under the attack of social media: the future of chinese media …€¦ · but along with the...

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Under the Attack of Social Media: The future of Chinese Media Industry 2008 Yinglu Zhang, Xiaoming Zuo

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UNDER THE ATTACK OF SOCIAL MEDIA:

THE FUTURE OF CHINESE MEDIA INDUSTRY

SCENARIO PLANNING ANALYSIS AND MANAGERIAL RECOMMENDATIONS

---------------------------------------------------------------------Ford Motor Company Fellowship / Wharton Mack Center for Technology Innovation

Yinglu Zhang Xiaoming Zuo

The Wharton School

University of Pennsylvania

April, 2008

Supervised by: Professor Paul J.H. Schoemaker

2008 Yinglu Zhang, Xiaoming Zuo, All rights reserved

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Table of Contents

1. Executive Summary ....................................................................................................... 3

2. Background ................................................................................................................... 3

3. Scope of the Project ...................................................................................................... 6

4. Research Method .......................................................................................................... 6

5. Industry Analysis............................................................................................................ 7

6. Identification of Key Uncertainties Through Industry Interviews and Secondary Analysis .

.................................................................................................................................... 17

7. Creating Scenarios ...................................................................................................... 19

8. Discussion of Results and Future work ........................................................................ 23

9. References .................................................................................................................. 28

10. Acknowledgement ...................................................................................................... 29

9. Biographies of Interviewees ......................................................................................... 29

List of Tables

Table 1: Comparisons of Social Media and Tradition Media in China in 2007 .............................. 5

Table 2: Market Values of the Chinese Media Industry (2003-2007) .............................................. 5

Table 3: List of Stakeholders in the Media Industry ........................................................................... 8

Table 4: Key Drivers Shaping Audience Needs and Their Roadmaps ........................................... 9

Table 5: Key Drivers Derived from Government Policy and Intervention and Their Roadmaps 11

Table 6: Key Economic Drivers Shaping the Industry and Their Roadmaps ............................... 14

Table 7: Important Technological Drivers and Their Roadmap ...................................................... 15

Table 8: Global Drivers and Their Roadmaps ................................................................................... 16

Table 9: Social Drivers and Their Roadmaps ................................................................................... 17

Table 10: List of Categorized Divers (Trends and Uncertainties) .................................................. 18

Table 11: Uncertainty Rankings .......................................................................................................... 19

Table of Figures

Figure 1: Status of Internet Users Providing Internet Contents (China 2007) ........................................ 4

Figure 2: Key Strategic Uncertainties Driving the Future of Chinese Media Industry ......................... 20

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1. Executive Summary

Over the past couple of years, Social Media has received an incredible amount of attention

throughout the world. But along with the connectivity that Social Media brings to a

widening range of users, questions arise as to how the entire media industry can grow with

a successful and sustainable business model and a strategy that can potentially expand the

traditional pie and leading against its global competitors. However, every country has its

own uniqueness especially when it comes to predicting the future development of an

industry which is strongly correlated to the political systems, economic development, social

systems and technology advance.

China has been a very hot topic in the past 10 years. Many people talk about investing in

China. The rest of world outside China is eager to find out how it is like doing business in

china, what the cultural and political implications are, how much the economic return will be,

and most importantly how to be best prepared to make a success in China. As a fast

developing country, China absorbs like a sponge from the rest of the world and adapts in an

amazing speed in every aspect. The Chinese media industry not only shares the common

uniqueness as many other industries in China, it also stands out from the rest because it

survives amongst the controversial high government censorship in the media content but at

the same time thrives in a fast growing economy with consistent double digit GDP growth in

the past 10 years.

In this paper, we focus particularly on the future media industry in China, esp. the future of

Chinese media industry under the attack of the emerging social media and other new media.

In particular, how should the Chinese Media industry adapt in order to survive and bring

positive impact to developing countries like China? We will analyze the social, economic

and political impacts of the Chinese media industry in China. We also explore the future

business potential and provide strategic recommendations for the future Chinese media

industry.

2. Background

Social media is defined as various activities that integrate social interaction, content

generation and user participation. Using technology as conduit, social media can take

many different forms, including internet forums, weblogs, wikis, podcasts, pictures and

video. Social media is fundamentally different from traditional media such as newspapers,

books, television, and radio by such characteristics as interaction and user-generated

content.

As in other parts of the world, social media emerged as an important media format in

Chinese media industry since 2005 and has evolved into a distinctive media force after

three years. According to CNNIC’s China Internet Report 2007, 65.7 percent out of a total

of 210 million Internet users in China have posted or uploaded contents onto Internet.

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That said, instead of simply watch or read whatever media contents readily provided by

traditional media, 138 million of Chinese internet users chose to contribute contents, to form

online communities, to share interests, and to participate in a variety of interactive online

activities. In a rapid pace, social media becomes a new audience experience that defines

what future media industry must deliver. Figure 1 depicts the picture of internet usage in

China in 2007.

0.00

%

10.00

%

20.00

%

30.00

%

40.00

%

never send tips/upload contents

upload TV programs

upload TV plays

upload other video items

upload movie

upload music

upload pictures

send/reply tips

Status of Internet UsersProviding IntenetContents

Figure 1: Status of Internet Users Providing Internet Contents (China 2007)

While we are impressed by the speed of such evolution and the disruptive impact of such

change, we are not able to conclude that social media, as a business form, represents a

real threat to traditional Chinese media competitors. After 3 years of intensive investments

from venture capital firms, today social media websites are still largely unprofitable. Most

are struggling with revenue sources. Questions are raised on the feasibility of current

business models. As a result, social media companies have yet to be deemed a real

contender in Chinese media industry. The following table shows the comparison between

social media companies and traditional media companies.

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Key Aspects Social Media Traditional Media

Who are they

mop.com; hexun.com,

tudou.com; donews.com;

tianya.cn, douban.com and etc.

CCTV, SHMG, HNSTV, People's

daily and etc.

Business model Online advertising

Multiple revenue sources

including advertising,

subscription, and direct content

sales.

Capital source

Entrepreneurial investment,

venture capital, and other private

funds.

Stete-owned. Private investment

<20%

Distribution

PlatformInternet/Mobile phone

Multi-channel including TV

broadcasting, cable, radio, movie

theatre, retail channel for news

paper/magazine/book

Media BuyerOnline media broker such as

Allyes.com

Major media buyers including

domestic and global brands

Audience

Participation100% audience participation

Limit audience participation

though text message, phone or

email.

content type Free user generated content Premium Content

Content supplier Largely by audience professionals

Total market valuehard to define since most

companies are unprofitable>US$50 billion in 2007

Table 1: Comparisons of Social Media and Tradition Media in China in 2007

What is the big picture in Chinese media industry? Backed by the double-digit GDP

growth of the Chinese economy, Chinese traditional media market has been enjoying

above 11% CAGR since 2003. In particular, the industry grew by 12% in 2007 to reach a

value of $50.6 billion [1]. Traditional media companies in general, after dramatic industry

reforms, achieved both healthy revenue growth and an improved competitiveness during

the last 5 years. The table below illustrates the market value of the Chinese media

industry in the past five years.

