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March 18 2008
Shougang bags 2b yuan digital cable TV deal
Frederick Yeung
South China Morning Post
(c) 2008 South China Morning Post Publishers Limited, Hong Kong. All rights reserved.
Shougang Concord Technology Holdings, the Hong Kong-listed arm of Beijing's Shougang Group, has struck a deal with Guangdong government-owned Southern Media Corp (SMC) to upgrade the province's cable television system to a digital platform in a project worth two billion yuan (HK$2.2 billion).
This initiative announced last week followed efforts by Beijing to drive development of advanced digital broadcast services across the mainland before the Olympic Games in August.
With a digital cable television platform, operators can offer more channels to subscribers on top of existing basic channels such as China Central Television and those transmitted by local satellite broadcasters.
New services to be added include cable broadband connections and video on demand.
Shougang Concord, through its 80 per cent owned subsidiary Yijiatong, will partner SMC in a joint venture that will lead in converting cable television services to digital in 13 so-called regions with a population of about 40 million in Guangdong.
SMC will hold 51 per cent of the venture, Southern Yinshi Network Media. Yijiatong will have 39 per cent and an undisclosed investor will own 10 per cent.
Southern Yinshi will take control of the relevant cable television operations and get 80 per cent of revenue for the first eight years of the project.
"This is a new business model for China's digitisation project," said a spokesman for Shougang Concord. "Government-held broadcasters will focus on content censorship and ideology issues, while operations and sale of new value-added services will be handled by the private sector-led venture."
Mainland cable television users pay 14 yuan to 17 yuan per month for the traditional television services. The project will give free digital set-top-boxes to existing subscribers, who will pay a higher monthly tariff of about 25 yuan.
Southern Yinshi has struck deals with seven Guangdong cable television operators for the trial run, which will see some 500,000 million subscribers migrating to the digital platform.
The venture is expected to ultimately forge agreements with 25 local cable television operators serving a total of 6.7 million subscribers.
The government is aiming for the migration of about 150 million cable television subscribers to the digital platform by the end of 2015.
"Since we'll get 80 per cent of revenue from cable users, we'll have the cash flow to invest in new content and services," said the Shougang Concord spokesman, adding the firm will leverage on its listing status for funding. "We estimate that subscribers are willing to spend 10 yuan to 20 yuan more a month for value-added services."
He said the average monthly spending per subscriber could rise to more than 100 yuan since he is also expected to pay 70 yuan to 80 yuan per month.
"Revenues accruing from pay-television will be much smaller than absolute video industry subscription but will nonetheless grow rapidly," said Vivek Couto, executive director at research firm Media Partners Asia.
The mainland's cable television digitisation programme kicked off in 2001 and initially targeted 30 million users by 2005. Media Partners Asia said the government-mandated digital cable television transition should gain momentum over the next few years. The country's digital cable television subscriber population will grow to more than 125 million in 2012 and surpass 165 million by 2017. Of the mainland households using cable television, 67 per cent will have at least one digital set-top box each by 2012, compared with 16 per cent last year. The percentage total could grow to 83 per cent by 2017.
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