An Internet TV on exhibition at a science fair in Beijing. China will strengthen its supervision and management of Internet television providers. Asianewsphoto

In the midst of the global financial crisis, China's Internet TV market is emerging as a new sales avenue for television manufacturers.

The State Administration of Radio, Film and Television (SARFT), however, has unveiled a new policy to strengthen its supervision and management of Internet TVs.

Internet TV refers to a broadcasting service that enables users to view and download a variety of content such as video on demand (VOD) and TV programs through TV sets that have a set-top box and Internet function.

At present, China's Internet TVs can be divided into three models: TV + Internet set-top box (pushed by telecom operators), TV + digital set-top (SARFT), and Internet access through the Internet software and module embedded in a TV (TV manufacturers).

This report deals mainly with the third "built-in module" model that is spearheaded by TV manufacturers.

Beginning in March 2009, a group of television manufacturers, including TCL, Samsung, Skyworth, Haier, Changhong and Hisense, started releasing flat-panel TVs embedded with Internet modules.

TCL's MiTV and Skyworth's Coocaa TV were released through a partnership with Xunlei, while Hisense and Haier marketed Internet TVs through partnerships with Sina and Sohu.

In April 2009, Samsung rolled out a brand-new Internet TV that is primed with an Internet access function and an information search function, enabling users to get the latest news, stock prices and weather forecasts.

For TCL and Skyworth, which have been leading the Chinese flat-panel TV market, Internet TVs account for about 30 percent of their total sales. For the others, Internet TVs account for 15 percent to 20 percent of their sales, on average.

The way Internet TV services are offered is different in China, compared with foreign countries. Chinese Internet TV services are offered mainly by TV manufacturers under contracts with content providers, while foreign Internet TV services are provided mainly by telecom operators.

New supervision

SARFT issued a new policy in August to strengthen its supervision and management of Internet TVs. SARFT claimed that unlicensed transmissions of online video content to TV sets could damage the distribution order of online video programs.

SARFT stipulated in a statement that to provide online video programs to the users of Internet TVs, the providers should obtain online video broadcasting licenses and permission from copyright holders.

SARFT is stepping up efforts to fine-tune the norms and standards of the Internet TV industry, while strengthening its crackdown on illegal copies.

Copyright disputes over online distribution of movies and TV programs are increasing in China's Internet TV industry due to a lack of supervision and management.

In August, Chinese VOD provider Voole, for example, accused TCL of broadcasting films licensed by Voole without permission on TCL's Internet TV service MiTV.

It is possible that the provision of Internet TV services by TV manufacturers could damage the interests of SARFT. SARFT is currently preparing to launch its own VOD Internet service using set-top boxes.

Considering that Internet TV manufacturers are offering video download services for free, it could possibly damage the profitability of the pay TV service that SARFT is planning to offer.

Given the primary features of Internet TVs, i.e., a variety of content and very fast uploading speeds, it could also hurt the profitability and program ratings of existing broadcasting companies.

Before Internet TVs became prevalent, there was a case where the sales of set-top box style Internet TVs were prohibited by SARFT.

In 2005, Shanda marketed the "Shanda Box," a solution to connect the Internet with TVs, and started providing VOD and Internet content through TVs. About a year later, however, SARFT banned sales of the Shanda Box, claiming that Shanda uploaded Internet content to TVs without getting the proper licenses.

Market entry barriers

The online video broadcasting license will reinforce entry barriers to the Internet TV industry.

According to the new policy, only State-run companies or those wherein the state holds a certain stake can offer Internet video broadcasting services.

A large number of Internet TV manufactures and Internet content providers, including Sina, Sohu and Xunlei, are not State-run companies. So far, only a handful of companies, including Shanghai Media Group, CCTV and CNR, have acquired the Internet TV license.

The new policy might also contribute to increasing the operating burdens of TV manufacturers.

TV manufacturers have supplied content either through their independent content platforms or through cooperation with Internet content providers.

Skyworth's Coocaa TV network, for example, has secured content through its independent content platform. Haier and Hisense have obtained content by cooperating with websites such as Sina, Sohu and Xinleu.

Under the new policy, however, even the TV manufacturers who built their own content platforms have to purchase copyrights from external sources to maintain and update their content.

Considering that the price of Internet TVs is about 1,000 yuan to 2,000 yuan higher than the price of traditional TVs, there is a potential that consumers could turn their face away from Internet TV if it fails to provide abundant content.

The method of supervision and management pursued by SARFT is unlikely to be realized since it could hamper the development of the Internet TV industry, where lots of investments have already been made thus far.

SARFT claims that Internet video services should meet related laws and standards. SARFT tends to regard unscreened content such as foreign films, TV programs and videos as illegally distributed programs.

However, it appears to be impossible to crack down on them, considering that so much of this content already is distributed nationwide through the Internet.

The latest SARFT policy revision might prompt numerous problems and disputes in the Internet TV industry.

SARFT, which is responsible for supervision of broadcasting and TV operations, and China's Ministry of Industry and Information Technology (MIIT), which is in charge of the development of the home electronics industry, have different views about the development of the Internet TV industry in China.

Unlike SARFT, which calls for stricter supervision on the Internet TV industry mainly due to copyright problems, the ministry views development of the Internet TV industry as contributing to integration between three networks: broadcasting, telecom and the Internet.

Accordingly, the direction of the Internet TV market will be determined by the tug of war between SARFT and the ministry.

The author is a researcher with Samsung Economic Research Institute (China). The views expressed here are her own

(China Daily 12/05/2009 page2)