Table 2: Chinese Media Market Value

Unit: USD in Millions

Year Value Growth

2003 32700

2004 36300 11.0%

2005 40400 11.3%

2006 45100 11.6%

2007 50600 12.2%

CAGR 2003-2007 11.6%

Source: Datamonitor Industry Market Research: NA, December 15, 2007

Table 2: Market Values of the Chinese Media Industry (2003-2007)

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This, however, is not the end of the story but rather the start. When we think about social

media and traditional media, we ask these questions: What will happen in the future? Can

social media survive as a business force in this market? Can it become a real threat to

traditional media? How will social media evolve? What industry changes will it bring?

How should the traditional media companies deal with it?

3. Scope of the Project

One of the most important impacts of social media is that it has made it convenient for

people to connect with each other. As powerful of an enabler technology as it may be, it

does not necessarily imply competitive success or guarantee industry growth. For the

social media industry to be successful, it must make both economic and political impacts on

the society. Without such, it will be difficult, if at all possible, for any emerging technology

to sustain and grow in the long run. As an outcome of our study, we will present the

ultimate or long-term business model and strategy for the general media industry.

Our research attempts to explore the future of Chinese media industry under the impact of

the emergence and evolution of social media-user generated content derived from enabling

on-line/off-line media technologies. Using the social, political and economic context in

China as backdrop, our study attempts to provide a guide for Chinese media companies

and appropriate strategies in anticipating change and preparing for the future. Our study

aims at putting pieces together and elucidating forces that can potentially impact the future

of the Chinese media industry in the next 5 to 20 years. Specifically we focus our analysis

on the following four major dimensions:

Technological development and accessibility in China

Social and audience’s needs

Political and regulatory barriers

Business opportunities

We choose to do our analysis over a time span of 5 to 20 years. This is because we believe

only over a long period of time such as 20 years can the factors in certain dimensions above

become more unpredictable, more ambiguous, and better fit for the purpose of our analysis.

4. Research Method

In the process of commercializing an emerging technology, the most relevant question will

be the future of the technology which often imposes both social and commercial aspects.

The nature of the problem we are facing is that of uncertainty and complexity. In this

project, we decided to choose Scenario Planning as the major strategic framework for the

analysis of our findings.

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Scenario planning provides a good framework in strategy planning for analyzing situations

with uncertainty, complexity and paradigm shift. Scenario planning simplifies the analysis

by designing the possibilities into several scenarios with multi-dimensional parameters.

Each scenario can be viewed as a moving snapshot of a possible future. As pointed out

by Professors Schoemaker and Day [2], scenario planning attempts to capture the richness

of a range of possibilities and stimulates decision makers to consider changes they would

otherwise ignore. There are three major steps involved in the scenario planning process,

including understanding organizational issues, identifying forces, and building the

scenarios.

The process of applying scenario planning method follows the following steps [2]:

1. Identify the issues we need to understand better, define time frame and scope of

the project and decision variables that may affect the subject.

2. Identify the stakeholders who have interests in those issues, who have decision

power on the issues, or who may be affected by those issues.

3. Identify the strategic forces that are underlying those issues.

4. Identify the elements underneath the strategic forces that represent trends or

uncertainties.

5. Identify key uncertainties from above.

6. Choose two main uncertainties as the two dimensions to be used to construct four

scenarios in our analysis.

7. Analyze the scenarios created in step 6 in detail and identify key characteristics of

each scenario. It is possible to analyze the characteristics of stakeholders or

additional strategic elements under each scenario.

8. Reassess each scenario and assumptions to come up with strategies appropriate

for each scenario.

5. Industry Analysis

5.1. Industry Definition:

The media industry consists of traditional media, including advertising, broadcasting

and cable TV, publishing, movie and entertainment markets, and new media, including

Internet portal, online social media, and other media markets embedded through

alternative platforms such as wireless. Our research focuses on Mainland China’s

media industry. We excluded Hong Kong, Macau and Taiwan markets from our

research in consideration of the social, political and economical contexts underlying

these markets, which are very different from our core research object -Mainland

China’s media industry.

5.2. Stakeholders

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The relevant stakeholders in the Chinese media industry are listed in Table 3. Those

include the parties who are interested in the matter, who have decision power or who

may be affected.

Stakeholders

Audience (Consumer)

Government

Media Buyers

Distribution Channels (retail channels, online channels, download platforms)

Technology providers

Application Platforms: (such as Google)

Creative Talents

Investors

Managers and Entrepreneurs

Global competitors

Agencies and Medians

Table 3: List of Stakeholders in the Media Industry

5.3. Industry Forces and Key Drivers

Force 1: Change of Audience Needs

One of the important characteristics that distinguish the current media industry from the

past industry 20 years ago is the important role of new media. There is no doubt that

the new digital media has greatly improved the contact between media providers and

consumers. The media consumers are no longer passive receivers as they were

before. They demand, they contribute, and to some extent they also are able to

control and help shape the trend of the industry. The table below lists the drivers that

affect the audience needs. We illustrate how each driver was in the past, how each of

them is now, and how each of them will be in the future.

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Key Drivers Past (previous 20 years) Now Future (next 20 years)

Demographic

Population continued to grow.

Fewer youngsters due to one-

child policy

Population continues to grow.

High percentage of working-

age adults

Population growth slowing

down. Working-age population

will decrease, and more

people in retirement

Geographic

Market concentrated in coastal

provinces and major

metropolitan areas such as

Beijing, Shanghai, and Tianjin

Market expands to secondary

cities and inland China

provinces but concentrates

on urban areas

Market will continue to expand

all over China including both

urban and rural areas

Purchasing

Approach

Buying

newspaper/magazine/book

through retail channels,

watching movies in movie

theater, and getting free

TV/radio broadcasting

contents embedded with

advertising

Retail expands to online

stores, mail-orders, phone

orders. Buying multimedia

format contents, and getting

free content from Internet

with/without advertising.

Buying through both physical

and virtual stores, including

Internet, mobile phones, and

online auctions. Any future

channels?

Psychographics

Passive consumption. Limited

choices in both the quality and

quantity of the contents

available

Due to explosive availability

of contents, both free and

premium, audience demands

new formats of contents and

new perspectives. Audience

engages in interaction and

participation.

Passive or positive

participation? In what type of

media? What type of content?

Which market segment?

Table 4: Key Drivers Shaping Audience Needs and Their Roadmaps

Force 2: Government Policy and Intervention

Governmental influence on the media industry is indeed a common practice. Around the

world, government authorities hold direct stakes in one third of all newspaper publishing

companies and two-thirds of all broadcasting companies [3]. Chinese government in

particular has earned its reputation on excessive media control over the decades. For

example, a notice issued by the Chinese State Administration for Radio, Film and Television

(SARFT), on April 11, 2006, reaffirms a strict ban on foreign news footage for use by

television stations at all levels, local and provincial. The relevant provisions state that all

television broadcasts must use the international news provided by the Central Television

and China International Broadcasting. In addition, news directors are strictly forbidden from

using footage obtained from foreign news agencies by means of satellite feeds or "other‖

http://www.sarft.gov.cn/

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methods. Since this is a reaffirmation of a prior stricture, one can only imagine the

difficulty the propaganda departments are having in trying to keep inbound information

under control nationwide.

