-tier model that sees policy determined by a plurality of stakeholders, one that includes the major government branches as well as administrative agencies (e.g., the FCC), industry groups and citizen’s groups. Adapting this model to the Chinese context, it’s clear that all but the latter two components operate under the auspices of the Communist party to varying degrees (e.g., Anowkwa et al., 2003). The section to follow outlines the political interactions between competing government agencies stakeholders and the ways in which they’re shaping DTV policy in China. 3. Administrative Infighting induced by technology convergence As a centralized authoritarian body, the Chinese Communist Party (CCP) – and its affiliated state apparatus – is highly visible in the planning and implementation of telecommunication policy. The bureaucratic system in China is extremely hierarchical, and mixed with governmental bodies and CCP institutions (e.g., Anowkwa et al., 2003). Although the State Administration of Radio and Television (SARFT) functions as one of the ministry of the State Councils that regulate broadcasting nationally, the Propaganda Department of the Central Committee of CCP (hereafter ‘Central Propaganda Department’) is the de-facto top administrator of China’s media industry, including broadcasting. For example, the minister of SARFT has been the deputy minister of the Central Propaganda Department. As such, the Propaganda Department of the CCP’s provincial Committee (hereafter ‘provincial propaganda office’) is the top regulator of media in each province. Therefore, as Fig. 2 notes, the provincial broadcasting bureau is under the supervision of the provincial propaganda office. The supervision of Chinese broadcasting is separated into four parts, namely content, setting technical standards and network as well as hardware equipment. Once again, the Central Propaganda Department is the top decision-maker of ideology (content), and the provincial propaganda office supervises content within a particular province. SARFT and its provincial branches oversee content relating to broadcasting and film as well as some functions in the broadcasting network. The Ministry of Information Industry (MII), founded in 1998, is the top regulator of telecommunication and postal services. It supervises the manufacture of broadcasting equipment and officially manages the broadcasting network (MII, 2006) (Fig. 2). However, the jurisdiction over the broadcasting industry’s infrastructure – including digital television – remains unclear between SARFT and MII. Both agencies claim the authority to set all of the technical standards governing digital television, according to their respective official websites. The turf war between the two agencies has been waged since the middle of 1990s, when telecommunication technologies – involving the telephone, television and internet – began to converge. Moreover, the infighting between these agencies has never been resolved by enforced cooperation, or legal reforms (Zhang, 2003). Even though MII has been empowered by the State Council since 1998, SARFT has assumed the de-facto ruling power on the standardization of digital television on the pretext of ensuring ideological security (Lu, 1999a,b). But MII has never ceded its claims to DTV jurisdiction. Technical standards governing digital television cover three areas: the headend, the distribution network and the reception terminal. Beginning with the headend, the studios of major television stations are now digitized, with most standards in the production process having been determined. Observers (Huang and Ding, 2003; Huang et al., 2005; Qiao, 2005; Yan, 2005a,b) believe that the repeated delay of final transmission standards has influenced the development of digital television greatly. However, all the technical standards – whatever they fall within the production, transmission, or reception domains

The Propaganda Department of Central Committee of Chinese Communist Party

The State Council

State Administration of Radio Film and Television

Propaganda Department of Provincial Committee of Communist Party

Technical Standards

Content

Ministry of Information Industry

Provincial bureau of Radio Film and Television

Network

Provincial bureau of Information Industry

Hardware

Fig. 2. A structural overview of Chinese television broadcasting.

