Photo: morningwhistle.com
A reality-talent TV songfest popular in more than 40 countries around the world has become an instant hit in China, underpinning enthusiasm for an experimental business model linked to media sector reform.
The Voice of China's debut show in July immediately won high audience ratings in the 42 cities where it appeared. Viewer ratings nearly doubled for the show's second weekly broadcast, and rose another 30 percent soon after.
Especially noteworthy from a business perspective was that the program's joint producers, Zhejiang Satellite Television (ZJST) and Canxing Production, a company linked to global media magnate Rupert Murdoch's Star Media, succeeded while shaping an investment structure never before seen among domestic media players.
As joint-venture partners for The Voice of China, ZJST and Canxing became the first respective TV broadcaster and television production company to share all revenues and risks for a single television program.
The companies have so far declined to spell out the terms of their agreement, although a source said Canxing stands to pocket a healthy percentage of the take. "When viewer ratings exceed a certain level, Canxing can get as much as 70 percent of the profit," the source said.
Other sources said the partners have invested a combined 80 billion yuan top date, and that the show generated some 300 million yuan in revenue in less than three months, mainly from advertising.
ZJST's share of the total investment mainly involved equipment and production facilities for the competitive singing show, through which four celebrity judges pick favorites from among teams of amateur singers performing around the country. Most of Canxing's input has been in the form of capital and human resources, said Lu Wei, the company's public relations director.
The model fits a regulatory directive for the TV sector issued in 2009 by the government. Its goal is to promote financially separate yet cooperative broadcast and television production companies, blending public and private interests.
Until now, TV shows in China have been produced by broadcasters who then put them on air and pocket all profits. The model has deterred "real investment" in the television sector, said Xu Fan, a professor at China Communications University.
TV stations traditionally "produce programs themselves and broadcast them on their own platforms," Xu said. "If the program became popular, (the production team) will receive a bonus from the station."
Stations also buy complete shows from production companies like Canxing, with prices based on estimated ad revenues and potential viewer ratings. The business model leaves production companies in weak bargaining positions whenever negotiating prices.
Stronger Vantage
Industry insiders attribute Canxing's success to its strong capital capacity as a subsidiary of Star China Media, a venture whose chief players are the China Media Capital (CMC) private equity fund and Star TV, an Asian broadcaster run by Murdoch's News Corp.
Star China Media is 53 percent owned by CMC, which was set up in 2009 as the country's first culture-focused PE fund. The Shanghai city government's Shanghai Media Group controls 32.5 percent of the fund. Other major shareholders include state-run China Development Bank and China Merchants China Direct Investments Ltd., which is controlled by state-owned China Merchant Group.
SMG and Star China Media started exploring cooperative business options in August 2010. The former company's president, Li Ruigang, was particularly interested in participating in the central government's media industry reform project, and was exploring ways to set up separate production and broadcasting businesses for TV shows.
The next year, Li invited TV programming veteran Tian Ming to head Star China Media. Within a few months, Tian had built a full production team at Canxing.
The groundwork was thus laid for The Voice of China, a Chinese version of a show originally produced and aired in the Netherlands.
Last April, Tian said, Star China Media executives met counterparts from ZJST and right away "we knew the program would be successful. The only question was how successful."
The answer came in the form of strong viewer ratings from the start, prompting advertisers to scramble for valuable time slots. Zhejiang JDB Beverage Co., for example, paid 60 million yuan for the right to be the show's chief sponsor. Advertisers also agreed to pay 500,000 yuan per 15-second commercial, far more than comparable ad slots on other Chinese TV programs.
Now that he has a hit on his hands, Tian said he expects Star China Media to report a 600 percent increase in revenues for 2012 compared to last year.
Moreover, said a company source, Star China Media may introduce a new program later this year that he said would be larger than The Voice of China. By 2014, the source said, the company may launch a public listing on the stock market.
SMG executives must be smiling, too: Xu said they've been watching the singing show along with the deal between Star China Media and Canxing as a test of the evolving media market in China and the industry's potential for expanding into overseas markets.
Tian said he originally considered partnering with Shanghai Oriental TV, which is the city's satellite TV station, but could not reach deals on copyright and investment issues, eventually leading him to schedule talks with the Zhejiang company.
"Zhejiang TV had made a singing competition show in 2010 with a similar structure" as the program created in the Netherlands, said Du Fang, ZJST deputy director. "We had sought a contract with the (Dutch) copyright owner for awhile" because "The Voice met our demands."
After sealing their partnership, Canxing and ZJST each paid half of the 3.5 million copyright fee for the program's rights.
Du calls their agreement is "a win-win model" for a TV venture that lets producers spend more time working on quality programming and worry less about production costs.
The singing competition's celebrity judges as well as the teams of crooning performers share some profits, too, thanks to contracts they sign with Canxing. Lu said judges are paid appearance fees and singers are eligible for paychecks if their melodies are later sold as mobile phone ring tones.
The business model that everyone's singing about, though, is still considered experimental and may be limited to certain media companies.
For the model to work, Tian said, a production company must have a high level of financial support. It also needs strong production and operational capabilities.
And only major TV programs would fit under the model, said Du.
"The model may become mainstream in the media industry in the future, but only strong production companies have the bargaining capacity," said an industry insider.
To an even greater degree, a model's success hinges on lobbying the government's broadcast sector regulator, the State Administration of Radio Film and Television, which in 2011 strengthened its reviews and approval process for entertainment shows on TV. The new policy was implemented in response to a flood of talent shows, including some deemed "vulgar" by government culture watchdogs, that debuted across the country the previous year.
A source said that to win regulatory approval for The Voice of China, ZJST enlisted almost every member of its public relations team. They launched a campaign to persuade administration officials in Beijing, and finally won a nod after four months of negotiations.
"We had to prove the show would reflect the right values and would contribute to the domestic music industry," said Du.
Tian said he's not sure whether this melodic business model will work for China's mainstream TV market "but we'll stick to it."