To analyze the impact of government intervention on the media industry, we should

understand some unique features of this industry. The media industry in most countries

has been historically dominated by a few major players forming natural monopolies.

Therefore government regulatory intervention either encouraging or discouraging free

competition, sometimes becomes unavoidable. However, there have also been arguments

on how direct the government intervention should be to maintain the healthy development of

the industry. A large portion of the investment in this industry is due to fixed costs, and

government often has the decision power on the infrastructure development. In terms of

social policy, society derives greater benefits from a media policy that confines itself to

regulatory intervention. This policy covers various instruments, such as extensive antitrust

investigation into mergers, the licensing of broadcasters, legislation and enforcement on

intellectual properties, protection of copyrights, content filtering, legal and safety standards

on technology applications, etc.

In addition to all of the above, a political reform, or the emergence of a new political power,

can overturn everything that has existed under the current regime.

Ultimately, the different forms of government intervention shape the market conditions –

which vary widely from country to country and across different types of medium – and thus

have a profound impact on the development of the entire media industry. We also listed the

detailed drivers and discussed their three states in the table below under the category of

government policy and intervention.

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Major Government

Intervention

Platform

Administrative platforms

Administrative platform +

legal platform + other short

term flexible platforms

What percentage of each?

Government

Policy on Industry

Development

Strict state control on both

content and business

ownership. Media is a

propaganda machine not a

revenue source.

Allows private investment in

limited sectors such as

culture exchange. No private

or foreign ownership in

broadcasting. Encourages

state-owned media

companies to improve

corporate governess and

management. Encourages

non-political contents such

as enterta

Will government gradually

invite more private

investment? Will more foreign

investment be allowed? What

percentage of media channels

will be open to non-

government investment? Will

government continue to

enforce content censorship

effectively? If not, wha

Protection of

Intellectual

Property

Law and enforcement not in

place. Since most of the

contents are from state-owned

sources and controlled

distribution channels, piracy is

not an industry issue.

Law in place but enforcement

has been challenging.

Industry is seriously hurt by

content piracy. Media

companies are forced to seek

revenue source other than

content sale. Social media

websites provide a lot of

pirated contents.

Chinese government vows to

enhance law enforcement.

However, whether new

technology will present new

challenge to piracy control

remains to be seen.

Table 5: Key Drivers Derived from Government Policy and Intervention and Their Roadmaps

Force 3: Economic Development

GDP Growth: China’s has seen real GDP growth in the 7% to 11% range for last 10 years.

This week, China released the GDP growth numbers for 2007, and, for the first 3 quarters,

the economic expansion was more than 12%. Accompanying such a tremendous growth is

the demand for an ever-widening range of information.

Demographics: The demography of China is characterized by a large population with a

relatively small youth cohort, which is partially a result of China's one-child policy. The

population policies implemented in China since 1979 have helped to prevent an extra

dozens or hundreds of millions of births which would have placed the current population

near 1.7 billion.

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The 2007 population distribution is as follows:

Under 15: 20.3%

15–29: 22.8%

30–44: 26.7%

45–59: 18.2%

60–74: 9.4%

75–84: 2.3%

85 and over: 0.3%

One reason for China’s economic growth is that it is at a demographic sweet-spot – an

extra 10 million working-age adults per year. There are few pensioners and there are not

many children either. As early as 2015, China’s working age population will actually start

falling, and the retirement age population will increase.

The shift in the population distribution will inevitably entail a shift in the demand for media

contents. For example, while the working-age population demands information about jobs

and education, their seniors may want to know about retirement and healthcare.

Geographical development: The regional disparity in China is thought to be primarily due to

the preferential policies received by the coastal provinces. These preferential policies are

largely deregulation policies that have allowed coastal Chinese provinces to integrate into

the international economy. Two additional factors to income disparity are (1) the

household registration system, which makes the movement of the rural poor to prosperous

areas illegal, and (2) the monopoly of the state bank system that, because of its

bureaucratic nature, disburses most of its funds to its large traditional customers, few of

whom are located in the western provinces. What will happen to this development and

income disparity remains to be seen for the next 5 to 10 years. It is fairly certain, however,

that a shift in either direction will have an impact on the demand for media contents,

especially in the regional media industry.

Cost savings driven by technological innovations: Globally technological innovations have

revolutionized the way people communicate and acquire information. Gone are the days

people would have to buy a newspaper to check yesterday’s stock prices, and gone are the

days people would have to be in the office or at home to be reached.

The table below further discusses key drivers that affect the economic development of the

industry.

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Consumer

Spending on

Information and

Entertainment

Income barely covered living

expenses. Low spending on

media products. TV and

newspapers are major sources

of information. Entertainment

limited to TV, video,

magazines, and low-cost

entertainment events

Entertainment and

information spending has

increased significantly.

Buying DVD video, music,

games, and globally available

entertainment products.

Spending significant number

of hours per day on online

entertainment.

Spending will increase but

which media platform will get

most of the benefit? What type

of content consumers would

rather not pay? How would

they pay, e.g., subscriptions?

Other means?

Production and

Distribution Cost

Both costs were high.

Expensive production facility

needed. Distribution channels

were scarce and controlled by

big state-owned companies.

Technology has significantly

reduced cost in content

production. Internet provides

a free platform to deliver

contents. Only premium

contents need expensive

facilities.

More advanced technology will

continue to reduce the barrier

of entry. Distribution can be

easier, faster, and more cost-

effective. Some premium

contents will depend on the

adoption of latest technology

to create sensation. Cost for

cool technology won’t

Change in Media

Buying

Domestic companies started

to buy advertising time/space

from state-owned TV, radio,

and publishing products.

Media buyers include both

domestic and global brands.

Small businesses have

increased media buying.

Online media brokers have

emerged. Online advertising,

though small, represents a

different approach to

marketing and attracts

interest from global brands.

Will online advertising take

away most of the advertising

dollars from media buyers?

How would media buying

process change?

Growth of

Economy

Double-digit growth started

from the early 80s. Early 90s

saw the start of a market

economy.

Double-digit growth

continues. Economy

diversifies. Tremendous

growth in private sectors.

China is one of the top

destinations of global

investment.

Will economic growth continue

at such a high pace? Will be

any big recession?

Industry

Integration

Complete monopoly by state-

owned media companies.

State-owned media

companies continue to own

monopoly within some

sectors such as

broadcasting, but competition

among companies are

encouraged. Free

competition in the online

sector and some media

service sectors. In general,

industry is de-centralizing. H

Will vertical integration

happen? Will infrastructure

companies upward integrate

with content companies? Will

application platform providers

such Google become a

dominating force in media

industry through up-ward

integration with advertising

agencies? Wil

Human Talents

Talents were trained by

government institutions and

worked in state-owned media

companies without

alternatives. Talents were paid

by stable salary.

Talents work in both

traditional and new media.

Talents engage in

entrepreneurial activities.

Premium contents largely

created by talents who work

in traditional media

companies.

