The enactment of the Cable Television Law in July of this year has opened up a brand-new, highly competitive media market that offers tremendous opportunities to business people and politicians alike. The intense interest in the law was reflected by the heavy involvement of many lobbying groups.
The most active lobbyists were the many illegal cable TV operators, who have long been plying the airwaves. They had already organized the Association for Broad casting in Cable Development (ABCD) and had won the backing of several legislators when the law was formulated. Their biggest lobbying achievement was to expand the maximum number of cable TV stations permitted in each of the island's numerous cable districts. The original draft called for only one; the number was increased to five in the final draft.
The new law gives these illegal operators the opportunity to transform their companies into legal operations. For the moment, they are being allowed to continue business until detailed administrative measures are adopted.
Because of another major revision in the original draft of the law—resulting from intense lobbying pressure—political parties will be allowed to operate cable TV businesses. This reverses the ban on party involvement initially recommended by the joint screening committee in the Legislative Yuan.
Thomas Yu of Rebar Tele-Communications "The market is big enough for everyone to have a handsome share."
The ban had spelled doom for Po Hsin Entertainment Inc., which had been set up by the ruling Kuomintang (KMT) to gain access to the cable TV business. Party officials charged that the ban was unfair, especially in view of the heavy involvement of the opposition Democratic Progressive Party (DPP) in existing cable operations. The officials argued that be cause the KMT is a private organization, there was no reason it could not invest in the new business. They thus mobilized KMT legislators to reverse the ban in a majority vote during a general meeting of the Legislative Yuan. The DPP offered meek opposition to the motion, widely regarded as only a gesture, because it also has considerable interest in operating cable TV stations.
At the time the law was enacted, the government was under strong pressure from the United States, which was threatening to resort to trade retaliation under its Special 301 trade provision unless the ROC enacted the law before the end of July. The pressure was being applied in an attempt to reign in the rampant copyright infringement by Taiwan's illegal cable TV operators.
The new law sets forth complete guidelines for the development of cable TV. Applications for setting up stations will be screened by an independent committee. Board directors, supervisors, and the managers of newspapers, conventional TV stations, and radio stations cannot serve as founders, board directors, supervisors, or managers of cable TV stations. Other provisions include the following:
• An individual cannot own more than 10 percent of the shares in a cable TV station. Moreover, the combined holdings of a shareholder with other businesses he may own, or enterprises owned by his spouse and close relatives, cannot exceed 20 percent.
• Foreigners will not be allowed to invest in cable TV stations, a stipulation adopted despite U.S. pressure to the contrary.
• At least 20 percent of the programs broadcast by cable TV stations must be locally produced.
• Cable TV stations must reserve more than 10 percent of their channels for broad casting programs related to public service, arts and literature, and social education.
• Adult-rated programs must be broadcast at midnight or via specially coded channels.
• Cable TV program providers will be allowed to transmit their programs to cable TV stations via satellite or microwave.
• Stations must sign contracts with subscribers to protect the latter's interests, and subscription fees must be approved annually.
• Cable TV stations must appropriate 2 percent of their annual revenue to local governments; these funds are to be used for public projects, such as cultural activities. Another 1 percent must be contributed for the use of public television.
Cable stations already subtitle much of their foreign programming with Chinese characters. The Cable Television Law will ensure that they also pay attention to international copyright.
The mushrooming of illegal cable stations in recent years is evidence of the industry's tremendous business potential. The stations provide a wide variety of programs, capitalizing on audience dissatisfaction with the limited scope of programs broadcast by the three existing conventional TV stations. By utilizing satellite reception antennas, cable TV stations also help many subscribers improve their reception of conventional TV programs, now hindered in many areas by Taiwan's mountainous terrain.
Investment returns in the illegal cable TV businesses have been substantial. Typically, a small cable station required a capital investment of only NT$4 million (US$160,000) to start business. Operational costs were also low because most of them broadcast pirated programs, including hard-core pornography. For most operators, investment could be recovered within a short period.
Due to the absence of adequate regulations and to rampant copyright infringement, the ROC government banned the cable TV stations and frequently cracked down on their operations. Nevertheless, cable stations spread like a raging prairie fire. Currently, an estimated three hundred illegal stations are in operation, with a total of 1.6 million subscribers. The largest stations boast tens of thousands of subscribers, while smaller ones have only several thousand.
Checking out the Hsinkanhsien station. By the time the cable law was passed, an estimated three hundred illegal cable stations were already broadcasting.
Perhaps the most prominent political figure involved with cable TV is Legislator Chou Chuan (周荃), a former TV reporter. She became the most active spokesperson for the existing cable TV stations during the formulation of the new law. Many existing stations also sought the protection of DPP politicians by supporting their political stances. There are approximately sixty of these so-called "democratic stations," with a total of around 200,000 subscribers.
