Some 15 million people now use the internet in China. The market is growing fast. But it's nothing compared with the country's TV viewing population, which is the largest in the world. There are 310 million TV sets in China that reach 24.6% of the population. Japan, by comparison, has 88 million TV sets which reach 69% of the population. China's market has ample room to grow.
One company hoping to benefit from that growth is Sun Television Cybernetworks, a company that launched its first channel six weeks ago. Hong Kong-based SunTV produces niche programming based around non-time-sensitive themes. It's first channel focuses on history and biography. The company, which gained a back door listing on the Hong Kong stock exchange in April, is already attracting the attention of analysts.
"We think they have a great concept, a great team, and they've chosen their subject matter very carefully so that it isn't likely to be controversial," says Archie Hart, regional media analyst at Deutsche Bank.
Road to revenue
SunTV aims to make its money through advertising and syndication. It rents a transponder from Asiasat 3S and broadcasts its own channel over most of China using a digital signal. The programs are not time sensitive so they can be broadcast more than once and then licensed to cable and terrestrial broadcasters.
The company has exclusive rights to dub and broadcast history and biography programs from two channels produced by the US A&E network for four years. It also has a contract with China's ministry of culture to choose and broadcast footage from its film library. The library contains some 10,000 hours of film.
SunTV aims to sell 180 minutes of advertising each day. To build market share it will sell its advertising spots at a 56% discount to the rate-card of rival Phoenix Satellite Television. "There is no track record from which to gather data as to how successful this business will be," says Brian Thomas, an analyst at Dresdner Kleinwort Benson, who has a "buy" recommendation on the stock, in a report. "The company has a strong balance sheet and is setting up what is expected to be the first of a new genre of Mandarin programming for the greater China area." He says net profit margins for comparable US theme channels are nearly 40%.
The total value of China's TV advertising market last year was RMB15.6 billion RMB ($1.88 billion) according to Zenith Media, a media research house. That's expected to rise to RMB18 billion this year. Sun TV already has $20 million in advertising commitments for 2001 from the likes of Nokia, Motorola, China Unicom, Kodak and Legend.
TV vs I
Internet advertising will grow faster because it's coming off a smaller base. The Asian internet advertising market is expected to rise to about $2.5 billion by 2004 from $10 million in 1997, according to Morgan Stanley Dean Witter. This year, Sina.com, one of China's biggest internet portals, is expected to book about $15 million in advertising revenue from China. But online advertising isn't expected to eat into TV advertising for a long time.
"If you want to advertise an internet service you'd probably do it on the internet, but if you're advertising a brand of drink or air conditioner you'll do it on TV," says Deutsche Bank's Hart. "At the margins, the internet ad will gain share but if you want to hit a mass market you're still going to use TV."
SunTV will also be helped by its well-known management team. It's chairwoman, Yang Lan, was a popular talk-show host on China's main CCTV channel for four years. Eventually the show attracted more than 220 million viewers a week. From 1996 to 1998 she hosted a weekly hour-long show for Phoenix. Next year her contract with Phoenix expires and she will be free to host shows for SunTV. Lan's husband, Bruno Wu Zheng is the company's executive chairman and was formerly head of Asia Television, one of Hong Kong's two television stations.