With the Chinasat-9 satellite in orbit, officially sanctioned satellite-TV services are set to become a reality in the world’s biggest market. With a population of more than 1.3 billion people, China offers broadcasters, equipment manufacturers and others a tantalizing opportunity but also a market that is tightly regulated. Will the launch of Chinasat-9 and the Olympics lead to more opportunities to develop this market, and what role might satellite play?

The Olympics will focus the eyes of the world on China, but will the event, which will be broadcast in high-definition (HD) to all corners of the globe, lead to the development of a more progressive broadcasting and digital TV market in the country? For the Chinese population, the launch of Chinasat-9 in June is a highly significant event for the country. The satellite, manufactured by Thales Alenia Space, will provide coverage of the Olympics and also help initiate free direct-to-home (DTH) services in different regions of the country as part of a project dubbed Cuncuntong, a village-to-village TV broadcasting initiative. "This project will help people in rural areas who are not able to receive standard terrestrial broadcasting or cable TV," says Maurice Liu, general manager of NDS China. "They will use satellites to cover these areas that cannot receive cable and terrestrial broadcasting. The Cuncuntong project only covers rural areas, and it allows people on the ground to set up dishes to watch FTA (free-to-air) satellite TV…. Pay TV-type DTH is not likely to happen in China soon — not this year — but it might happen after the launch of the Cuncuntong project when a large satellite audience is established."

The project, seen as key in reducing the digital divide between rural and urban areas in China, also will raise several issues on access and regulations, says Liu. "This may create a lot of demand in certain areas in China, not just the rural areas. There may even be strong demand in urban and city areas," he says. "This will present a challenge for the local governments to monitor who is watching legal Cuncuntong satellite TV or illegal foreign satellite broadcasting and will bring out the questions on whether it is a good idea to have pay DTH services."

The government also must relax its regulations on the use of satellite dishes — which often are ignored anyway — for the market to really gain momentum, says Iris Hong, head of the TMT team at Interfax China. "The use of satellite dishes is now highly restricted in China. Individuals are banned from using satellite dishes. By law, only foreigner-oriented hotels and residences, hotels of or above a three-star rating, and authorized facilities, such as journalism schools, are allowed to install satellite dishes to receive programs with foreign content. However, the regulations are often flouted by satellite dish sellers who supply Chinese families. Many Chinese families use pirated satellite TV and do not pay any subscription fees…. After Chinasat-9 is launched, the government is expected to relax its restrictions about satellite receiving devices. DTH services will first be offered free to remote and underdeveloped areas in China which are not covered by cable TV networks or terrestrial signals. The government has not announced which company will provide DTH satellite services, and the business model that will be employed to offer such services. It will take time for China’s DTH market to take off."

Graham Kill, the CEO of Irdeto, a provider of content security solutions to pay-TV operators, relocated in October from the company’s Amsterdam office to Beijing to spearhead Irdeto’s effort to improve its performance in emerging markets. Asia contributes around 30 percent of Irdeto’s overall revenues, and the Beijing office will be the center for its Chinese operations and its Asia-Pacific regional headquarters, as well as a base for part of Irdeto’s corporate management. The broadcasting market has been developing slowly in the country because the government "has been somewhat cautious in developing the DTH industry," he says. Despite this, satellites are everywhere in China and rules may need to be changed for the market to really accelerate. "You only have to drive around any part of the country, and you will see dishes on houses," says Kill. "However, dishes are only legal in certain sanctioned circumstances such as three-star-and-above hotels, foreign compounds, etc., and regulation 129 says you can’t use satellite dishes. Satellite dishes will become legitimate when that regulation changes and there is a mainstream service. Then I think you will see dishes and equipment in the high street electronic stores with simple-to- install packages. Clearly, you can’t see that right now. I think when you have got a satellite operational and a state-endorsed operator with the mandate to offer commercial DTH services, the scene is set to change. Every day of the week the country is increasingly progressing its digital industry and is becoming open to other influences."

"When you live here you see the myriad of micro changes in your everyday life that contribute to the macro changes in the country. Things get done. This country can move mountains if it wants to." — Kill, Irdeto

Decisions

While the Cuncuntong project shows some signs of helping develop the broadcasting market in China, some industry officials are not so sure what impact satellite ultimately will have in the market. "DTH could be an effective way to bring digital TV to remote rural areas as part of the village plan, but the Chinese government has not decided if it will cover all of China with digital TV via [digital terrestrial television] or DTH," says Richard Jun Li, a senior market analyst from IMS Research’s China office. "The government authorities mainly support cable to digitize TVs in China. There is no sign to show that this will be changed. Satellite is mainly used to cover rural areas."

However, because of the size of the market, even if satellite does not make a huge impact in heavily cabled urban areas, the size of the opportunity is still huge. "The major objective for this DTH deployment is to reach the households which will not be covered by cable TV in three to five years. This amounts to more than 50 million families," says Serge Van Herck, CEO of Newtec.

"Satellite will dominate in the less urban areas," says Kill. "The majority of the population still lives outside the wealthier, more densely populated coastal crescent (an area running from Beijing down the coast to Guangzhou). Here cable is dominant. There are about 350 million people there, so by implication, there are about 900 million people outside that area. As industry progressively moves westward and the spread of the inland middle class grows, that represents a huge opportunity for satellite. It is less easy in the more urbanized areas of Chinese cities where there are large numbers of [multiple dwelling units] to place dishes, causing a logistical limitation together with greater competition from cable and IPTV."

