HONG KONG: Media research & publishing company Media Partners Asia (MPA) has released an independent research report that provides background and perspective to the key issues that will dictate the future of the cable television industry in Taiwan, the highest penetrated and most regulated pay television market in the Asia-Pacific region.
Current Issues In Taiwan's Cable Television Industry concludes with recommendations for future regulation of the cable television industry. These recommendations focus on making clear and substantive changes to the current regulatory structure to offer consumers greater choice of content and service, promote greater convergence between media and telecommunications and create a level playing field between cable television and its competitors.
Background: In January 2003, Taiwans Government Information Office (GIO) drafted proposed amendments to the Radio & Television Broadcasting Law, merging this law, the Cable Audio & Television Broadcasting Law and the Satellite Audio and Television Broadcasting Law, into a single Three-In-One Bill, designed to regulate the future of Taiwans cable television industry and potentially end an era of restrictive laws.
Comment MPAs research paper concludes that the current regulatory environment and the majority of proposed changes to this environment (as contained in the GIOs amendments for the Three-In-One Bill) remain unsatisfactory, depriving consumers of choice, content and advanced communications services, while, at the same time, undermining the economics of cable television distribution that remains central to the business models of MSOs and channel providers.
The GIO remains compelled to regulate the industry in the context of the past without paying heed to significantly improved cable MSO leadership, investment and management in Taiwan and rapid content, distribution and technological changes in global markets.
Recommendations: Recommended changes to existing legislation and proposed draft amendments are:
1. The creation of an independent, accountable and centralized broadcasting, media and telecommunications regulator with expert intelligence & global exposure
In the draft bill amending the Radio & Television Broadcasting Law, legislators have proposed creating a professional, objective and independent National Communications & Broadcasting Commission (NCC) to regulate broadcasting, television, broadband and telecommunications enterprises. Such an organization has been planned but not yet implemented since 1999. The creation of the NCC, managed by experienced and globally aware media & communications experts, is ideally suited to Taiwan, as the market strives to meet the demands of 21st century broadband competition and consumer demand.
2. Lifting existing restrictions on cable television service rates and allowing operators to offer program tiers at prices determined by market forces.
The GIO allows cable television operators to retail basic program packages to consumers at up to NT$600 (US$16) per month. Most operators typically offer 80-channel packages at between NT$500-NT$560 per month, including channels that typically appear on expanded basic and premium packages in major global cable & satellite television markets. The GIO also allows cable operators to offer pay-per-view program services (existing since 1993 regulation) and has now sought to allow operators to offer a-la-carte pay channels capped at between NT$100-NT$300/month (US$3-US$9/month).
However, the aggregation of various channel offerings and value-added services to offer consumers competitively priced pay television program tiers, a critical component of successful cable and satellite television markets in Asia, North America and Europe, remains prohibited in Taiwan while the pricing of these tiers, if introduced, will likely be regulated, against the grain of current practices and regulatory models in global markets.
The GIOs focus on a price-capped a-la-carte sales model, to drive set-top box penetration to a targeted 80 per cent by 2006, remains illogical and unsustainable. Channel and program tiers on pay television platforms remain essential for both cable operators and program providers to begin rationalizing the market and unlocking the value of their services to the consumer.
It will cost the Taiwan cable television industry more than NT$14 billion (US$400 million) to upgrade its existing and officially reported 3.9 million-subscriber base to a digital platform. Without clear deregulation to show that rate caps will be lifted and expanded and premium tiers of pay television programming can be marketed to the consumer (with no regulation on rates), it remains unlikely that Taiwan will benefit from the virtuous cycle of investment evident in global media markets.
3. Breaking the influence and role of cable television sales agents or programming cartels in cable television distribution.
Historically, the development of cable program distribution has been singularly channeled through a small group of programming cartels. Major MSOs find it advantageous to own these businesses as content producing affiliates to join their cable distribution infrastructure.
These businesses also act as sales agents for all international channel-providers. Given the fact that the GIO has always regulated the pricing of cable channels regardless of their quality, popularity and rating, ensuring that MSOs can only derive fixed profits from the cable television business, MSOs have progressively become less interested in arrangements relating to channel distribution and have therefore delegated this particular role to their respective cartel agents.
Today, the cartels are reducing the value of the industry by establishing artificial price points for channels and forcing cable operators to carry programming services that are of little value while strong channels are subsidising services that have negligible value to consumers. Market demand must be able to determine pricing as well as the types of programming to be offered on cable TV platforms. Market demand should also dictate the success of channels.
While the GIO has set in place the one-fourth limit on cable operator carriage of MSO-owned channels, it must seek to reduce and ultimately eradicate the influence of programming cartels. Successful pay television distribution models evident in North America, Europe and Asia are built on direct relationships between the operator and channel-provider and subsequently between the operator and consumer.
