Murdoch in China

We can contrast China with the experience in Eastern and Central Europe. In both cases, the starting points were systems that described themselves as ‘socialist’ or ‘communist’. There are, however, important differences. In China, continued communist rule has been accompanied by the development of a vigorous market economy. In Europe, the Communist Parties retained both political and economic control up until their collapse, and market economics were only introduced after political change. Political change was the condition for economic change in Europe, but not in China.

When change came in Europe, it was in many cases rapid. It took place at different speeds in the printed press and television. For the press, the transition was often almost immediate. The journalists simply seized the papers. Sometimes they sold them off and sometimes they tried to run them for themselves. Even in the Polish case, in which there was a legally sanctioned disposal of newspapers, the process took only a couple of years. In all cases, the end of communism meant an extraordinary flourishing of new titles, including hundreds of newspapers and magazines. A press market was everywhere quickly established.

In television, establishing a broadcasting regime with competing channels, some in private hands, with advertising playing a central role, was slower, but even so the transition took less than a decade. More or less everywhere, the transition was subordinated to legislation, and the new media landscape has some degree of regulation. Changing television is notoriously incomplete in several countries, but it is still reasonable to say that the days of the monopoly state broadcasters are everywhere past, and that a competitive television system exists in all the former communist countries (Sparks, 1998).

China has had a much more leisurely transition to market economics. The development of the media market has been protracted, and there has been no uniform progress towards media independence. Most contemporary accounts stress the interplay between political and market pressures as a central feature of Chinese media.

Despite these differences, we can draw out some illuminating features of the European experience. In Europe much of the programming and formats came from the larger western media companies, but joint ventures and outright ownership were very often the initiatives of smaller companies. Central European Media Enterprises (CME) provided the exemplary case in broadcasting (Sparks, 1999). In the press, major western media corporations entered the region in the immediate post-1989 period, but many later withdrew. In many countries, the main western investors have been second and third tier press companies from Germany and Switzerland. It is these, rather than the big players, that have been responsible for major innovations like tabloid newspapers (Gulyas, 1999; Gulyas, 2000).

Acquiring a stake in the production and broadcasting of television in Europe required that the foreign entrant built up a close relationship with local political forces. Again, CME is exemplary. Starting in the Czech Republic, it developed a strategy of developing close relationships with local partners. In the cases where they were successful, they formed close alliances with influential political figures who ensured they obtained the necessary licences. Where they could not find powerful partners, notably Poland and Hungary, they lost out in the bidding for licences. Overall, this strategy was enormously successful in winning licences to broadcast, but very much less successful as a business model: by 31 December 2002 CME had accumulated losses of more than US$ 450 million (CME 2003: 10).

What do we mean by a ‘western media takeover’?

The idea of ‘western media takeovers’ is more complex than is often thought. The experience of Europe suggests five different ways we might say that ‘western media’ have entered a non-western system:

1. Broadcasting programmes made in the west, notably in the USA.
2.
3. Production of local content that is modelled on that produced in the west.
4.
5. Operation media outlets along the lines of those in the west. That is to say, as a primarily economic activity in which decisions about staffing, content and the overall shape of the product are subjected to the calculus of profitability
6.
7. Joint ventures between western and local media companies.
8.
9. Wholly-owned ventures by western media companies.
10.

Table One records the situation in Europe before the fall of communism and in China today. The experience of Europe appears to be quite different from China. With the sole exception of programme sales, all of the major changes that have already started in China today were confined to the period after 1989 in Europe. On the face of it, Chinese media today are much closer to the way that central and eastern Europe is more than 10 years after the collapse of communism.

Western media strategies

One would expect to find that Western media companies are planning to enter the market in force, just as soon as the Chinese government can be persuaded or bullied into dropping its restrictions on foreign enterprises. After all, the Chinese market is enormous: in terms of sheer numbers of people, it is the largest in the world. It is also expanding rapidly: advertising expenditure has been growing at more than 30% per annum in recent years (People’s Daily 29 November 2001).

