ANALYSIS: Television - Will China revamp create new difficulties? - New worries are raised as China orders TV mergers

The State Administration of Radio, Film and Television order for China's city TV stations to merge is the latest effort in the Government's drive to overhaul its clunky TV business (media, June 22). Advertisers are hoping a clearer picture will emerge when consolidation is completed, but they worry that bargaining power will shift to the TV stations once the dust settles. As with most consolidations, the cutback in vendor numbers is expected to concentrate bargaining clout in the hands of the few entities left standing. China appears to be heading in such a direction. Last month's merger directive follows an earlier order revoking the licences for ad sales and programme production of county TV stations, leaving only their transmission rights intact. For some time now, the TV scene has been ripe for an overhaul - it is highly-fragmented, programming quality is a serious issue and so is clutter since advertising is permitted in 20-minute blocks between programmes. It's clear too that the estimated 2,000 TV stations have become too unwieldy to manage, not to mention to support at a time when media agencies feel that about 30 cities out of China's 240 are sufficient for rolling out a national advertising campaign. Authorities have long treated TV as a cash cow - but the cow isn't pumping as much cash this year, say media agencies. For the first time, stations are bracing themselves for TV spend to either remain static at best, or to head south at worse. Media managers say the market is far less buoyant than ACNielsen's figures of a 22 per cent adspend gain for the first four months suggest. The 20 top spending brands in the first quarter were Chinese firms as economic worries have reined in multinational spending. At the same time, government policy limiting state-owned enterprises to spending just two per cent of sales on advertising and the ban on prescription drug advertising have begun to bite into TV revenues. Says Zenith Media's research director Zoe Tan: "That the top 20 list only has local companies is shocking because local advertisers enjoy the deepest discounts." But the methodology ACNielsen employs does not allow it to include such perks, which would otherwise show a very different picture. Sources say national broadcaster China Central TV suffered a single-digit loss and Beijing TV a double-digit loss in the first quarter. By ordering its stations to merge, China should rein in costs as the consolidation is expected to whittle station numbers to under 300 by year-end. The final count will comprise stations operating in its 240 cities and 31 provinces, in addition to CCTV. But with the reduction, wary advertisers fear one or two of the bigger stations will end up monopolising the few quality programmes that are available. The concern is that stations with sought-after programmes may try and push through conditional sales packages - bundling a lower-rating show or station with a stronger-rating show or station. Echoing a sentiment voiced by his peers, Simon Woodward, executive director of broadcast for Carat China, says: "As far as Carat is concerned, our job is to secure quality programmes at a cost-effective price for our clients. Consolidation could make this more challenging in terms of negotiation clout. However, I would hope that the costs saved by this consolidation will be re-invested in more quality programming for our clients to advertise within." Whether the merged organisations take to bundling their programme or station offerings will depend on how far China is willing to go with the revamp. Clearly, it's keen to overhaul the clunky TV business. But whether it wants to risk creating a TV monopoly at a time when advertisers are demanding better programming and a cleaner advertising environment is another matter. Zenith Media Beijing general manager Derek Kwok went as far as to predict that 70 per cent of the mergers would be cosmetic. As an example, he cited the merger of Zhejiang cable and terrestrial stations, saying both were still operating as separate entities. "The Government knows it but it has to keep one eye closed because of revenue considerations, and it also does not want to create a monopoly situation," he says. In the case of the Beijing Radio, TV, Film Group, which also includes a newspaper publisher, media sources say they've been told the "priority is to keep the stability of the structure after its major transformation". Adds Woodward: "We have to remember that China is unique in terms of trading and the media landscape. So it's dangerous to assume that the same thing which happened in other places which consolidated their TV market will also happen in China." Which may explain why some believe that consolidation will only reduce competition in the short-term. Says MindShare China chief executive Chris Walton: "The negotiation tactic in the medium to long-term will be to play off one market against another. Increasingly, advertisers are looking at the potential of market A versus market B rather than TV station one versus station two."

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