Hong Kong: Gateway to Asia

or declining world centre?

Nancy Smith is president of Smith Marshall Inc., a Toronto-based communications consultancy firm.

* * *

In the 1980s, as the only Canadian on the u.s.-dominated board of PROMAX International (then known as bpme), I was assigned the role of international chair, partly because I was a committed traveler, but mostly because I was the only ‘foreigner’ on the board.

My job was to expand international membership, and enrich the association through the participation of television, radio, syndication, satellite and cable services from around the world. For me it was a labor of love.

Initially I concentrated on the English-language markets. In 1987, at the end of a conference presentation I was doing on Australian broadcasting, two young Chinese men approached the podium and suggested I should focus my next presentation on Hong Kong. And so I did.

Working with Aaron Lee and Ko Ping Yeung, both of whom then worked for broadcast leader tvb in Hong Kong, I traveled to Hong Kong and discovered a sophisticated industry distinguished by high-quality production and world-class studios and facilities.

My visit was just prior to the licensing of cable and satellite services, and tvb was the unchallenged champion of television viewing, with a 90% share. It also owned and operated TV City, the largest studio facility outside of Hollywood, generating 5,000 hours of original programming annually, making it the largest supplier of Cantonese-language programming in the world.

I was fascinated by the extremes of Hong Kong, the old and the new, the unabashed wealth alongside crowded housing, and the extraordinary diversity of the 5.5 million residents.

After an absence of five years, I returned to Hong Kong last month, and discovered it is everything it was, only more. In fact, ‘more’ seems to be the word that best describes this over-the-top society. Land is being reclaimed to create room for more prime office sites, highways expanded, billions of dollars poured into a new airport, and cable and satellite services developed and expanded at an unprecedented rate.

I received tremendous support in organizing meetings in Hong Kong from Alex Choi (in Toronto) and Cathy Jim (in Hong Kong) of the Hong Kong Economic and Trade Office. They arranged appointments for me and provided information that greatly enhanced my trip.

In these meetings I discovered there are very mixed emotions in the business community around the impact of Chinese rule. Many believe changes will be minimal, while others feel doomsday is just around the corner.

Whatever their opinions, most agreed that for business planning purposes, 1997 has already arrived. Virtually no major decisions are being made without the agreement of the Chinese government, and nowhere is this more evident than in the communications industry.

One of the most interesting meetings I had was with James So, secretary for Recreation and Culture, the minister responsible for broadcast policy in Hong Kong. He is on a mission to convince the world that Hong Kong is the only base to consider for the launch of new electronic media services in Asia, services that have the potential to reach a staggering two-thirds of the world’s population.

He spoke very candidly about the benefits and liabilities in launching satellite services in Hong Kong versus other Asian sites.

Hong Kong’s biggest competitor is Singapore, and American services hbo and espn have opted to uplink their services from Singapore in return for tax holidays, cheap land sites, and the opportunity of retaining 100% foreign ownership.

To combat Singapore’s efforts, So is consulting with the Chinese government to amend the law to lift foreign ownership restrictions (currently limited to 49%) and add incentives to encourage foreign broadcasters to invest in Hong Kong. Consultation with China is necessary because licences granted in Hong Kong traditionally have a 12-year term, which means all agreements straddle 1997.

In selling the benefits of Hong Kong as a home base, So points to the success of existing services operating in Hong Kong, the growing economy, the readily available capital, access to China, and the media freedom that exists in Hong Kong versus Singapore. Ironically, the services that are based in Singapore are not allowed to reach Singaporean viewers.

STAR TV

star tv is the first and only satellite service operating in Hong Kong. I first met star’s Australian president and ceo, Gary Davey, when I was at Citytv and he was head of programming for Rupert Murdoch’s Skytv.

When Murdoch bought controlling interest in star in August 1993 from founder Li Ka-shing, he knew star needed the expertise Davey had developed as head of the British service (now known as BSkyB) and the resources of News Corp to turn around the struggling service.

He acquired star under terms that allowed News Corp operating control, put Davey in place as president and ceo, and set in place a strategy that has resulted in increased audience and revenue in one year.

But just how did Murdoch get around Hong Kong’s 49% maximum foreign ownership law?

It seems restrictions apply to the company holding the licence only and not to the parent company. By taking a majority stake in the parent company of HutchVision Ltd., holder of the star licence, Murdoch gained control without breaking the law. The government is aware of this loophole, but is turning a blind eye to encourage foreign investment.

star currently operates five ‘free to air’ entertainment and sports channels, with a footprint that has the potential to reach billions of viewers. Its current reach is 42 million households, most of whom receive the signal through cable distribution, not satellite dishes.

star is almost totally advertiser funded and receives tremendous support from sponsors eager to exploit the growing purchasing power of the Pan Asian audience.

