For the past few days, rumors have been swirling that along with its limitation of “entertainment” programs, China’s State Administration of Radio, Film, and Television (SARFT) will also be implementing a new regulation that bans all advertisement during TV dramas. Yesterday SARFT management bureau chief Li Jingsheng announced that SARFT will indeed be banning ads during TV programs.
The detailed regulations will be announced sometime later this month, but it seems that advertisements will be allowed, but only during the time when one show has finished and the next show has yet to begin. Shows will no longer take breaks in the middle of episodes for advertisements.
Needless to say, this could have a massive impact on the Chinese television market, where yearly losses in advertising as a result of the regulation have already been estimated as potentially reaching 20 billion RMB (over $3 billion US). We expect this figure may be a tad inflated, as networks will likely find ways of replacing that lost revenue — running text ads that scroll across the bottom of the screen while shows are in progress, perhaps — but there’s no doubt the regulation will nevertheless have a massive impact on the industry.
Online Video Sites: Time to Celebrate? Maybe…
At face value, this would seem to be great news for online video operators like Youku and Tudou, who are already poaching viewers away from television but who have historically struggled to profit from them. With fewer advertising opportunities on television, there’s a reasonable expectation that at least some of the money TV networks will be losing may flow in the direction of video websites, instead.
Moreover, if the loss of in-program advertising weakens China’s popular satellite networks, that could serve to drive even more viewers onto the internet as TV stations losing money will likely have to sacrifice quality or quantity (or both) in their show productions to be able to balance the books. In particular, this could really help Youku, which has an established history of successful self-produced dramas and films. If similar regulations don’t affect internet operators, and net ad revenue increases, Youku (and other sites) will be able to put even more money into original programming.
…and Maybe Not
That said, SARFT has framed the regulatory decision as a move to get viewers away from their computers and back in front of the TV by offering them a more enjoyable viewing experience. There are plenty of people who are annoyed by the advertising that permeates many of China’s web video sites, and the prospect of an ad-free television experience could be just what’s needed to get them back in front of the big black box.
Of course, that seems like a fairly pointless gesture. Entertainment is moving to PCs and, beyond that, mobile devices, period. SARFT can’t regulate that reality away, unless they can trick some other regulatory bureaus into shutting down the internet entirely (hey, it’s China, you never know). But that doesn’t mean they can’t go down swinging, and one has to assume that some of those fists are going to be aimed directly at online video providers.
We can be fairly certain, too, that SARFT is not trying to do online video sites any favors. Others have interpreted the regulations as a move by SARFT to weaken independent TV stations and, by extension, strengthen CCTV, and this makes some sense in light of the “entertainment ban” on satellite networks announced by SARFT earlier this year. If SARFT’s primary goal is to strengthen CCTV and the domestic propaganda apparatus, probably independent (and foreign-listed!) websites like Youku (NYSE:YOKU) and Tudou (NASDAQ:TUDO) will find themselves in the regulatory bureau’s crosshairs sooner or later.
Here, it’s worth noting that SARFT continues to be involved in a sort of behind-the-scenes territorial spat with MIIT (the Ministry of Industry and Information Technology) over who should be allowed to control certain types of content on the internet. Typically, the internet is MIIT’s domain, but as SARFT’s interests (TV shows, films, etc.) move increasingly online, so too has SARFT asserted its authority over those areas of the net.
In any event, it’s hard to be sure what exactly will happen before the regulatory details are announced and we see how satellite TV networks respond. We’ve also reached out to some domestic video websites for comment on the new regulations and will update this post if we hear back.