Television Broadcasts Ltd. (00511.HK), Hong Kong’s largest terrestrial television broadcaster, used to be the city’s most profitable media company.
However, TVB, which brought on board a significant shareholder from mainland China last year, suffered a sharp drop in its earnings for 2015, as the dominant player in the Hong Kong market experiences difficulty gaining traction in the mainland market, for which its content is being increasingly tailored.
The broadcaster, dubbed “CCTVB” by local critics unhappy with its pro-Beijing stance, suffered setbacks in the mainland’s regulatory and competitive landscape last year.
Despite the firm securing Shanghai-based China Media Capital, a state-backed investment firm chaired by media mogul Li Ruigang, as a key shareholder, TVB’s experience on the mainland is further evidence that the huge market potential of China is not easy for players from the outside to tap into.
Under chairman Charles Chan Kwok-keung, TVB has been aggressively entering the mainland market.
However, its revenue from the mainland last year plunged 30 percent from the previous year to HK$270 million (US$34.8 million).
The partnership with China Media Capital has yet to bear fruit for TVB shareholders.
In a stock exchange filing, TVB blamed its poor performance in the mainland on a highly competitive market landscape and a tightened regulatory environment.
The firm said stricter controls imposed by the State Administration of Press, Publication, Radio, Film and Television over imported programs do not favor non-mainland importers.
TVB’s productions, aimed at the Hong Kong market, may not suit the taste of the authorities in Beijing, even though its drama series steer clear of sensitive topics.
The cultural gap between Hong Kong and the mainland, as well as the positioning by Beijing authorities of TV as a major propaganda tool, could limit TVB’s success in exporting its Hong Kong productions to the mainland.
TVB’s market potential in China has been restricted by a series of new rules by China’s media regulator.
In 2014, the regulator limited foreign (including Hong Kong) content to 30 percent of broadcasters’ total content, giving a boost to local productions.
Earlier this year, the regulator also placed all online TV programs under the same restrictions as those applying to traditional TV shows.
So, beyond relying on selling its Hong Kong productions in the mainland, TVB needs to ride its joint venture in China, TVB China, to participate more fully in the mainland market.
After reaching an agreement with Alibaba Group Holding Ltd. in June last year, TVB is shifting its focus, reducing the number of locally oriented productions and producing more drama series tailored to the tastes of the mainland market, so as to supply content for Alibaba’s home entertainment platform.
Recently, the broadcaster recruited Lau Ka-ho and his wife, Mui Siu-Ching, to direct some of its drama series.
Given the couple’s successful track record producing drama series for the mainland market when they worked for Now TV in 2012, it is a clear signal that TVB aims to strengthen production of its mainland-focused drama series in the future.
What surprised some investors is that TVB is experiencing difficulty establishing sustainable business partnerships in the mainland.
The firm said its digital new media business, part of its TVB China venture, has encountered short-term problems working with a major online operator, which prevented it from being able to recognize the related licensing revenue.
It seems that TVB has yet to find a way to recognize the revenue in the near future.
That could undermine the business potential of TVB in the mainland.
After reading the final results announcement, investors may be less optimistic about TVB’s aggressive plans for expansion in the mainland market.
The company frankly admitted that “the positive effort made in developing our production business was negated by the revenue shortfall from the digital new media segment”.
It did say it achieved some encouraging results in content distribution in the mainland, without elaborating.
The right of TVB’s two flagship channels to be broadcast in Guangdong province used to be seen as a valuable asset of the company, as it could help it reach around 100 million people there.
However, TVB has yet to generate a significant revenue contribution from its cable network partners.
The company cited in its filing “the prolonged delay in improving our licensing arrangement in Guangdong province, where two of our channels are being carried over the provincial network in return for a small license fee”.
TVB has been struggling to collect advertising and content licensing fees from its Guangdong partners for more than a decade.
Analysts have estimated that the firm could receive around HK$50 million from its cable partners in Guangdong for the carriage of its Jade and Pearl channels.
The broadcaster also wants to share the advertising revenue from the cable firms.
However, its cable partners have long been inserting their own advertising time slots in TVB programs and skipping TVB’s.
It could be quite difficult for TVB to move the cheese of the incumbents, especially since TVB programs are no longer as popular as they were a decade ago.
TVB’s mainland business is still much smaller than its core Hong Kong business, accounting for only 6 percent of total revenue.
But the company, in an effort to please the Beijing authorities with a view to making huge profits on the mainland, is moving away from its Hong Kong viewers and taking a pro-Beijing stance.
However, the latest earnings release shows that TVB still has a long way to go to win recognition from Beijing’s top leaders.
Is it worthwhile for TVB to sacrifice its local orientation for an uncertain future in the mainland?
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