Will talents engage in more

and more independent

productions? Will talents

choose to distribute their own

premium contents through free

channels instead of feeding

the needs for traditional

media?

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Table 6: Key Economic Drivers Shaping the Industry and Their Roadmaps

Force 4: Technological Advancement

Until the 1980s, the media industry still operated in an analog mode of televisions and

radios. In the past 25 years, the invention of new digital media has brought not only

evolutionary but also revolutionary changes to our lives, to the way we access and process

information, and most relevantly to the way in which the media industry operates.

Technological advances are changing the conventional media model in which information

flowed exclusively from professional media makers to passive media consumers.[3] In

retrospect, digital computers and internet can both be classified as radical technology

innovations in history. One of the biggest challenges to all including the current media

industry is how to thrive in future technology innovations.

We anticipate the ongoing trend of technological development in every discipline. In

particular, the cost of a new technology affects the significance of the applications deriving

from that technology. Even though technology development has been up to date in China,

which is still considered a developing country, the cost considerations are often weighed

more heavily than those in developed countries. In addition, readiness and backward

compatibility with existing technologies may also be the determining factors for a new

technology as a driving force in the media industry. In a country like China, which is less

developed than some other countries, these characteristics may help the propagation of a

technology and its applications. On the technical side, the changes in the market are

mainly being driven by the increasing usage of broadband transmission technologies in the

wireline (xDSL, cable modem and powerline) [5] and wireless (CDMA, UMTS, WLAN and

Wimax) networks [6] as well as by the fast increasing growth and demand of the internet.

The emergence of new infrastructures as content distribution platform, such as the

broadband access to multimedia services, will become more attractive due to the innovative

triple-play offers (voice telephony, internet and TV) from a single telecommunications or

cable TV operator. These packages will additionally spur the transformation of the media

industry.

A more detailed discussion on the potential changes in technology and their impacts on the

media industry is given in the table below.

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Media Production

Technology

Technology was expensive.

Most of the advanced media

production technologies were

imported. Only big media

companies could afford and

use such technology.

Sophisticated training was

needed to operate the

technologies.

Web 2.0 technology has

completely destroyed barrier

of entry. Audience can

effectively produce quality

contents. Technology is easy

to use. Contents are created

into all kinds of multimedia

formats.

Technology will continue to

reduce cost of production,

improve quality of products,

and provide multi-format

contents.

Creation of New

Distribution

Platforms

Pre-Internet distribution

platform: broadcast TV, radio,

movie theatre, and retail

channel for publishing

contents.

Internet has emerged as a

major competing distribution

platform and democratized

the industry because media

distribution is no longer

controllable by big hands.

Broadband makes Internet

not only an ideal distribution

channel for news and stories

but also

Will new technology emerge

and completely change the

industry distribution platforms

like what Internet did before?

Will the new distribution

platform itself centralize or

democratize the industry?

Development of

New Application

Platforms

Nonexistent

Application platforms, such

as searching engines, have

become an important

medium for content.

Technological advances in

developing new types of

content aggregators have an

impact on content format,

content reach, and

advertising method.

Who will become the next

Google? What will be the new

applications that audiences

use to reach information?

Advanced Media

Planning and

Marketing Tools

Nonexistent

The majority of the industry is

using traditional media

planning tools and marketing

applications, which are

learned from global industry

practices. Online marketing

tools such as behavior

targeting emerged though

still at the early stage. There

are new

Will any marketing and media

planning tool emerge and

significantly improve the

efficiency of online advertising

to the extent that internet will

replace TV and cable and

become the major advertising

platform?

Table 7: Important Technological Drivers and Their Roadmap

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Force 5: Globalization

Globalization is an important characteristic that shapes our culture and the future of the

media industry. The media and all areas of communications have a vital role in

characterizing how these three ideas affect our society on a worldwide level. We examine

the evolution of the global media industry as well as the global position of the Chinese

media industry in the table below.


Competition from

Global Contents

Most of Chinese audience

consumed only domestic

contents. Sources of global

contents were limited due to

strict control of global content

access.

Global contents now reach to

most Chinese audiences and

are competing with domestic

productions. Traditional

media companies act as a

medium importing global

premium contents to boost

viewings. Internet is another

channel through which online

users share

Will local contents or global

contents eventually dominate

Chinese media market?

China media

industry's global

position

Global media industry was

highly advanced comparing to

Chinese media industry in

terms of technology,

investment, business model,

production and management.

Chinese media industry was a

late starter with little

understanding about market

economy. Chine

Chinese media industry

reacts quickly to global

trends, technology

advancement, and global

industry evolution. New

global industry initiatives are

being adopted and localized

immediately [a quick

follower].

Will China become a leader in

new industry initiatives? An

equal competitor or a follower?

Table 8: Global Drivers and Their Roadmaps

Force 6: Social Movement

New media has greatly improved the contact between media makers and media consumers,

and it has been providing more and more access to the consumers for them to obtain,

contribute and control the information. Consumers are no longer the traditional recipients

of media. The rising popularity of social media has largely provided a forum to

accommodate people’s demand for expression, demand for participation and the new

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phenomenon of the so-called citizen journalism. In the context of our research subject in

China, the underlying social drivers may have strong influence on shaping the future

Chinese media industry. This is because the traditional Chinese cultural norms defined a

system not favoring individualism and self-expressionism. As a result, the country may

experience stronger waves of demand for expression and participation with the increasing

availability of the new media. Further, the development of non-governmental,institutional

infrastructure may also help shape the future media industry.

The past, current and future states of the two key social drivers are discussed below.


Legal

Infrastructure

Legal infrastructure was

incomplete. Administrative

method and social relationship

are the effective way to

resolve conflicts.

There are significant

improvements in legal

infrastructure. However,

government still has flexible

ways other than law to

intervene industry. Social

conflicts are solved through a

mix of means.

Will law and regulation will be

clear, predictable and

enforceable in China?

Demand for

Expression

Word of mouth was the only

way for the public to express

opinions. No media channels

were available to consumers.

People actively use social

media as major channel to

express. Audiences provide

feedbacks, exchange

opinions, and participate in

activities that voice their

ideas. Topics include social

issues. Direct discussion of

politics is still prohibited.

Will audience demand more

freedom of speech? Will new

channel become available for

such discussions? Will new

technology make censorship

impossible? Will demand for

expression drive political

change?

Table 9: Social Drivers and Their Roadmaps

6. Identification of Key Uncertainties Through Industry Interviews and

Secondary Analysis

The theme of this study is to analyze the Chinese media industry at the emergence of the

social media and help predict its future business development. Therefore, we intended to

cover experts from both sides when we conducted our interviews. For example, one of our

interviews was conducted at a state owned media enterprise group which owns a large

number of major TV channels and radio stations. On the other side, we also interviewed

the largest social media company in China, which is mainly funded by private ventures. The

two major interviews compose two completely opposite sides. One side is the old media,

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state-owned, strictly following the government policies and highly protected by the

government both financially and operationally; the other one is the new media, privately

funded, often times a troublemaker to the government, and is easily interrupted by its

sources of funding or government policy makers.