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– flow from the biggest market, that of terminal equipment. In other words, economic considerations continue to reign supreme in the Chinese policymaking process. Table 3 profiles the three major transmission standards being used in the world (for a discussion, see Dupagne, 2002). They represent the Japanese standard (Integrated Services Digital Broadcasting – ISDB), the North American standard (Advanced Television Systems Committee – ATSC) and the European standard (Digital Video Broadcasting – DVB). China has elected to adopt DVB-S as her satellite standard, and DVB-C for cable, but terrestrial television remains the subject of several proposals under consideration from various parties. Lacking an organization like America’s Grand Alliance to coordinate and lobby the FCC in the standardization of digital television (Hart, 2004), each proposing party in China vies against competing parities, perhaps in conjunction with their respective supporters from either MII or SARFT. The proposals of TsingHua and Shanghai Jiaotong Universities have been put into practice for test broadcasts of mobile digital TV over buses in some cities since 2002 (Southern Weekend, 2005). Scholars (Hu, 2005; Zheng, 2005) argue that SARFT reluctantly carried out the policy of Separation between Set-Top-Box (STBs) and Smart Cards, which was advocated by MII and represents the primary inhibiting factor in digital TV development. These actions were motivated by SARFT’s desire to have its constituent operators monopolize the digital TV market. At present, STBs have to be sold by operators themselves, and can’t be retailed like TV sets. This is because operators intentionally employed the conditional access (CA) system from proprietary providers based on the DVB Simulcrypt protocol, not DVB Multicrypt or Point of Deployment (POD) in the US, both of which might prompt consumers instead to buy the STBs or digital TV sets in retailing markets. Additionally, owing to technology convergence, cable television operators also serve as internet service providers to offer the internet access service called ‘‘Cable Connection” (access internet via personal computer plus cable modem) through the HFC (hybrid fiber coax) plus IP (internet protocol) model in China. This intrudes into the traditional territory of MII. Resulting jurisdictional battles have even prompted violent clashes – between the local bureaus of MII and their counterparts at SARFT in some cities (Qian, 2002) – because local telecom operators cut off transmission lines belonging to broadcasting operators. Facing the intense conflict of economic interest between the two departments, the State Council reiterated that it cannot undertake jurisdiction over telecommunication and broadcasting for an industry in a directive. The exception is SMG, which was established as a true western-style multimedia conglomerate, including press and publishing, radio, film and TV units, music and opera performing, sports industry, program production companies, digital television networks and application developers. Top officials are also considering entry into allied telecommunication businesses, hoping to position the company for anticipated convergence between telecom and broadcasting industries (SMG, 2005). Similarly, communication satellite and other telecom operators belonging to MII can’t enter the broadcasting business for the same reason aforementioned, although the transmission networks in the back-bone can lease to broadcasting companies. One example includes the five paid TV platforms that are qualified to telecast their programs nationally through the rental of satellite transponders owned by MII (SMG, 2005; CCTV, 2005). Furthermore, if telecom operators would like to provide the online streaming media service called video-on-demand (VOD) through an IP network, they have to obtain approval and a certificate from SARFT (SARFT, 2005). SMG receives the unique official IPTV license from SARFT, and is promoting its service by cooperating with local telecom operators around the country. But the local broadcasting administrations resist strongly (South Metropolis News, 2004). Despite that, many – including the local telecommunication companies – are still providing the streaming video service through IP networks. By contrast, the US Congress has authorized the FCC to auction some of the electromagnetic spectrum freed up and grant a slice of them to the public security responders (Grant, 2007; Washington Post, 2005). Nevertheless, the frequencies that wireless TV stations can use are abundant in China (in Ultra High Frequency [UHF] as well as Very High Frequency [VHF] bandwidths). Although radio spectrum management is beyond the jurisdiction of SARFT, digital terrestrial TV will be received free of charge by public, so SARFT and those players it oversees can’t obtain any economic gain from the investment. In other words, policymakers perceive neither the necessity nor the momentum to develop digital terrestrial TV for SARFT. And while plans were offered as far back as 1998 for telecommunication deregulation and a new oversight institution emulating the FCC – involving both telecom and broadcasting – policymaking remains stymied by the turf war triggered by competing economic interests (represented by SARFT and MII). In the global context, national interest remains a powerful pretext for adopting homegrown technologies in China. From TD-SCDMA (mobile communication technology), EVD (DVD technology), WAPI (wireless LAN network technology) to IGRS (digital home network technology), various homemade technical standards are competing against international

Table 3 The digital terrestrial TV standards around the world

USA European Union Japan China Source: ATSC (2004) and DVB (2004).

