Competitive Strategy in China Satellite TV Market

1. Competitive Strategy in China Satellite TV Market BPP Student Seminar Richard Wang April 26 2007

2. China TV Industry Players • TV Stations • CCTV - China Central Television (1) • Provincial TV Station (31) • Local TV Station (Hundreds) • TV Channels • Each station can have multiple channels • Total: ~3000 channels • Regulatory Body • State Administration of Radio Film and Television (SARFT) Research Focus: Examine how provincial stations (“firms”) compete via programming (“products”) strategy.

3. Which Channels Gets Broadcasted via Satellite? • Satellite Broadcast • CCTV • Each provincial TV station can broadcast one Mandarin channel via satellite • Local cable system packages the programming content and distribute to households • A typical household can view: • CCTV channels • Provincial satellite TV channels • Own province’s provincial TV channels • Local channels

4. Evolution of the Chinese Satellite TV Market • 1989 - Three provincial stations began satellite broadcasting • Tibet, Yunan, Guizhou • Technical reason: remote, mountainous geography makes traditional terrestrial broadcasting ineffective • 1999 - All 31 provincial stations broadcast via satellite • July 2001 - SARFT ordered major reorganization of all 31 provincial stations • “one province – one satellite” policy • Some stations have more than one satellite channel, but not in Mandarin • New playing field: Provincial stations (old terrestrial semi-monopolies) now competes nationally • Competition intensifies as government funding continues to decline • “Government support for Chinese television is dwindling, creating a burst of commercialism as stations compete for viewers and advertising dollars. ” New York Times Nov 28, 2005

5. Competitive Strategy Theory in Media Industry Picard 2002, Chapter 7 • Intramedia competition • Geographical Markets • critical to survival because it makes it possible for multiple media units to exist without competing with each other • Limits substitutability • Competitive Advantage • Product Differentiation • Proprietary asset ownership • Cost • Similar arguments also presented by Albarran 2002 • Greve (ASQ, 1995) studied contagious strategy abandonment – “jumping ship” – in the US radio station industry.

6. Hypothesis H1. Satellite channels moves towards product differentiation – i.e. increase program category concentrations in portfolio. H2. Asset endowments affect satellite channels’ selection of program category concentrations.

7. Datasets Dataset on hand and coded • Entire program line up • 30 satellite channels (no Tibet) • Title, Category (15 categories), Subcategory (87 subcategories), Date, Start/End Time, Shanghai & Beijing ratings, etc. • Jan 1 2001 – Dec 31 2006 Dataset on hand but not yet coded/Cleaned • Entire program line up • CCTV 1,2,3,5,6,8 • All Shanghai (12) and Beijing (10) provincial channels • Title, Category, Subcategory, Date, Start/End Time, Shanghai & Beijing ratings, etc. • Jan 1 2001 – Dec 31 2006 • All Shanghai and Beijing channels 2007 advertisement rate cards • All channel’s penetration rates in Shanghai and Beijing 2007 • 2005 advertisement revenue by provincial stations Dataset to be collected • More ratings • More penetration data • More details about the program (e.g. production year and company) • More rate cards • Provincial/Provincial capital city level characteristics data

8. Testing H1 H1. Satellite channels moves towards product differentiation – i.e. increase program category concentrations in portfolio. H1 rejected if the data doesn’t show satellite channels increasing concentration on certain program categories over time.

9. Some Plots Indicating Differentiation Behaviors Overall Beijing Program Categories 1 Movies 2 Others (e.g. commercials) 3 Drama 4 Entertainment 5 Sports 6 News/Contemp. Issues 7 Finance & Economics 8 Lifestyle Service (e.g. weather report, car magazine) 9 Special Topics (e.g. documentaries, interviews) 10 Music 11 Children 12 Law 13 Theatre 14 Educational 15 Foreign Language Chongqing Shanghai

10. Testing H2 H2. Proprietary asset ownership affect satellite channels’ selection of program category concentrations. • Picard 2002 used specialized process, technique, and patents as examples of proprietary assets. • I argue that geographical characteristics is also a form of proprietary asset for the provincial TV stations • Examples • Shanghai Geographical Center of Business & Finance • Beijing Geographical Center of Politics

11. Testing H2 Proposed Experiment #1: Beijing Olympics • Beijing was elected the host city of Summer Olympics 2008. Announcement was made on July 13, 2001. • Other Chinese co-host cities were subsequently announced: • Qingdao International Sailing Centre (Shandong) Sailing • Shanghai Stadium (Shanghai) Football Preliminary • Qinhuangdao Olympic Sports Centre Stadium (Hebei) Football Preliminary • Hong Kong Equestrian Venues (Hong Kong) Equestrian • Tianjin Olympic Centre Stadium (Tianjin) Football Preliminary • Wulihe Stadium, Shenyang (Liaoning) Football Preliminary • These stations own geographical proprietary asset. • Test whether these provincial satellite stations have higher concentration of their program portfolio around the Olympics and sports

12. Testing H2 Proposed Experiment #2: SARS Outbreak • SARS Outbreak in China in Spring 2003 • Each province was hit by SARS under different intensities and in different time periods • Test whether the provincial satellite stations have higher concentration of their program portfolio around the outbreak

13. Other Ideas Differentiation and Ratings Performance Study firm performance outcomes upon adoption of differentiation strategy. Hierarchical competition Study how changes in ranking position affect firm actions, such as changes in the hazard rate of altering product portfolios. Puppy Dog Strategy - Under the Shadow of Powerful Players How do smaller firms manage their program lineup under the shadow of a large and powerful incumbent (CCTV), and which smaller firms are better at it?