In order to find out what the strategies of large western media companies are, I surveyed the top ten US media companies as measured by their total net media revenue for 2001 (AdAge 2002). I also surveyed a selection of large companies from outside the US. Since my concern was with the strategy of the companies, I was looking not simply at their activities but also at what they claimed their intentions were. I derived this information from the public reports of the companies, which in the case of the US is very thorough and reasonably reliable, but in other countries much less complete and trustworthy. Despite its limitations, such data provides the most reliable guide available to the current activities and near term plans of media corporations. The picture that emerges from this data is fairly clear:

1. The majority of large media companies do not have any significant presence, direct or indirect in the Chinese market. Very far from their being a host of would-be profiteers hammering on the door, most companies have not yet developed any noticeable strategy for entry
2.
3. Among those companies that do have a significant presence in the Chinese market, the predominant form at the moment is the sale of programmes and formats. These are the ‘traditional’ forms of international media operations and were present in many of the European communist countries before 1989.
4.
5. The companies that have notable operations in the Chinese market are predominantly concerned with broadcasting, and primarily TV broadcasting, although there are some that are concentrated in print publishing. Amongst the latter, it is books and magazines, rather than newspapers, which appear to be most firmly established.
6.
7. The western companies that have notable Chinese operations are preponderantly US-based. (News Corp is an Australian company, but as we shall see below its main base of operations is in the USA.) Although some European companies do have programme and format sales in China, only Bertelsmann appears to have invested in developing a Chinese operation, notably around its ‘home business’ of book clubs.
8.
9. So far, only four companies, AOL-TW, News Corporation, Hearst, and Bertelsmann, can be said to be substantially committed to the Chinese market, and of these the first two seem to be the most involved.
10.
Overall, it is difficult to avoid two general conclusions: apart from a very few companies, large western media groups have very little presence in China; there is little sign in most cases that they have any serious plans to enter the market.

On closer examination, then, the differences between the contemporary Chinese experience and that of Europe are less dramatic than was suggested in Table One. Whatever the international agreements might say, there is little evidence that the main body of large western media corporations is seriously preparing to enter China. It is the familiar business of selling programmes that is the staple of current western media activity in China.

Why this uncharacteristic reticence?

I found this conclusion very surprising. It prompts another, immediate question: since we know that these media corporations are in general aggressive and acquisitive, why is there not much more evidence of plans to enter the Chinese market? There are five factors that explain this:

1. Stupidity. We know that the owners of media companies are notoriously bad at making the right strategic decisions. We are, after all, living in the immediate aftermath of the dotcom boom, in which large media corporations were prominent amongst those pouring vast amounts of dollars down the drain in the vain belief that everything was now different and you did not need to worry about revenue streams in the wonderful world of the Internet. Blindness to the possibilities of China is perhaps best interpreted as the natural caution of people who nearly lost their shirts on the last big thing and who are now worrying about putting too much money into the next big thing.
2.
3. Prudence. The fact that very few companies as yet have a noticeable orientation towards China does not mean that they are not interested in the Chinese market. On the contrary, they may well have made a very thorough survey of the current situation and concluded that it is premature for them to make a major investment. Certainly, the survey shows that many of the companies do have at least a small foothold in China. In the years to come, an altered situation might lead them to make a bigger effort.
4.
5. Importance. The general assumption is that the Chinese market is of the first importance to media companies. This is not true. Although the potential audience for media in China is extremely large, advertising expenditure per capita is very low. Table Two gives figures for five countries with the highest per capita expenditure and China, for the year 2000. Despite the very rapid rates of growth noted above, in absolute terms the Chinese market is still very small, In 2000 is was worth around US$8.5 billion (People’s Daily 29 November 2001). This compares with the US advertising market, which was worth roughly US$188 billion in 1997. Advertising expenditure in North America accounts for around 40% of world expenditure and Europe for another 30%. The whole of the Asia-Pacific region, which includes advertising-intensive Japan, amounts to about 23% of the total. The very fast rate of growth of the Chinese advertising market of course means that these relative figures will change over time, but for the time being the sheer scale of the market in the advanced world dwarfs China.
6.
7. Balance. As a direct result of those different levels of advertising expenditure, and partly also because of the higher value of per capita media consumption in richer countries, the sources of revenue for major media companies lies in the developed world. Tables Three and Four give the most recent breakdowns for the geographical sources of revenue for News Corporation and for Bertelsmann, both of whom report innovative strategies in China. Both companies have a portmanteau category that includes China, and in both cases it is substantially smaller than any of the other categories. For News Corporation, the crude measure of performance represented by the ratio of sales to assets demonstrates that the Australasian operation containing the results of Star is not a particularly successful venture. Star TV, one of the main vehicles for entry into the Chinese market, has not as yet proved immensely profitable. After costing News Corporation around US$2bn since acquisition in 1993, the entire venture first showed an operating profit of US$2.4 million in the three months to June 2002. Even then, the financial improvement was due to the success of its Indian, rather than its Chinese, operation (Jacobs, 2002). Even for the company that is most publicly associated with a Chinese strategy, the present contribution to the balance sheet is hardly impressive.
8.
9. Politics. News Corporation is not only well known for its strategic orientation on China, but also for its assiduous cultivation of the political sensitivities of the Chinese elite. Liu Changle, the main shareholder Chairman and CEO of Phoenix TV, expanded the notorious tactical concessions into a strategic principle as the first point in his advice for media companies wishing to succeed in the Chinese markets: ‘Foreign media companies need to develop a dialogue with the bureaucratic agencies that regulate the media and entertainment market. The purpose of this dialogue is on the one hand to enable the foreign company to understand the Chinese environment more clearly, and at the same time convince the Chinese side that foreign media organizations are not seeking to destabilise China, sow the seeds of social or political trouble, or weaken China’s sense of cultural identity’ (Liu, 2002: 4). The need to cultivate good political contacts in order to win favourable business deals has also been a well-established element of the post-communist societies of Europe. It is, however, a characteristic of this approach that establishing good relations with one group of political leaders can have a positive result while they are in power but can lead to a negative result if they lose control. ‘Political capitalism’ of this kind is thus an inherently risky undertaking that can certainly deliver great rewards, but can also produce sudden disaster.
10.
Taking all of these factors together, it is perhaps not so surprising that the majority of major western media companies prefer the relatively safe business of selling existing product into the Chinese market rather than investing substantially in what is still, for them, a small market of uncertain stability and profitability.