Standard

Other supporting countries/regions

ATSC DVB-T ISDB-T Homemade

Korea, Canada, Argentina Australia, India, Iran, Russia, Taiwan, Singapore, South Africa None Hong Kong

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counterparts, endeavoring to be officially selected as the national standard by the government. The latest controversy involves an encoding and decoding technique that rivals MPEG-2, known as AVS (Audio and Video Coding Standard). This initiative has been supported by MII which, in conjunction with some Chinese manufacturers, calls upon the support of operators in the name of saving a great deal of royalty money for China (China Economic Times, 2005). However, SARFT seems to be moving indifferently under that pretext, as all but digital TV operators and TV stations have chosen MPEG-2 in their studios. To better understand the influence of competing SARFT and MII agendas on policymaking, it’s useful to consider underlying theoretical dynamics shaping the conduct of these competing regulatory bodies.

4. Modeling a heavy-handed but Ineffective policymaking process Placing these DTV policymaking dynamics in a larger analytical context, nested Game Theory (Tsebelis, 1990) explained that the play of the principal parties is also influenced by other parallel games simultaneously underway. According to that perspective, the ostensible interplay between SARFT and the proponents of technical standards is being influenced by parallel gamesmanship involving not only involving SARFT and MII, but also proponents and network operators. Such dynamics obviously complicate the policymaking process. As mentioned at the onset, the urge to develop cable television after 1980 spurred the boom in cable TV stations and network systems, 80% of which were invested or owned by local governments (or SOEs) in 2001 (Qian, 2002). Some (Chen, 1999; Qian, 2002) argued that this scattered distribution of cable systems led to the inefficient development of television. Chen (1999) suggests that this decentralization diluted the clout of the central government, creating a vacuum that attracted capital to exploit loopholes. A decentralized market structure in the digital television industry has thus, paradoxically, taken shape within a highly centralized state. SARFT later decided to integrate these local ‘warlords’ into its ‘administrative methods’ (Zhang, 2003). In September 1999, the State Council issued a ‘red-head’ directive jointly drafted by MII and SARFT to require all the television stations at the county level to cease to telecast their own programs and just rebroadcast or relay the programs of provincial television stations. Moreover, all cable television stations are set to merge their transmission schemes within the same region unconditionally. The provincial cable systems were spin off to form the independent corporatized cable network companies, while the corresponding subsidiary cable companies at the level of prefecture and county were designed to be administrated by provincial cable operators (SARFT, 2003). However, there exist irreconcilable conflicts of economic interest between cable operators at the national, provincial, city, even district level. In the past, the relationship between them was hierarchical. After the cable networks are incorporated, the national cable operator owned by CCTV wants to integrate all the provincial networks into a unified national cable network backed by SARFT, and provincial cable operators demand that digital television platform – including conditional access (CA) and subscriber management systems (SMS) throughout the provinces – should be unified. However, these networks are investment targets of local cable network companies. Therefore, district network companies would rather not be dominated by city operators; city operators would rather not listen to provincial operators, and provincial operators prefer not be controlled by the national operators. In addition, after being spun-off from television stations, most cable companies in China lack funds to reconstruct cable networks or to provide value-added digital TV services (Yan, 2005a,b). The Chinese government wants to address this issue by combining those bigger television stations in the developed regions into broadcasting groups joined by cable network companies and radio stations in the same area. In addition, the State Council lifted investment limits on private Chinese capital for broadcasting networks in 2005 (SARFT, 2005). However, whereas foreign investors – including those in Hong Kong – are very interested, they remain barred from investing in the cable network system. Hong Kong firms that had invested in some Chinese cities have been ordered to cease and desist. The provincial television stations and the Education Station of China are owned by the Ministry of Education, which provides distant learning, and data casting services to schools. These services are provided via high frequency Ku band transmissions, although average people can’t directly watch them with personal reception equipment like a DirecTV receiver in the US, owing to China’s satellite policy. Viewers must subscribe instead to some futile provincial satellite TV programs through local cable operators. SARFT has decided to develop the Digital Broadcasting Service (DBS) through China’s homegrown satellite platform, named ‘‘Sino Satellite,” which can enable administrators to monitor and manipulate signals. Only 31 foreign satellite television channels, relocated in the Sino Satellite, are officially granted to access via around 5127 hotels higher than a 3-star rating as of 2005 (SARFT, 2005; China National Tourism Administration, 2005). People who subscribe the digital TV service in some cities can watch foreign entertainment TV channels like ESPN, Discovery and HBO, to which viewers subscribe on a per channel basis. However, some foreign TV news channels like CNN, BBC, Channel News Asia and CNBC can only be patronized by those who have foreign passports (Topway, 2005). Restrictions such as this contribute to the paucity of content in China. Many observers (Huang and Ding, 2003; Huang et al., 2005; Yan, 2005a,b) believe that the business model is crucial to influencing the process of digitization and their outcomes. Since 2003, beginning with Qingdao city, the Chinese government has initiated information campaigns to promote digital television around the country. Subsidized by the city government and granted a loan from a state-owned bank, the local cable network company in Qingdao obtained the most subscribers in China by arbitrarily switching off the analog TV signal, increasing the subscription fee, providing users free STBs, and cooperating