6.1. Separating Uncertainties from Trends

Based on our interviews and our secondary analysis, we separated uncertainties from

trends under each category of industry driving forces. We will further rank the list of

uncertainties in the next section.

Change of Audience Needs Trend/Uncertainty

Demographic Trend

Geographic Trend

Purchasing Approach Trend

Psychographics Uncertainty

Government Policy on industry development Trend/Uncertainty

Major Government Intervention Platform Uncertainty

Government Policy on industry development Uncertainty

Protection of Intellectual Property Trend

Economic Development Trend/Uncertainty

Consumer Spending on Information and Entertainment Trend

Production and distribution cost Trend

Change of media buying Trend

Growth of Economy Uncertainty

Industry Integration Uncertainty

Human Talents Trend

Technological Advancement Trend/Uncertainty

Media Production Technology Trend

Creation of new distribution platform Uncertainty

Development of new application platform Uncertainty

Advance media planning and marketing tools Trend

Globalization Trend/Uncertainty

Competition from Global Contents Trend

China media industry's global position Uncertainty

Social Movement Trend/Uncertainty

Legal Infrastructure Trend

Demand of Expression Uncertainty

Table 10: List of Categorized Divers (Trends and Uncertainties)

6.2. Ranking Uncertainties

The table below ranks the all the uncertainties we have identified through our interviews

and secondary research. Even though the rankings may be subjective, they reflect the

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views from the experts in this industry and at the same time are consistent with our

research analysis.

Rank Uncertainty

1 Government Policy on industry development

2 China media industry's global position

3 Change of Distribution Platform

4 Psychographics

5 Industry Integration

6 Growth of Economy

7 Major Government Intervention Platform

8 Human Talents

9 Development of new application platform

10 Competition from Global Contents

Table 11: Uncertainty Rankings

7. Creating Scenarios

Based on our analysis in section 6, we have identified the two key strategic uncertainties as

(1) the Chinese media industry’s global position, and (2) government policy on the media

industry. The four scenarios can be constructed by imposing the two possible outcomes

along each dimension of the uncertainty and by aggregating the drivers. Under these

specific outcomes, we compiled a list of subjectively consistent characteristics that the

scenario in each quadrant would likely exhibit. The four scenarios are characterized and

elaborated below.

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Th

e in

du

stry

ad

op

ts n

ew

se

rvic

e c

on

ce

pts

an

d

tech

no

log

ies fro

m th

e

rest o

f the

wo

rld.

Quadrant 1 Quadrant 3

Th

e in

du

stry

is p

art o

f the

glo

ba

l me

dia

an

d h

as a

lea

din

g p

ositio

n in

tech

no

log

ies a

nd

se

rvic

es.

Quadrant 2 Quadrant 4

Tight censorship on content and

control on business ownership.Government acts only as a regulator.

Ch

ina

me

dia

ind

us

try's

glo

ba

l po

sitio

n

Government policy on media industry

Figure 2: Key Strategic Uncertainties Driving the Future of Chinese Media Industry

7.1. Scenario 1: Chinese media industry as a follower of the global media industry

under tight censorship on content and control on business ownership.

In Scenario 1, the growth of content and delivery is likely to concentrate in traditional

entertainment and government-controlled journalism. The government would like to keep

the multi-platform intervention because of its effectiveness. Under this scenario, the

government continues to limit private investment. Also, unsophisticated content

censorship systems will need to be developed and applied due to the particular state of the

media industry and tight control from the government.

This scenario is likely to be the result of an economic slowdown. The media industry is a

likely victim with reduced consumer demand. Government control tightens under a

challenging economy. At the same time, competitions might ease under this scenario.

While a slowdown in consumer demand may result in less capital for integration, the

reduced revenue may provide an incentive for industry integration and consolidation. In

this scenario, the state-owned media may continue to have a monopoly on certain sectors,

and infrastructure providers may be under strict government control. Distribution channels

are likely to trail the rest of the world. Adoption of new technologies may be slow due to

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slowed demand and also because government regulation may also stand in the way.

Consequently, adoption of new technologies is likely to trail the rest of the world.

Government censorship may also slow down the process (Google, YouTube, and Flickr as

recent examples). Audiences are "watched" effectively by governments. Participation is

limited to commercial activities and social interactions. Majority of industry production are

information and entertainment contents. Censoring tools will be in place to prevent free

flow of information.

As a result, the domestic industry is a follower of the global media industry in this scenario.

The high censorship from the government determines that it will be a price taker market

with low price competitions and some state owned companies will have privilege over other

small players. Nevertheless, the market will be characterized as low efficiency due to the

highly centralized control by the government. Therefore, we would expect the profitability

and creativity of the industry to be very low. The barrier to entry in such an industry will be

very high due to government protections of the state-owned businesses. Naturally,

technology advancement will be very slow in such a slow developing industry.

Investments in this media industry will be gradually decreased due to the unattractive

market potential.

7.2. Scenario 2: Chinese media industry as global leader in technologies and

services innovations under tight censorship on content and control on business

ownership.

In Scenario 2, there are many new and creative ways for information sharing and content

delivery while the contents themselves are monitored by the censorship. Sophisticated

content censorship systems need to be developed and applied under this scenario for the

media industry to remain such a global competitive position.

This scenario is likely the result of a growing economy. There will be plenty of

opportunities when this scenario happens. But the industry players will also experience

fierce competitions in prices, technologies, strategies, etc. Consumer demand is likely to

be high. On top of all these, the industry is likely to see mergers or vertical integration

under the watchful eye of the government. As a consequence, adoption of new

technology is likely to be quick, and new distribution channels are likely to emerge. New

applications are likely to be created frequently, but only those consistent with the

government censorship goals may see the daylight. The domestic industry is part of the

global industry and possibly a leader in areas allowed by the government.

Due to the fast development and global leading position of the media industry in this

scenario, consumers’ demand for freedom of speech is likely to be high, which is also highly

correlated with the high censorship of the government. The government censorship may

often times be in the way of the fast development and innovations that are happening in the

media industry. At the same time, government censors will try to set boundaries to

accommodate the industry development. Service providers are likely to be torn in

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between.

Under this scenario, big companies often takes leadership in technologies because of the

amply resources they have access to. They are also often protected by the government

which in turn leads to an oligopoly market. The industry profitability, technology

advancement and barrier to entry will therefore all be rated high in this scenario. But there

may be lack of motivation for creativities in such a market since a small number of players

could dominate the industry. Investment in this industry will likely be unbalanced with a

large portion of investment into big companies while there may be lack of funding for small

business and startups.

7.3. Scenario 3: Chinese media industry as a follower of the global media industry

with the government acting as a regulator.

There will be no censorship or control from the government but a stagnant industry in

Scenario 3. On the other hand, the consumer demands will be uninspiring. Whatever

comes along, people will adopt it.

This scenario is likely the result of an economic slowdown. The media industry is a likely

victim with reduced consumer demand. Under such a scenario, there may be many

players because of the free market with essentially no control from the government. But

due to reduced demand and profitability, companies will have to find ways to survive.

Whether mergers will help remains to be seen. State-owned businesses may go private to

stimulate the immediate growth of the industry.

In such a gloomy market, the distribution technology will follow the rest of world.