Conclusions

With three or four very notable exceptions, the largest western media companies do not have developed strategies for entering the Chinese market. Even amongst those exceptional companies, the scale of their current operations, at least as measured by revenue and profitability, is still very small relative to the other main areas of their operations. Integration in to the world media market will continue to be mainly trade in television programmes. There is strong evidence that the Chinese media are adopting market-oriented strategies characteristic of western media companies: this is what we termed ‘Type Three’ integration into the world market. Current policy in the PRC is to establish large and diversified media companies, so the successful adoption of western media techniques is likely to result in them developing strong competitive positions. There is no reason to suppose that the audience preferences in the Chinese market will be different from that of audiences everywhere: they will prefer local material to imported material. With large, market-oriented Chinese media companies, there is every probability that there will be a supply of relatively high-quality locally produced material.

What is more, as Chin shows elsewhere in this journal, the companies that have exploited the existing opportunities for a junior partnerships in Chinese media have tended to come from East Asia rather than the West. To the extent that there are continue to be opportunities to work in the mainstream of Chinese media, particularly television, it is these second-tier players that have the expertise and the contacts that help to promote success.

That does not mean that there will be no market for western media products. Specific markets will be open. For example, importing foreign material and dubbing it appropriately might cheaply and efficiently undertake the filling-out of TV schedules. Those companies that provide niche markets with either specialised material like financial information or specialised formats like business publishing or various kinds of consumer magazines may play a more central role.

To occupy a central position in the mass market, particularly in television, will be more or less impossible for any company that does not have a large supply of locally produced material. In this, the distinctive pattern of the Chinese adaptation to the market places it in sharp contrast to that experienced in Europe. The suddenness of the transition there meant that there were no established media organisations with even the rudiments of a market orientation and the basic skills needed to carry it through. It was therefore very easy for foreign companies, bringing either programming or expertise, to enter the market and to establish very strong positions. The relatively controlled and protracted nature of the transition in China means that this ‘vacuum’ is unlikely to exist except in niche markets, and that therefore it will be much more difficult for foreign firms to stake a strong claim to the core markets.

To the extent that they attempt to challenge for core markets, media corporations will need very substantial resources. It seems unlikely that relatively small companies will be able to enjoy the same degree of success in China as they did in Europe. There, they brought a number of simple techniques (tabloid newspapers, contemporary scheduling strategies) and a certain degree of capital. They used these to establish themselves in a ‘naďve’ market, at a relatively low cost. This will be very much more difficult in China, partly because of the much greater scale of the market place in China, but mostly because of the presence of sophisticated local competitors.