Stephen Spengler, executive vice president for sales and marketing for Intelsat, also believes the DTH market in China could see some significant growth. "We see a huge potential for the expansion of DTH services in China and expect that demand will follow the same arc that we see in other countries undergoing rapid economic developments," he says. "Today, China is underdeveloped from a satellite telecommunications and video perspective, and satellite technology can contribute to building out its communications infrastructure."

Companies such as NDS, Irdeto and Newtec are beginning to see revenue growth in this market. Kill admits he has been surprised by the pace of change has seen in the country and believes a national DTH platform could be bought about very quickly if the desire was there. "I have been coming to this country since 1985, and I have always been blown away by the changes that you see," he says. "When you live here you see the myriad of micro changes in your everyday life that contribute to the macro changes in the country. Things get done. This country can move mountains if it wants to. While a national DTH platform may only be at the soft launch-type stage a year from now, that could all change if there is the motivation, government backing and everybody in the industry gets behind that initiative. The situation could be vastly different in a short period of time if those things come together."

Newtec, which has been shipping modulators in China, believes there will be plenty of opportunities to grow this market. "The size and development condition of the country makes it impossible to achieve a full coverage using only terrestrial and cable transmission, so digital satellite TV will play an important role in the rollout of digital TV," says Van Herck. "We are now shipping some ABS-S modulators and expect many other opportunities in the coming years. The development of new direct-to-home channels will certainly create the need for additional content and therefore the need for additional contribution and [digital satellite newsgathering] links. With a country of the size of China, satellite will play a very important role."

Cynthia Dickens, senior vice president of market development, Asia, SES New Skies, says, "When a commercial DTH service is in place, no doubt the demand for locally and foreign-produced programming will mushroom. Two of SES’ core strengths are the development of rock-solid video distribution platforms and global reach. We may play a part in contributing approved programming to China or in distributing Chinese programming to our various DTH or cable platforms around the world, which among other things, cater to large overseas Chinese communities."

Olympic Aftermath

With the Summer Olympics moving from the planning phase to the competition phase and the worldwide broadcasting of the event gearing up, the question is what impact this will have on the digital TV market in China. "The government regards the Beijing Olympics as an opportunity to showcase China to the world," says Hong. "China has expedited its migration to digital TV, aiming to allow more people to watch digital TV before the Beijing Olympics. Shenzhen launched digital terrestrial TV services in October of last year. Hong Kong launched digital terrestrial TV services on December 31, 2007. Central China Television began to offer high-definition digital terrestrial TV in January of this year. The government has also pushed the deployment of digital mobile TV before the Beijing Olympics. According to the plan of China’s State Administration of Radio, Film and Television, mobile TV services through the CMMB (China Mobile Multimedia Broadcasting) system will be available in 37 cities before the Beijing Olympics."

Kill sees the games as "a unique opportunity for China to really profile itself generally, and more specifically, related to media. If you look at the media market information reports, they are rather sketchy when it comes to China," he says. "The country will come under the spotlight, and the Olympics are an opportunity for the country and its media industry and associated opportunities to be seen and understood a bit better. The country is most definitely going to make some special profiles of some media facilities and technologies during the Games. Not all of them are completely finished. There is a new CCTV (China Central Television) building and facilities, for example. They are not quite complete, but enough is there to give a real sense of the level of ambition in the country. Such things are going to be quite remarkable. The trials of mobile TV, albeit on a limited scale, will be available for the Olympics and will demonstrate some of the country’s forward thinking and its desire to press ahead with new technologies. After the Olympics, I believe that the country’s digitization will continue to abound."

Newtec also sees the Olympics as a booster and a milestone in the development of digital TV in China, says Van Herck. "But this development is certainly something that has been initiated way before and will continue way after the Olympics. China has already deployed digital TV successfully in many areas and the Chinese State Administration of Radio, Film & Television has decided to switch off analog TV by 2015," he says.

The focus then may be on what the broadcast market looks like when the world is no longer focused on the country. "I think a year from the Olympics you will see satellite delivered mobile television up and running. You will be able to have to have a CMMB phone and see video on your handset," says Kill. "That will be supplemented by terrestrial distribution in urban areas and for indoor coverage. I think a year after the Olympics, the channel lineup will be a redistribution of the main national state channels on that mobile platform. They will probably concentrate on rolling out the service, rather than customizing the content for the mobile format initially. On national DTH, you will be seeing the first signs of the service and the plan coming together. I don’t think you will see the full commercial launch of the service by that time."

Bottom Line

The launch of Chinasat-9 and the Olympics promise to serve as watershed events for broadcasting in China, with satellite ready to capture a strong share of any potential market growth, particularly in rural areas. If the Cuncuntong project is a success, it likely will to lead to further demand for TV services. The question is whether the Chinese government will go to the next stage and bring a national pay-TV DTH platform, which would satisfy the increasing demands from households in China for more advanced digital TV services.

"The FTA satellite offer will help create an environment in which people will get used to using satellite dishes to receive television," says Liu. "So there will be operators or groups who are keen to form entities to get a license to run a legal DTH platform in China. Whether they will get approval from the Chinese government is questionable, but the fact is that there will be tens of millions of subscribers on the ground that are already watching TV broadcasting through the Cuncuntong project, and selling them additional services or content such as extra pay channels can make it a lot easier than setting up a new satellite network for DTH in China."