TVBÆs [511] relentless efforts in forging business relationships with mainland television authorities are about to turn a new page: it is close to signing a cooperation deal with China Central Television (CCTV), the state-owned national TV broadcaster, whereby programming on TVBÆs TVB8 and Xing He satellite channels will be accessible via CCTVÆs channels on a China-wide basis.

In reciprocation, TVB will rebroadcast certain CCTV channel programs via its direct-to-home (DTH) platform in North America, Europe, Australia and Southeast Asia.

TVB has a decided advantage over its potential rivals, as it owns the world's largest Chinese language program library, totalling 80,000 hours of production.

TVBlogoLate last year, TVB obtained an official downlink licence from the State Administration of Radio, Film and Television (SARFT) for TVB8 and Xing He. It is estimated that mainland viewers (mainly in Guangdong Province) of these two channels have now exceeded 20 million. By comparison, its major competitor in the mainland market, Hong Kong-listed Phoenix Satellite [8002], already boasts of 150 million mainland viewers for its Chinese channel and aims at a viewership of 113 million for its newly launched InfoNews channel.

Although details of the pact have yet to be disclosed, it is believed that the alliance will stand TVB in good stead in dealing with competition from rival TV operators, both from the mainland and the SAR.

With the sealing of the cross-broadcasting pact, viewership on both the TVB8 and Xing He channels will rise dramatically and augment TVBÆs share of the mainland advertising pie in the long run. According to an ACNielsen survey, advertising expenditure in China in the first three months of this year rose 17.5% YoY to RMB20.5 billion ($2.48 billion). TV advertising for the same period reached RMB15.4 billion, representing 75% of the entire advertising market.

StockHouse LogoHowever, by setting foot on the mainland market, TVB will inevitably encounter stiff competition from numerous mainland TV operators, in addition to Hong Kong-listed Phoenix Satellite and Sun Television [307], whose primary target audiences are mainlanders. Nevertheless, TVB has a decided advantage over its potential rivals, as it owns the worldÆs largest Chinese language program library, totalling 80,000 hours of production.ááMoreover, its production capacity will be enhanced 25% when its new studios at Tseung Kwan O are completed in 2003, enabling it to churn out 10,000 hours of programming per year.

With the number of new licensees now down to three (including Galaxy) from the original five, the odds are higher that Galaxy's domestic pay-TV operation will eventually become successful, if it ultimately embarks on the venture.

On the domestic pay-TV front, the latest news is that the Hong Kong Broadcasting Authority is still processing Galaxy SatelliteÆs (TVBÆs 100%-owned subsidiary) request for a six-month extension (from March 2001) of its performance bond payment deadline in regard to the granting of a domestic pay-TV licence. Galaxy missed the deadline, as its intended partner, Malaysia-based Measat Broadcast Network Systems Berhad (MBNS), decided to withdraw from taking a 29.4% stake in Galaxy when the latter received a licence with attached preconditions.áá

Galaxy, which already owns a non-domestic pay-TV licence, is still in negotiations with interested parties about possible partnerships for the proposed domestic pay-TV operation. One of the preconditions of the licence is that TVB cannot hold more than 49% of the operating entity.

With the number of new licensees now down to three (including Galaxy) from the original five, the odds are higher that GalaxyÆs domestic pay-TV operation will eventually become successful, if it ultimately embarks on the venture.ááEven if it does not, TVB would still have something to gain as it can always play the less interesting, but nevertheless profitable, role of program supplier to the two new licensees, UK-based Yes TV and Taiwan-based Pacific Digital Media, who would likely be hungry for quality content.

TVB had a spectacular year in FY00, with a 53% surge YoY in net profit to HK$774 million ($99.23 million), some 16% above consensus estimates, although much of the growth was attributable to an exceptional gain on the disposal of its 30% stake in TVB.com to MBNS.

For FY01 and beyond, a combination of the encouraging developments on the mainland distribution front and the content sales potential of the opening up of the domestic pay-TV market provide an assurance of decent earnings growth.

At last WednesdayÆs close of HK$39.10, the stock is trading at 21.4 times FY01 consensus EPS of HK$1.83. Any positive news on the pay-TV front will likely give a jolt to the share price. In the longer term, the companyÆs strategic alliance with CCTV will position it well to emerge as a winner in the competitive yet extremely lucrative mainland market.

Copyright: StockHouse Media Corporation