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with two indigenous manufacturers (which will be paid from the users’ subscription fee in the future). Additionally, the city government provided the latest information, such as decrees, weather reports, traffic, stock trade information and the like. This full conversion initiative was called the ‘‘Qingdao Model” and was elaborated by the minister of SARFT as ‘‘governments leading, broadcasting departments practicing, commercial enterprises participating, and consumers championing” (SARFT, 2005). The initiative was promoted around the country as an example by SARFT. Subsequently, the cities of Foshan and Shenzhen (in Guangdong Province) and Hang Zhou (of Zhejiang Province) followed suit, and also have attracted relatively more subscribers (R&TI Research, 2005). Many critiques (Wang and Lu, 2004; Lu, 2004; Zheng, 2005) also addressed the company’s dependency on government resources of governments and even described it as an unrealistic ‘‘Great-Leap” project (Southern Metropolis Daily, 2004). Guo (2006) saw this government-imposed standard conversion in Shenzhen – overriding the interest of consumers – as reminiscent of autocratic state used to do; that is, oppressing the public interest to reap extortionate profits. Actually, these operators haven’t profited yet, even though they command the lion’s share of digital television subscribers television. The Ministry of Finance and the Sate Administration of Taxation have exempted the three-year business tax of Qiaodao Cable Company since December 31 2005 in order to alleviate the financial burden both of the local government and of the operator (SARFT, 2005). SARFT (2003) has planned that all the analog television signals will be switched off by 2015. Although digitization has not progressed as planned, it remains to be seen whether China will postpone her timetable, as the US Congress recently did in the face of implementation delays in that market. (The US deadline for full scale implementation of digital broadcasting was moved back from December 31, 2006 to February 17, 2009.