Companies may be surprised from time to time by the advances. Similarly, applications

will follow the rest of the world, perhaps lagging behind one step or more.

As a result, the domestic industry is a follower of the global media industry, perhaps a slow

one. This market is again a price taker market due to the sluggish consumer demand and

low profitability. The barrier to entry in this scenario is low since there is no real control

from the government. But on the other hand, the investment opportunities may be very

risky. This is an unattractive market. On the contrary, the creativity could be high in this

market because of the large number of players and the freedom of entrances to and exits

from the industry.

7.4. Scenario 4: Chinese media industry as global leader in technologies and

services innovations with the government acting as a regulator.

In this scenario, there are many new and creative ways for information sharing and content

delivery. There are also plenty of opportunities for private investment in technology and

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services. State-owned businesses may be up for sale or merged with private enterprises.

This is a dynamic industry with a lot of opportunities and competitions. Also, advanced

technologies emerge creating opportunities both domestically and internationally.

Opportunities in a dynamic industry may drive companies to consolidate. Government

may relinquish control on state-owned media businesses. The industry is in the forefront

of developing applications, which will inspire the consumers and create new business

opportunities and profits. There are both opportunities and challenges. In this scenario,

demand for expression will be high. Companies meeting the demand stand to create new

businesses and make a profit.

Under this scenario, the domestic industry is part of the global industry and possibly a

leader in many areas, especially in volume and customer base. This is a best case

scenario in which the winners will take all the market. This scenario is also characterized

with high profitability, high technology advancement and high creativity. Even though the

barrier to entry is low in such a free political environment, companies will need to be very

innovative to succeed in this industry. Investment will mainly take place in the form of

venture capital. The market is overall very attractive but featured with high risk and high

return as well.

8. Discussion of Results and Future work

Managerial Recommendation:

Scenario 1: Mediocre industry under tight censorship

This scenario implies status-quo in the overall industry structure. In general, companies

will suffer from low barrier of entry due to lack of technology leadership. Some traditional

media companies will still have the privilege to dominate channels like TV, cable, or satellite

and as such and be able to maintain stable market share. Social media companies, as

well as other new media ventures without direct governmental support, will struggle over

both funding and revenue sources. Government will likely continue to use ambiguous

policies as intervention tools, which represent significant business risks for industry

investors.

For traditional media companies, successful business strategies will include the following:

Quick adoption of the latest leading technology: Even though under this scenario, the

Chinese media industry as a whole is a follower of global leaders, domestic companies will

still be able to establish competitive advantages by being the first mover in adopting latest

technologies. Technology will update the way media business to be conducted.

Whoever is able to provide cutting-edge tech-embedded contents and to deliver in a fast

and cost-effective manner will be ahead of competitors. However, due to lack of their own

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technological innovation capacity, companies need to invest heavy capitals to purchase

innovations from global leaders.

Explore non-censored content categories and maintain high quality for premium

contents: Business information, social news and entertainment will be the dominant

product offerings in the market. Successful companies shall adopt effective product

differentiation strategies and make their brand stand out in certain content categories.

Vertical Integration: Integrating with critical distribution platforms will strengthen a

dominance position. Both infrastructure providers, such as wireless, broadband and

satellite and etc., and application providers, such as Baidu, Google and the like, can be

potential candidates. The distribution channel will by all means be as important as

contents itself. Future audience will not only choose contents but also demand speed of

delivery, quality of delivery and format of delivery. Successful media companies shall

allocate resources to build a strong channel strategy.

Offer not only contents but also services: Anticipating further demand from audience

for participation and interaction, media companies shall provide such platforms to their

audience and act as service providers. Successful players will be able to combine

programming with audience participation activities.

Innovative financing: Given strict prohibition of private investment in this sector,

traditional media companies will need to seek other sources of financing. Since

investment is crucial in establishing a competitive advantage, a financing strategy aiming

to explore alternative sources of funds shall be in place to support business expansion.

Leverage existing support from government and organize into powerful coalitions:

Utilizing privileged position, traditional media company shall attempt to form alliance with

technology providers, infrastructure providers, distribution channels, talented content

creators and other industry powers. The creation of high barrier of entry would help

traditional companies to gain more pricing power.

For Social media companies, this scenario predicts a dark future. However, adopting

following strategies could still help some businesses stand out from the competition:

Identify a particular niche and create audience loyalty. It can be a special domain or

audience segment. Or, it can represent a particular content and activity category. Or, it

can be an independent aggregator that consolidates information in an effective manner.

One of social media’s advantages is its focus on being a medium without competing with its

own content providers-audience. As such, audience will view a social media site as his

own territory and be loyal to it. A solid audience base shall be the foundation of business

success.

Explore cutting edge online advertising tools to provide unique advertising value to

media buyers. Social media companies shall be actively involved in the development of

new online advertising technology. Methodologies and applications aiming to derive

business value from audience interactions shall be explored and adopted quickly by social

media companies. Closely working with media buyers in this regard is recommended.

Adopt a cost-effective business structure: Due to lack of funding and high business

risk, a successful social media company shall be able to operate in a very efficient manner.

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Companies could utilize free resources and incorporate business operation with

outsourcing model.

Participate with global social media alliance to gain cutting edge open-source

technology and new industry initiatives.

Establish business relationship with traditional media companies. Social media

companies shall seek cooperation with traditional media companies to utilize each other’s

unique strength. For example, social media companies could integrate their interactive

platforms into traditional media’s programming to create new media formats.

Seek an innovative financing strategy: Angel investors, entrepreneur investments and

other alternative funds should be explored. Participation from employees may be

considered.

Scenario 2: Advanced industry under heavy censorship

This scenario presents a highly profitable but monopolized media industry. While

government still hold iron control in both business ownership and content censorship,

Chinese media companies manage to establish a leading position in global media industry.

Such leadership shall be supported by sophisticated technology advancements and

business initiatives, which in return, create high barriers to entry. Industry will be highly

consolidated and dominated by major players. With support from government and

advanced technology leadership, Chinese media companies command handsome margin

and achieve rapid expansion. However, industry creativity will be suffered due to content

censorship. Audience experiences are limited to non-political areas. Government

control, though effectively executed, will likely be challenged from time to time. In the long

run, such success seems unstable.

For traditional media company, successful strategy shall include:

Establish technology leadership by heavy investment in R&D: Technology leadership

is the key driver for success in this market. Given the backdrop of highly consolidated

industry structure. Leading companies will be able to allocate ample resources to take

industry initiatives. Companies shall consider establish global research centers, attract

talents from all over the world, and lead international technology innovation efforts.

Leverage government support to organize cross industry coalitions: Utilizing privileged

position, traditional media company shall attempt to form alliance with technology providers,

infrastructure providers, distribution channels, talented content creators and other industry

powers. The creation of high barrier of entry would help traditional companies to gain

more pricing power.

Explore new product and service models adapted to changing audience needs: Given

solid content censorship, companies shall think smartly how to provide interesting contents

without going over the line. Since audience will continue to demand both high quality

contents and innovative services accommodating their needs of interaction and

participation, leading companies shall invest in efforts to explore new product and service

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models to meet audience needs.

