HONG KONG: The TOM Group and Turner Broadcasting System Asia Pacific Inc., a subsidiary of AOL Time Warner, announced a strategic collaboration related to China Entertainment Television Broadcast Ltd. (CETV), the 24-hour Mandarin-language television channel. China is one of the world's largest TV markets. It enjoys an estimated penetration of 94 per cent, or over 300 million households, of which approximately 100 million households have access to cable or satellite TV.
 According to a press release, as per the agreement, TOM will issue approximately 21 million new TOM shares, priced at HK$ 2.535 each and acquire approximately 64 per cent equity interest in CETV to become the majority shareholder. AOL Time Warner's Turner Broadcasting will continue to hold the remaining 36 per cent stake in CETV. Upon completion of the transaction, TOM will assume the management rights of CETV.
Under the terms of this agreement, TOM has committed to assume all funding obligations for CETV businesses up to a total of US$30 million over a period of 30 months. The schedule of funding will be devised according to the new business plan of CETV under TOM's management.
The release adds that the agreement also gives TBSAP the option to re-acquire some or all of TOM's shares in CETV exercisable until 2010. In the unlikely event TBSAP exercises only part of the call option, TOM will then have the option to either retain some of CETV's shares, or put the entire shareholding back to TBSAP.
The agreement also states that TOM will undertake the overall management of CETV including, business development, programme production, advertising sales and marketing, and operations. TBSAP will manage CETV's programming standards and will maintain the existing reciprocal cable carriage arrangements with CCTV-9. TBSAP and TOM will work together to expand cable carriage of CETV in China, and explore programming and content opportunities within AOL Time Warner.
The release claims that CETV was the first foreign TV channel to be granted cable television landing rights in China through a reciprocal carriage agreement with China Central Television (CCTV) in October 2001. The agreement authorised CETV to be distributed via cable systems in Guangdong province, and allowed English channel CCTV-9 to be carried on selected Time Warner Cable systems in the United States.
In 2003, CETV also expanded its cable distribution from Guangdong Provincial Cable Network to include Guangzhou Cable and Shenzhen Cable Networks, bringing its total cable distribution to 2.2 million households, as per the official statement. In April 2003, CETV further extended its reach nationwide when it gained approval to broadcast via China's central satellite platform (Sinosat).
The TOM Group chief executive officer and executive director Sing Wang described the investment as an important step forward for TOM. "CETV is TOM's first TV broadcasting operation in our media portfolio. It will be a core part of our growing integrated media and entertainment platform and it provides us with a valuable foothold in the huge but tightly regulated China television market. We are especially pleased to become partners with AOL Time Warner, whose ongoing involvement will be an important high-value factor in taking CETV's business from strength to strength," he was quoted as adding in the release.
TBSAP also welcomed the partnership. "We are delighted that the next step in the evolution of CETV is this strategic partnership with TOM, because they share a common positive view on the future of Chinese media and are extremely well positioned in this area," said TBSAP president and MD Steve Marcopoto. "With CETV's weekly reach, distribution growth across China and program ratings now surpassing its closest competitors, the channel is poised to be driven to new heights by TOM's proven local expertise and impressive media assets."
TV also captures the largest portion of advertising spending in China, accounting for over 40 per cent of the total market in 2002. Both TBSAP and TOM are confident that CETV can leverage TOM's strong combination of its advertising sales network and resources to drive overall revenue growth. Content synergies with TOM's other media assets will also result in new programming initiatives for CETV.