5. The oligopoly of CCTV encouraged by SARFT Considering the centralized control of ideology, the Chinese Central government built relay stations for CCTV as a high priority, albeit politically motivated project (He and Chen, 1998; Qian, 2002). In order to streamline the administrative process, the head of CCTV has been cross-appointed as a deputy minister of SARFT. As part of the strategy to reinforce CCTV, the agency was ordered to turn in 13% of its revenue to SARFT annually – pursuant to Ministry of Finance directives – in lieu of income tax (CCTV, 2003). CCTV turned in 5.93 billion RMB (around 716 million US dollars) from 1999 to 2004 (CCTV, 2005). The CCTV monopoly has been bringing about plenty of gains for SARFT (He and Chen, 1998). Hence, SARFT has been ordering local TV stations around the country to rebroadcast both the programs and advertisements of CCTV’s channel-1 (Qian, 2002). This policymaking dynamic illustrates Lindblom’s (1977) observation that ‘‘in all the political systems of the world, much of politics is economics and most of economics is politics (p. 3).” After 1992, local TV stations had realized that they could obtain their own profits by offering self-produced programs, and thus stopped relaying CCTV’s programs. The Central Propaganda Department and SARFT hence jointly issued a decree to reiterate the order in 1993 and 2002 (He and Chen, 1998; SARFT, 2005). CCTV had possessed 16 channels as of 2005, two of which are transmitted by microwave and satellite simultaneously, while the rest are totally digitized and transmitted by satellite only. SARFT (2005) demanded that most of these satellite channels of CCTV be received and rebroadcast around the country. Moreover, the provincial satellite channels which are competing with CCTV are also required to rebroadcast CCTV Channel-1 in prime time from 19:00 p.m. to 19:35 p.m. CCTV’s national coverage accounted for 94.4% of all programming by the end of 2004, and both of its rating share and advertising revenue accounts for around 30% of the total of TV stations’ revenue in China (CCTV, 2005). In addition, CCTV has its own movie production unit, a program sales company, and 2 production bases with characteristics of theme parks. As of 2005, CCTV’s total revenue was 12.4 billion RMB (1.53 billion US dollars), which is equivalent to 4 times of that of secondplace SMG (SMG, 2005). SARFT has been attempting to maintain CCTV’s status of absolute monopoly in the digital TV market. Both the unique national satellite operator (Broadcasting, Film and TV Satellite Corporation of China, or Zhongguangwei) and cable television operator (China Cable Broadcasting Corporation, or Zhongguangyouxian) were also allotted to CCTV (CCTV, 2005). CCTV commenced trial HDTV broadcasting in 1999, when China celebrated her 50th national day by airing an interactive sports broadcast called CCTVSi through the local cable operators in 2001. In September 2003, CCTV launched the digital paid TV initiative (CCTV, 2003). Moreover, CCTV ordered local cable network operators to install another dedicated conditional access system for its programs. CCTV has initiated formal HDTV broadcasts since September 2005, and even required HDTV manufacturers to earn certification from them (People Net, 2005). Except for digital TV trials in the broadcasting network, CCTV has provided paid VOD service via an IP network since May 2004 (CCTV, 2005). However, after nearly a two-year delay, when CCTV commenced its pay TV service in September 2003, SARFT granted rights for the four other operators to independently undertake a nationwide digital television. In the past, all of the content providers or regional operators needed to pay for using CCTV’s platform if they wanted to reach out to the national market. This policy dramatically broke the longstanding monopoly of CCTV in the national market, as SARFT realized that CCTV alone couldn’t serve the burgeoning market (Zhao, 2005; cited in China Business, 2005. 6. Discussion Beyond the causes aforementioned, it is useful to consider minor factors influencing the progress of digital television development in China, the first of which relates to consumers’ purchasing power. Although the TV sets per one hundred