Enter into global market: Leading companies shall aggressively seek new markets.

Technology, contents, and new business applications and models can be exported.

Build global brand: As discussed above, we do not believe this scenario will be stable

given its monopoly structure. Leading companies shall anticipate the broken of such

monopoly so as to prepare for it. Investing in brand can be one of the long term strategies.

The heavy censorship and heavy consolidated industry landscape will be a calamity for

social media companies. It will be extremely difficult for social media companies to survive

as an independent business model. However, following transformation strategy will help

the preservation of social media as an alternative media format.

Seeking public support and non-profit funds: By carefully choosing niche territories, a

social media sites will be able to tailor the specific audience needs and in return, gain public

supports. Given the participation nature of social media, audience’s free contribution can

be explored and incorporated into operation model. Some social media formats, such as

Wikipedia.org, represent vivid examples on how social media could leverage public support

to survive as alternative information sources. Seeking non-profit funds is another way to

protect social media’s existence.

Scenario 3: Free but uninspiring industry

This future assumes that government will relieve its control on both content censorship and

business ownership. Instead, government will start to act as a regulator which encourages

creativity and innovation. However, since Chinese media industry will still be a follower

without technology and industry leadership, the overall industry will be in fierce price

competition due to low barrier of entry. At the same time, economic downturn will slow the

entry from global leading companies. The industry will look like a battle field without order,

leading to a highly risky but low return market.

Such a scenario will not be good news from traditional media companies. Without the

support and cooperation from government, traditional media companies will be on their own.

Only smart business strategy and management could help win the market. We

recommend following strategies for traditional media company:

Invest in technology innovation: Production technologies, new applications, data

management tools and audience targeting technologies will be the front line to explore.

Companies will win the market through their edge in expertise.

Incorporate interactive platform into programming. Companies should seek a

production strategy aiming to combine premium content with audience participation.

Establish market leadership in a particular category or segment: Intensive focus will be

needed to explore the category or segment that one has expertise on. Strengthening

brand name in one’s own domain will be an effective strategy to establish pricing power.

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Vertical Integration: Distribution channel shall be critical for traditional media company.

An effective channel strategy will result in protection of content sales revenue. Vertical

integration can be considered when cost-effective and cutting edge distribution platforms

emerge.

Build an organization structure able to attract talents: Due to low barriers of entry,

talents will intend to set up their own studios and utilize alternative channels to deliver their

contents. It will be a challenge for a traditional media company to maintain its competitive

edge over premium contents. Creating a flexible organization structure to attract talents

will be crucial to success.

Innovative financing strategy: Due to high risk and low return in overall media market,

financing will be a challenge. However, successful companies could utilize multi-sources

investments through well-designed strategies. Fund sources such as venture capital,

alternative debt offering and join venture can be considered. The goal is to prepare ahead

and explore different opportunities.

While Scenario 3 represents a headache for traditional media companies, it will be an

opportunity for social media companies. Quick movers and smart entrepreneurship could

help a social media company stand out in this market. Even though the industry will be

highly competitive due to low barrier of entry, innovators will have opportunities to win and

command handsome return.

A successful social media companies shall adopt following strategies:

Explore innovative business model: Social media companies shall look to incorporate

latest marketing technologies to explore advertising value from audience interactive

activities. In addition, other than advertising revenues, subscription and service models

can be considered. In conclusion, leveraging its unique audience base will be the

direction of new business models.

Quickly adopt latest technology: Successful social media companies are quick movers.

New technologies are crucial to new audience experiences. Social media companies

should constantly update their business with latest trends and make sure that their

audience, who are their content contributors as well, will be exposed to cutting edge tools

and products.

Organize industry coalition and combine innovative efforts: Relieved from

government’s watchful eyes, social media companies could take initiative to combine

innovative efforts within the industry. The creation of knowledge sharing platforms will be

important for overall industry growth.

Identify niche market and provide superior services: Freedom of speech will liberate

new niche markets. The ability to identify markets quickly and initiate effective product and

marketing strategies will be key steps towards success. In addition, since talents now

have the freedom to create their own contents, they are very likely to use social media as a

delivery platform to reach audience. Social media companies shall look to design

tailored-made applications and provide superior services for these talents to utilize.

Invade into traditional channels and create new content format: Due to industry

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deregulation, social media companies shall take advantages of such move and seek

appropriate traditional media companies to take over. Utilizing traditional media’s channel

and premium content creation capacity, social media companies could create new format of

contents that combines user interaction with programming.

Explore multi-source financing: Even though the overall market will be high risk with

low returns, outstanding companies will gain access to financing resources. Industry

deregulation on business ownership will allow long term investments into social media

sector. Successful social media companies shall actively seek multi-source financing to

support their growth.

Scenario 4: Free and advanced industry

Scenario 4 represents the brightest future of Chinese media industry. It is energetic,

innovative, profitable and healthy. Acting as a regulator only, government not only stops

suffocating the industry but also takes initiatives to encourage creativity and free market

competition. As a result, companies invest in innovations and eventually achieve leading

position in global media industry. Since the industry under such scenario will be a

winner-takes-all market, only outstanding companies could command high returns.

Free and advanced industry offers opportunities for both traditional media company and

social media company. We anticipate future media market under such scenario will see

integration of the both. Without content censorship and ownership restriction, the

difference between a traditional media and a social media will be product format rather than

business group. The Chinese media industry will adopt most efficient way to provide best

content and service to its audience.

We therefore recommend wining business strategies for both types of companies together:

Technology leadership

Focus on one’s own strength and serve markets with strongest expertise.

Create flexible platform allowing the exchange of premium content and audience

participation

Explore new marketing technology and integrate programming with innovative

revenue generating practice.

Expand to global market

Multi-source financing

Create a culture of learning and sharing of best industry practices.

Allow for the free flow of talents and establish effective platform to exchange

knowledge and information.

Adopt an efficient organization structure allowing for quick move.

9. References

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[1] Source: Data monitor Industry Market Research: NA, China – Media, December 15, 2007 [2] J.H. Schoemaker and V. M. Mavaddat, ―Scenario Planning for Disruptive Technologies‖, Wharton on Managing Emerging Technologies, G. S. Day and P. J. H. Schoemaker, Wiley, New York, 2000. [3] Stefan Heng, ―Media industry facing biggest upheaval since Gutenberg. Media consumers morphing into media makers‖, Deutsche Bank Research, MPRA Paper No. 3250. November 2007 [4] Djankov, Simeon et al., ―Who owns the media?‖, Journal of Law and Economics. Vol. 46. pp. 341-382, 2007 [5] Stefan Heng, ―Broadband: Europe needs more than DSL‖, Deutsche Bank Research. E-conomics No. 54. Frankfurt am Main, 2005 [6] Stefan Heng, ―UMTS broadband mobile technology rolled out. Confounding many expectations‖, Deutsche Bank Research. E-conomics No. 57. Frankfurt am Main, 2006

10. Acknowledgement

This project was undertaken at the Wharton School of Business at the University of

Pennsylvania during the course of both authors’ MBA study. The field research was

funded by a generous MBA Fellowship from the Ford Motor Company under the auspices of

the Mack Center for Technological Innovation at the Wharton School.