The political interest in cable TV is not surprising. Politicians have found cable to be a powerful vehicle for promoting their causes. OPP politicians in particular believe that their gains in recent local elections have been materially aided by cable station broadcasts. The DPP's successful use of the media has encouraged other parties to use the same method for reaching voters.
Although the government had for years been reluctant to legalize cable, by the late 1980s it became obvious that it was an unstoppable trend. Four years ago, in order to regulate normal development, the government announced its policy of opening up the cable TV market. The announcement immediately spurred a flurry of preparatory activities among various business concerns.
The most active one has been the United Communications Group under the auspices of the China Trust Group, which has already set up subsidiaries for programming, hardware engineering, and cable station management. Its strategy is to control not only the upstream source of programs, but also the downstream broadcast outlets. The KMT has also adopted a two-pronged strategy, aiming to step into both program provision and station management. For this reason, early this year it set up the Po Hsin Entertainment Inc. with a capital investment of US$16 million. Similarly, the Rebar Group has set up Rebar Tele-Communications Co., Ltd., which specializes in program production and provision.
The transmission is clear, but will the program sell? Media experts expect the next few years to be highly competitive, shaking some stations out ofthe market.
Perhaps the most controversial provision of the new law involves the number of stations allowed in each district. Originally, when the Government Information Office started drafting the new law for the Executive Yuan, it suggested the island be divided into sixty cable districts and only one station be allowed in each district. The arrangement was supposed to help assure a reasonable return on the huge investment required; it was intended to give cable TV station owners the capability, as well as the incentive, to install advanced facilities, purchase high-quality programs, and provide satisfactory services.
Experts say that the provision in the new law for multiple stations in the same district will lead to overlapping investments in wiring and facilities, and the resulting waste will be passed on to consumers. In addition, numerous wirings by different stations will further mar urban landscapes.
At present, Taiwan has 4.7 million households. Under the original arrangement, each station was expected to have an average of 80,000 potential subscribers. But the provision for multistation districts allowed in the new law gives each station an average of sixteen thousand households, a number too small for economies of scale.
But critics also charge that the original arrangement would have led to a monopoly of the market by conglomerates or influential political groups, which also runs counter to free market principles. With the stakes so high, the arrangement of a single station per district proved unfeasible, especially after effective pressure was brought to bear by various lobbying groups, especially the existing cable operators.
Many observers believe that in the end only one or two stations will be left in a district after a period of acute competition. "It will be a warring period for the first several years, when stations will scramble for survival," says Pang Ho (何邦定), president of Po Hsin. "Then, after five years, there will be only one or two stations left in each district."
Interested parties are gearing up to the challenge. For example, Videoland Inc., under United Communications Group, is actively soliciting agency rights for major program production companies. The company has already signed agency contracts with CNN and has also obtained exclusive rights for broadcasting local professional baseball games. Moreover, it has rented a satellite transponder, which will be used to broadcast programs to its subscribing stations. Cyloria Co., a subsidiary of the group, is responsible for hardware engineering and station management. In order to secure the program outlets, Cyloria has been actively buying shares of existing stations, although mostly a minority percentage. It has reportedly penetrated more than forty existing stations in this way.
In addition to securing quality pro gram sources, Po Hsin, backed by its huge capital, plans to produce high-quality local programs. It has made reservations to rent four transponders in the APSTAR satellite, scheduled to be launched next year. "Satellite channels can help cut costs and enhance the quality of program transmission," Pang Ho says. Po Hsin is also procuring shares of existing stations and seeking cooperation with local political factions for the establishment of new cable stations. So far, it has established four such joint ventures in the cities of Taipei, Taichung, Tainan, and Nantou.
But Shen Shih-hsiung (沈世雄), chairman of Po Hsin, says the company will hold only 20 to 30 percent of the shares of each station, and it will focus on providing the stations with programs and engineering support in order to help them improve their quality. According to Shen, Po Hsin will stay away from actual management of the stations. Pang Ho reports that the company will soon raise its capital to NT$1.2 billion (US$48 million) in order to finance its aggressive development projects.
Meanwhile, the DPP has announced plans to set up one station in each cable district. But existing stations are preparing organized counterattacks. For instance, ABCD, an organization in which Legislator Chou Chuan plays a key role, is negotiating with major U.S. program producers for the agency rights of their programs. These would then be provided to its 193 member stations. The association has also rented a transponder for the American TDRSS satellite for program broadcasting. The association also plans to provide managerial training courses for its members.
Various existing stations are also merging in order to increase their chances of survival. Haishan station in the Panchiao area of Taipei county, for instance, is the product of a merger of ten odd stations last November. It now boasts sixty thousand subscribers, the largest on the island.