Ironically, star is not available on cable in Hong Kong due to its inability to make a deal with Hong Kong’s cable franchise holder. It is not permitted to offer pay-tv services in Hong Kong, but does provide pay movie services in English and Chinese in other markets. This restriction will be lifted in 1996 at which time star will petition to offer pay-tv in Hong Kong.

Also, to protect the Hong Kong terrestrial broadcasters, the government placed an initial ban on Cantonese-language programming on star, and allowed Mandarin only. This limits audience potential in Hong Kong since Cantonese is the most widely spoken language, but opens up China where Mandarin is spoken.

In a move to provide more relevant program choices to specific cultures, and stimulate interest in the service, star developed a northern and southern broadcasting beam, dubbing programming into several languages. Most programming is produced in-house, or acquired, with very little coproduction.

Wharf Cable

In October 1993, Hong Kong’s first cable service, Wharf Cable, officially launched Asia’s first multichannel subscription television service. To win the cable franchise in Hong Kong, Wharf agreed to invest approximately $1 billion (Canadian) to create a state-of-the-art telecommunications infrastructure.

Currently capacity of the cable service is 20 channels, but by 1996, with fiber optics, capacity is projected to be limitless.

Wharf presently carries 12 channels, including four pay-tv services, and it is in negotiation to carry additional foreign pay-tv services including cnn, the bbc, Discovery Channel and tnt.

Critics suggest Wharf is more interested in the telecommunications potential of its business, and views the production of programming for its service as a necessary burden. Wharf believes its commitment is evident through its production of 5,000 hours of original programming per year.

As with star, Wharf produces most of its programming in-house, or acquires programming, with very little coproduction.

TVB

I revisited tvb after a long absence and discovered that new competition has only spurred it on to even greater heights. During my meeting with So, he pointed to the commercial success of tvb as evidence of the profits to be made in Hong Kong, and ultimately Asia.

In 1993/94, tvb’s profit from the sale of commercial advertising in Hong Kong increased by 37% from the previous year. With the addition of tvbi, the international arm of tvb, the company’s profit increased 71% from the previous year.

After meeting with tvbi, I understood why the company’s success is due not only to increased consumer/advertiser demand in Hong Kong, but also to the innovative global approach it has taken to expand its business beyond Hong Kong.

It is involved in satellite services, program syndication, cable services, coproduction and coventuring, and video distribution with an eye to individual centers rather than mass distribution.

In Hong Kong, tvb operates two channels available off air and on cable, one English-language, TVB Pearl, and one Cantonese, TVB Jade. Programming is a mixture of news, information and entertainment produced in-house and acquired from all over the world.

For decades, tvb has produced thousands of hours of original programming annually, and it is credited with having trained an entire production industry work force, many of whom are now fueling the growing production sector.

ASIA TV

asia tv, tvb’s terrestrial competition, has historically lagged far behind in audience numbers, but is coming along and currently winning individual time slots on occasion. asia tv also operates an English-language service, ATV World, and a Cantonese-language service, ATV Home. Programming is similar to the tvb service.

Distribution in China

When government and industry representatives in Hong Kong toss around statistics such as two-thirds of the world’s population, amounting to billions of potential viewers, it is hard to imagine how any one service could satisfy the cultural and viewing needs of the entire Asian population. Inevitably all conversations lead back to China and the 1.2 billion potential viewers who are accustomed to watching programming created in Hong Kong through long-standing program exchange agreements.

Individuals and cable operators from the southern China provinces are particularly familiar with tvb, which they pick up off air. tvb’s mainland Chinese audience is estimated to be five million to seven million, a huge number when you consider tvb’s Hong Kong audience to be approximately four million viewers.

As well, star recently petitioned a study that showed its service reaches 30 million Chinese households, an extraordinary accomplishment when you consider that in China it is illegal to distribute foreign services off air or through satellite to individuals.

Services may, however, enter approved outlets. For instance, if a local cable operator wants to carry a service from Hong Kong, it can apply for approval from the central government in China. Many believe that local and regional operators are carrying foreign services without government approval.

In some instances, this works to the advantage of foreign services by increasing reach; in others, there is a mounting concern about piracy of services and programming.

Some industry leaders feel very strongly that services that are established in Hong Kong when China takes over in 1997 are as good as established in China.

So reinforces this point of view. He believes that satellite services using Hong Kong as a home base stand a much better chance of acceptance in China because the central government will be consulted before these licences are granted. His goal is to create a diverse spread of services in Hong Kong to ensure freedom of the media under Chinese rule.

Time will tell whether the communications industry in Hong Kong will remain free and profitable under Chinese rule, but whatever happens, So’s closing piece of advice remains valuable: ‘Broadcasters must be highly sensitive to the social, cultural, religious and political diversity of the region (Asia), and be ready to respect that diversity. Otherwise, doors will very quickly be slammed in their faces. Be courteous, and respectful, and above all more patient and less judgmental about the western view being the only and correct view.’

As you travel or work in Hong Kong, you will do well to heed So’s advice, and listen, learn and adapt as you build relationships in the gateway to Asia.