If the GIO can establish a framework where program cartels are taken out of the equation, it will significantly benefit industry practices in the future and allow for greater investment from channel providers in the long term. The GIO must allow programme providers to establish a fair price for their product (in conjunction with cable operators) and allow the consumers to decide whether they want to pay for it.
4. Establishing a level playing field between cable television operators and new competitors.
The GIO has proposed breaking up the monopoly of cable television operators. This means opening up 47 existing franchises to new competition, reducing the number of franchises to 18 and restricting MSOs share of subscribers and systems to less than one third of the market in each case.
The market currently remains open to large-scale state-owned telecommunications carrier Chunghwa Telecom (CHT), which plans to launch its multimedia-on-demand (MOD) television services via asymmetrical digital subscriber line infrastructure. Few of the market share, pricing and franchise restrictions that apply to cable television system operators will apply for the telecom carrier. Essentially, CHT will utilise a model of cross subsidization to drive its MOD service, utilizing its national rate base to pay for infrastructure (fiber) upgrade.
The GIO position is that CHTs MOD service is not a cable television service as it only offers up to 5 terrestrial and community service channels while its MOD service is essentially an on-demand or pay-per-view service which should be unregulated, in line with current cable television regulation. The GIO has ignored the fact, however, that CHTs MOD service will, in the long term, be based on a cable television distribution model, and will offer between 40-60 television channels after three years. As such, CHT should be regulated according to the same pricing, franchise and market share guidelines that determine cable television operations.
If the GIO however maintains its current position, then it remains critical that restrictions on cable television service rates, tiering and market share be lifted. The reduction of franchises and the introduction of competition could bring about greater economies of scale and consumer choice but the GIOs regulation should be aimed at creating fair competition and a level playing field with the emphasis on lifting the one-third restrictions on MSO ownership of systems and subscribers in the market and giving MSos the opportunity to achieve even greater scale via nationwide (100%) market share, which, if the GIO regulates against the creation and influence of MSO-affiliated program cartels, should curb MSO monopolies and abuse of power.
Both developments could drive further consolidation in the market through mergers & acquisition and allow the market to further consolidate into a homogenous franchise that can fulfill consumer demand with a variety of channels and services, the GIOs overriding concern. With this in place, the GIO can then open up the franchises to new competition from ADSL and direct-to-home satellite television.
5. Enforcing laws against advertising piracy & protecting the intellectual property of broadcasters
The GIO has properly decided, as part of the proposed Three-In-One Bill, to legislate against the practice of illegal advertising insertions, advertising clipping and masking from cable operators. The GIO has sought to completely protect the rights of channel providers in its new legislation and allow 100 per cent of the stipulated 10 minutes of advertising airtime to be entirely devoted to advertisements from the channel provider with operators prohibited from overwriting these advertisements. It remains unclear, however, how the arrangement will be enforced with respect to fines and punishment for cable television operators who fail to observe such an arrangement.
6. Enforcing laws to increase direct foreign investment in the cable television industry from a current 20 percent to a proposed 49 percent and advocating the removal of all restrictions on indirect foreign investment
In line with Taiwans entry into the World Trade Organization and the related relaxation of restrictions (July 2002) on foreign investment in the telecommunications sector (to allow for 49 per cent direct foreign investment, higher than a previous 20 per cent), the GIO has sensibly decided, as part of the draft Three-In-One Bill, to raise the cap on direct foreign investment in the cable television industry from 20 per cent to 49 per cent.
The GIOs new proposals on foreign direct investment in cable television are welcome and if coupled with the removal of all restrictions on indirect foreign investment, the industry could benefit from new investment of up to US$200-US$400 million in the digital content, technology and infrastructure, the continued commitment of strategic media and institutional investors including News Corporations STAR Group, Carlyle Asia Pacific, Capital International and CDP Capital and the global initial public offering (IPO) strategies that MSOs might one day employ, to list their shares on overseas equity markets once a coherent and deregulated local cable television industry structure has been set in place.
7. Digital deregulation
In its current scope and format, it is unlikely that the current Three-In-One Bill will be passed before the national elections due in March 2004. In order to hasten the acceleration of consumer choice and drive broadband and digital media development, it is recommended that the GIO strips out special clauses of the Bill and urgently moves on critical deregulation of the digital broadcasting sector with special emphasis on the lifting of restrictions on service rates and program tiers and the creation of a level playing field between cable television system operators and telecom competitors.
The Hong Kong based MPA is an independent research and publishing company dedicated to building platforms focusing on media & communications development throughout the Asia Pacific region. These platforms include publishing, research reports, conferences and consulting.