Lying ahead of these competing companies is the possibility of huge profits. Chen Chih-yeh (陳繼業), general manager of Videoland Inc., estimates that popularity of cable TV in Taiwan will eventually double to 60 percent of all households, similar to the level found in Western countries. Many experts estimate that cable will bring the stations annual subscription revenues of NT$20 billion (US$800 million), a figure based on the ongoing subscription rate of NT$600, or US$24, per month.
Potential revenues from advertisements may be even greater. Cable TV ads are inexpensive and reach a regional audience; these benefits are especially suitable for small and medium businesses that want to reach specific viewing groups. In fact, growing numbers of local businesses, such as restaurants, real estate companies, bowling alleys, and cram schools, have placed ads on cable TV. Experts say that by using sophisticated devices to record and analyze audience viewing habits, cable can help advertisers reach their target groups better, thereby increasing the effectiveness of their ads.
Some local cable stations have al ready started broadcasting a home shopping channel, which allows businesses to offer audiences televised mail-order purchasing. Response has been quite favorable. The development of the cable industry will also bring about enormous business opportunities for hardware and software. In addition to the needs of new stations, the island's existing stations will have to invest substantially to upgrade their facilities or else lose their competitive edge. Their existing facilities were installed during the hide-and-seek days of the past and thus are of inferior quality in most cases.
In fact, some larger stations have already invested, or are investing, in advanced facilities. A typical example is Hsinkanhsien station in the northern district of Taipei city, which is considered the oldest cable TV station in Taiwan (established 23 years ago, now with 30,000 subscribers). Foreseeing the inevitable legalization of the industry, owner Chen Chin-chih (陳錦池) five years ago in vested NT$300 million (US$12 million) to install advanced facilities. The station has replaced its conventional coaxial cables with fiber-optic cables, and its broad casting system has an interactive function which enables subscribers to send information to the stations, for example to choose from various viewing categories. The function also enables the station to record and analyze subscribers' viewing preferences.
The Chuanlien station in Sanchung, Taipei county, has set up a special division that is responsible for installing other advanced facilities. The station has appropriated NT$80 million (US$3.2 million) for such investment. It is now seeking technical cooperation with a Japanese counterpart for the project. Insiders estimate that total hardware outlay by cable TV stations, both old and new, will top NT$20 billion (US$800 million).
With five stations per district, there could be some three hundred stations is landwide. And with each station broadcasting more than forty channels, their need for programs will be enormous and difficult to satisfy. As a result, insiders say that programming may be where the real profit lies. Thomas Yu (游守義), vice general manager of Rebar Tele-Communications, estimates that the market potential for programs will top NT$9 billion (US$360 million) annually by 1996. "The market is big enough for everyone to have a handsome share," he says.
Various program production companies have already started up and are preparing to tap into the rich market potential. For example, Rebar Tele-Communications, established two years ago, is providing such programs as movies, variety shows, and music TV to existing stations. It plans to produce educational programs for children, as well as programs targeting female viewers.
The company has formulated a long term development plan for program production and procurement. It expects to invest T$2 billion (US$80 million) during 1994-1996 and another NT$4 billion (US$160 million) during 1997-1999. The ultimate goal, Yu says, is to cooperate with counterparts in mainland China, Hong Kong, and Singapore for production of Chinese-language programs, which will be broadcast via satellite to Chinese communities in the entire Asian region.
Po Hsin's Shen Shih-hsiung reports that TV program production is capital-intensive. He indicates the company also plans to invest huge capital in producing local programs that will target Taiwan and other Chinese communities in Asia.
Foreign program producers are also scrambling to enter the market via local agents. A survey of existing cable stations, conducted by a cable TV consulting firm in April this year, shows that such foreign programming as Playboy, Walt Disney cartoons, and CNN will be very popular with these stations.
The implementation of the Cable Television Law is sure to have a heavy impact on the local mass media. Among other things, it will help normalize the development of cable TV on the island, and the role of conglomerates and other financial powerhouses will spur the upgrading of the quality of both hardware and software.
Increased protection for copyrighted programs will encourage the development of programming companies and the production of quality programs. The stations will also be able to purchase quality foreign programs, boosting the overall level of cable programming. The competitive pressure from cable will also force the three conventional TV stations to improve the quality of their programming.
Since cable TV targets a regional audience, it often presents programs of local interest, which may well encourage the development of greater community consciousness. Many of the larger existing stations have in fact set up news sections for producing local news programs. In view of the broad and powerful influence of television on the local audience, the enactment of the Cable Television Law is a milestone for the mass media and for society as a whole.—Philip Liu (劉柏登) is editor-in-chief of Business Taiwan, a weekly newspaper published in Taipei by the China Economic News Service. •