This study could not be made possible without the excellent guidance of Dr. Paul J. H.

Schoemaker, adjunct professor and research director at the Mack Center, as well as

Founder, Chairman, and CEO at Decision Strategies International, Inc.

We would like to extend our special appreciation to the Shanghai Media Group (SMG) for

their generous accommodation of our interview and to the president of SMG, Li Ruigang, for

spending his precious time sharing with us his personal and managerial views on our

research subject. We would also like to thank www.tudou.com in Shanghai and their CEO,

Gary Wang, for taking our interview and helping us gather valuable information for our

research. Last but not least, we would also like to thank Helen Huang at SMG, Jiaming Wu

at SMG, Esther Lu at Tudou, for helping us throughout our interview processes.

9. Biographies of Interviewees

Shanghai Media Group

Shanghai Media Group (SMG), a state-owned conglomerate, is one of the world’s most

powerful and influential Chinese-language media and entertainment groups, with radio and

TV as its core business. Other related businesses include performing arts and sports,

technical service and investment.

SMG was founded in 2001 after merging Radio Shanghai, Eastern Radio Shanghai,

http://www.tudou.com/

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Shanghai Television, Oriental Television Station and Shanghai Cable Television. It

broadcasts 258 hours of TV and 214 hours of radio on a daily basis (2005).

SMG operates 13 analog TV channels (7 cable channels covering Shanghai area, 4

terrestrials for Shanghai and neighboring areas, and 2 satellite channels for domestic and

overseas subscribers), 11 analog radios, 16 national digital pay channels, 1 broadband

online TV, 1 mobile phone TV, and 1 national IPTV service platform, 5 newspapers and

magazines, and 5 sports clubs.

SMG produces TV and radio programs in news, entertainment, sports, finance, music. It

also produces TV series, documentaries and cartoons. SMG is building up its archive with

copyrighted contents. It aims to become a major producer, distributor and provider serving

the Chinese-speaking communities worldwide.

SMG has had dramatically raised its international profile in recent years by striking

partnerships with large and well-known corporations that included Viacom, Sony, and Intel.

Li Ruigang has been the president of SMG since its founding date in 2001. Under Li's

guidance, SMG had doubled its size since 2002 and branched out from local television and

radio broadcasting into an array of other ventures, including newspapers and magazines,

music production, news Web sites, and digital cable and Internet-based television services.

The Chinese government's willingness to open the door to foreign investment allowed Li to

negotiate with overseas businesses that had long been eager to gain access to China's

huge market. With Viacom, for instance, SMG agreed to syndicate MTV and Nickelodeon

programming on SMG channels as well as to co-produce the highly popular MTV Asia Style

Awards shows. Viacom chairman Sumner M. Redstone was unabashed in his praise of Li,

calling the SMG president a ―visionary‖ and ―clearly a pioneer in bringing innovative

partnerships to the Chinese people.‖

Li was born in June 1969 in Shanghai. He studied journalism at Shanghai's Fudan

University, where he earned both bachelor's and master's degrees. After completing his

master's degree in 1994, he worked as a reporter and later as a news producer for a local

television station. He then spent several years working as an adviser to the deputy mayor of

Shanghai. In 2001–02 Li was a visiting scholar studying international media administration

at Columbia University, New York City. Upon his return to China in April 2002, he became

the assistant president of Shanghai Media and Entertainment Group, SMG's parent

company. The following October, Li was named president of SMG.

Li faced a variety of obstacles upon assuming leadership of the company. Many observers

felt that he was too young and inexperienced to manage the organization effectively. He also

had to deal with the ongoing challenge of reconciling his plans for the company with the

demands and restrictions imposed on him by Beijing. Nevertheless, Li built a solid record of

achievement, which included securing a license to operate an IPTV (Internet Protocol

Television) service, the first such license granted by China's State Administration of Radio,

Film, and Television. He also put on the air several reality-TV shows modeled after The

Apprentice and American Idol that became runaway hits in China.

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In January 2006 Li announced a deal under which SMG would develop content for Intel's

newly launched Viiv technology platform for personal computers. The move was expected to

make SMG programming available to some 30 million Chinese-speaking subscribers

worldwide. In another high-profile deal, SMG obtained an exclusive license from the

Fédération Internationale de Football Association to broadcast the 2006 World Cup on

digital platforms in China. As for his future plans for SMG, Li was on record as saying that he

would eventually like to take the company public, but it remained to be seen whether such a

move would ever be feasible—and whether a stock issue for SMG could gain Beijing's

approval.

www.tudou.com

Tudou (simplified Chinese: 土豆网; traditional Chinese: 土豆網; pinyin: Tǔdòu Wǎng) is

one of the largest video sharing websites in China, where users can upload, view and share

video clips. Tudou went live on April 15, 2005 and by September, 2007 uses the world's

largest CDN to serve over 55 million videos each day.

Tudou states they are one of the world's largest bandwidth users, moving more than 1

Petabyte per day to 7 million users. YouTube does serve a larger number of videos per day,

but since the average Tudou video is longer in duration, the total amount of minutes of

video being streamed daily from Tudou is significantly larger - about 15 billion minutes vs. 3

billion for YouTube.

The Shanghai-based service uses Adobe Flash technology to publish more than 20,000

new videos each day, including amateur content such as videoblogging and original videos,

movie and TV clips, and music videos. Unregistered users can watch videos on the site,

while registered users are permitted to upload an unlimited number of videos, using on-line

and Windows-based upload tools.

Tudou was founded by Gary Wang and Dutchman Marc van der Chijs, whom Wang met

while at Bertelsmann Media Group in China. The name Tudou is Chinese Pinyin

(Romanized Chinese) for Potato. It was previously known as Toodou.com, and changed its

domain name to Tudou.com in August 2006 when that domain became available.

According to CEO Wang, the name comes from the English idiom "couch potato." He stated

that his goal was to move couch potatoes from the television screen to the computer

screen.

Prior to Tudou, Wang lived in the United States and returned to China to work for

multi-national companies. Tudou was originally conceptualized as a video blogging

company and the site launched on April 15, 2005 in its current format, several months

before YouTube.

http://www.tudou.com/

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Like many technology startups, Tudou was started on a shoestring with a raw technology

team, practically in a garage. It was initially self-financed at about $100,000, then in 2005

raised a $500,000 seed round. Its first major funding round was in 2006 for $8.5 million from

IDG China, Granite Global Ventures, and JAFCO Asia. Tudou's most recent funding was in

early 2007 for $19 million and was led by Boston-based General Catalyst Partners and

Shanghai-based Capital Today, with other existing investors participating.

During the summer of 2007, Nielsen/NetRatings reported that Tudou was one of the fastest

growing websites on the Web, growing from 131 to 360 million video clips per week in just

three months. According to a July 16, 2007 survey, 55 million video clips are viewed daily

on Tudou, with an additional 20,000 new videos uploaded every 24 hours. Neilsen's

measurements indicate the website averages nearly 40 million visitors per month.

According to Chinese tracking service iResearch, as of the mid-2007, Tudou has over 50%

of the Chinese online video market.

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