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Chinese urban households have reached 134.7, the penetration of cable TV languishes at 33% (under half that of the US) (NBSC, 2006). Can the Chinese government arbitrarily switch off analog television broadcasting by 2015 when analog cable TV has not fully penetrated the market? Parallel experience with retreating DTV deadlines in the US (Grant, 2007) suggest otherwise. The Chinese government seems reticent to discontinue analog service as well, since they regard broadcasting as an important propaganda apparatus. But SARFT is not willing to take the political risks inherent in a mandated conversion timetable, even though it would profit from the move. Acknowledged is the fact there is a distinction between administrative infeasibility and delays providing service. Although technological feasibility no longer represents a key barrier to DTV adoption, socioeconomic barriers – a rough gauge of social desirability – present more enduring challenges. This dynamic thus mirrors that in the US, where the deadline for DTV conversion has been moved back from 2006 to 2009. Media environment differences notwithstanding, China should be able to undertake a similar transition by 2015. Focusing on socioeconomic factors, per capita income in China is around $1700 US (NBSC, 2006), compared to $41,800 in the United States (CIA, 2006). According to the World Bank (2005), there are still over 160 million people living on a dollar per day in China by 2005. Economic prospects are further dampened by recent escalations in the unemployment rate and the price of real estate as well as flawed reforms in education, medical care and other sectors (China Youth Daily, 2006). The present savings rate of households in China accounted for 46% of disposable income (Zhou, 2006; cited in China News Agency). Moreover, the Engel’s Coefficient of urban citizens in China – a predictor of economic growth – indicates a moderate (36.7%) rate of urbanization in 2005 (NBSC, 2006). This underscores an environment in which we see a scarcity of disposable income available to the public for subscription to digital TV. It remains to be seen whether digital TV is just a mirage for Chinese. Naysayers should be heartened by robust growth in the Chinese electronics and information sector, which boasts the largest number of subscribers of mobile phones and the second largest number of internet users in the world (China Mobile, 2006). Differences between video and telematic technologies notwithstanding, the rapid replacement of analog cell phones with digital phones – within the a short 14 year span beginning in 1987 – stands testament to the viability of the Chinese market for digital technology upgrades. This facile market adaptability may not extend to digital TV, however, since digital cell phones provided better necessary quality services at a lower cost than analog cell phones. By comparison, digital television provides more selective services at a higher cost than analog television. Another tenuous area of ‘‘relative advantage” for digital TV involves the fact that TV sets are a status symbol to most people in China, even the less affluent. Yet, many Chinese households would rather spend their media dollar on a larger conventional TV set, given the importance they place on family togetherness and coviewing (Ma, 2005). Characteristics such as individualization, interactivity and high definition – hallmarks of digital TV – are not important to most households in China (Analysys International, 2005; Yan, 2005a,b). The present case study suggests that audience adoption dynamics – a demand factor – will trump any supply-push (or policy) variables in determining whether the digital television can become an industry of consequence to the general viewing public in China. The government has placed a premium on the development of digital television, but they still remain concerned about basis of their authority. SARFT is endeavoring to foster a new, more profitable market while proceeding cautiously about threats to its jurisdiction over digital TV coming from MII, the impact of foreign capital and content. A tenuous balance exists between administrations, economic outcomes and ideological control and between the authoritativeness of the central government and market forces. Is it wise for China to set her own technical standards? Does the Chinese government need to subsidize China’s antiquated homegrown technology? The ongoing dispute over jurisdiction renders those outcomes uncertain. Operators now have more leeway and resources to pursue profit than before, but as to whether market development should be ‘‘content-driven” – or visa versa – remains a chicken and egg question. Later research should investigate what, if any, relative advantages that Chinese consumers perceive from adopting DTV. Such work could inform government efforts to promote DTV subscription, particularly when consumers are confronted with so many vital expenditures. Although China has constituted developmental timetables for digital television, the uncertainties and challenges reviewed here cast doubt on that plan, however compelling the allure of enhanced visual images might prove. China is eager to transform herself into an information society with economic development moving from the backward agricultural and industrial sectors is contingent on an ample supply of energy resources. Therefore, the electronics industry – including electronic appliances, telephones and internet services as well as digital TV – have been encouraged by government authorities. Yet, no matter what is regarding setting technical standards, or boost the progress of digital TV, the Chinese government made decisions either themselves, or clandestinely in consultation with their interest groups. In contrast to the American context – where ‘‘policy determiners” have traditionally included Congress, the courts, regulated industries and citizen’s groups – China’s DTV policymaking process remains closed. China’s current model for the development of its digital television industry thus remains infeasible, and can only be remedied if the Chinese government either reforms legal frameworks, dismantles unnecessary administrative obstacles, or emancipates the players amongst the industry according to the principles of a truly free market economy. Although no national case for DTV conversion is directly analogous to that of China, we contend that the US model provides a better fit than Europe’s Eureka system or Japan’s advanced-analog approach. As DuPagne (2002) notes, Japan’s NHK system represents a relatively primitive format, and the country is rather more homogenous, in cultural and socioeconomic terms, than her Chinese neighbor. The US case may closely approximate China’s with regard to population size and diversity, while the considerable economic gulf between the countries is narrowing.

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In sum, the present study tracks the progress of Chinese digital television since before it had been put into practice – in 2001 – through an examination of face interviews, press accounts, government and commercial reports, bidding proposals, and various publications. Our analysis concludes that the deadlock in Chinese DTV development has its roots in the sociopolitical milieu from which it emerged. Effective policymaking was delayed, in particular, by administrative infighting, conflicts between broadcasting operators at various administrative levels (and different regions), and a heavy-handed but ineffective policymaking process perpetuated by the state-granted monopoly of CCTV in pursuit of self-interest and centralized control. However, the paper is limited by the shortage of primary sources (e.g., in-depth field research into China), the pursuit of which presents a promising line for later work. References Analysys International, 2005. 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