While the Chinese media are likely to thoroughly marketized over the next few years, it is unlikely to be in forms that will cause any serious worries either culturally or politically. To the extent that there are such problems, they are much more likely to result from Chinese entrepreneurs following the logic of the Chinese market than because foreign devils are subverting the peace.

Table One

Western influence on media systems

Central and Eastern Europe China
Pre-1989 Post-1989 2003
Import of content Yes Yes Yes
Localisation of forms No Yes Yes
Organisation of media No Yes Yes
Joint Ventures No Yes Yes
Foreign Ownership No Yes No

Table Two

Advertising Expenditure per Capita in 2000

Country Expenditure per capita in $US
USA 399
Switzerland 327
Japan 297
Denmark 271
UK 271
China 4
Source: BMF Gallup Media 2000

Table Three

Breakdown of Assets and Sales Revenue for News Corporation

2002 A$ millions
USA UK1 Australasia2 Total
Sales Revenue 22,194 4,418 2,402 29,014
Assets 48,491 7,918 6,895 56,4293
SR/Assets 0.46 0.56 0.35 0.51

Source: Form F20 for 2002.

Notes:

1. UK includes operations conducted in Europe
2.
3. Australasia comprises Australia, Asia, Fiji, Papua New Guinea and New Zealand
4.
5. Includes A$8,137 millions of ‘unallocated’ assets
6.

Table Four

Geographical Breakdown of Revenues for Bertelsmann Operations

€ millions 2002
Germany Europe1 USA Other
Gruner + Jahr (Magazines) 1,034 931 806 15
RTL (TV) 2,125 2,026 118 86
BMG (Music) 237 757 1,185 510
Arvato (Printing and media services) 1,367 1,112 420 132
Direct (Book Clubs) 390 1,180 1,00 125
Random House (Books) 140 298 1,370 179
BertelsmannSpringer (Specialist Publishing) 363 190 132 46
Whole Group 5,691 6,498 5,029 1,094
Percentage shares of total revenues 31.1% 35.6% 27.5% 5.9%

Source: Annual Report 2002

Notes

1. ‘Europe’ is European countries excluding the FDR
2.

References

Ad Age. 19 August 2002. 100 leading media companies ranked by total net U.S. media revenue in 2001. At http://www.adage.com/page.cms?pageId=940. Accessed 24 October 2002.

Bertelsmann. 2002. Annual Report January 1 through December 31, 2002. At http://investor.bertelsmann.de/wms/pdf/Geschftsbericht_engl..pdf. Accessed 6 April 2003.

Gulyas, Agnes. 1999. Structural Changes and Organisations in the Print Media Markets of Post-Communist East Central Europe. Javnost/The Public, vol. vi, no. 2. 61-74.

ććć. 2000. The Development of the Tabloid Press in Hungary. In Colin Sparks and John Tulloch, eds. Tabloid Tales: Gobal Debates over Media Standards. Lanham, Md: Rowman and Littlefield.

BMF Gallup Media. 2000. Advertising expenditure per capita USD. At http://www.bmf.ee/adex1999/en/img026.jpg. Accessed 5 April 2003.

CME. 2003. Central European Media Enterprises Annual Report (Form 10-K) 2002. At http://www.sec.gov. Accessed 7 April 2003.

Liu, Changle. 2002. The Call of the Chinese Market: Keynote Speech to the CAASBA Convention 2002. Delivered 4 December 2002. At http://www.casbaa.com/doc/Speech_Liu%20Changle.pdf . Accessed 6 April 2003.

People’s Daily. 29 November 2001. People’s Daily English Edition. At http://fpeng.peopledaily.com.cn/200111/28/eng20011128_85555.shtml. Accessed 18 March 2002.

ććć. 20 July 2002. People’s Daily English Edition. At http://english.peopledaily.com.cn/200207/30/eng20020730_100581.shtml. Accessed 18 March 2003.

Ringier. 2003. Ringier Pacific Limited. At http://www.ringier.com.vn/english/about_us.htm. Accessed 5 April 2003.

Sparks, Colin. 1998. Communism, Capitalism and the Mass Media. With Anna Reading. London: Sage Publications.

ććć. 1999. CME in the Former Communist Countries. Javnost/The Public, vol. vi, no. 2. 25-44.