In early 2002, the Shanghai municipal government “advised” SCN to accelerate the digital TV project and gradually migrate to interactive TV services in the next few years. The government also provided millions of dollars in subsidies specifically for the digital TV project. Reprinted from the November 17, 2002 edition of "Parks' Points"
Shanghai Interactive/Digital TV
Yuanzhe (Michael) Cai | Parks Associates
Eye on China: Behind the Hype of Shanghai
In early 2002, the Shanghai municipal government "advised" SCN to accelerate the digital TV project and gradually migrate to interactive TV services in the next few years. The government also provided millions of dollars in subsidies specifically for the digital TV project. Reprinted from the November 17, 2002 edition of "Parks' Points"
While recently surfing for the technology headlines, I spotted an article titled "OpenTV Powers iTV Launch for 3.5 Million Households in Shanghai," which reported the first largescale interactive TV service launch in China from Shanghai Cable Network (SCN). Wow! ITV, 3.5 million, Shanghai: the simple combination of these words gives me chills. In the U.S., interactive TV has been generating buzz for more than a decade, yet most MSOs are settling for the less interactive VOD service instead, at least for a while. Is the Chinese market ripe for a major iTV commercial launch? Moreover, digital TV has been in the spotlight in mainland China for a while-several trailblazers have vanished and Beijing and Canton have just launched their digital TV services. What is so different about this one?
As I continued to read, I came across a couple of contradictory articles from Chinese newspapers: one asserting early iTV market traction, the other reporting a cold reaction from local viewers. Eager to unveil the truth, I interviewed two senior managers from the Shanghai Cable Network who were intimately familiar with the project. Questions derive from questions, and a 30-minute phone call turned into more than 3 hours of conversation. I will briefly highlight some interesting findings here. Please check back at our website www.parksassociates.com for a more in-depth analysis, or email me at firstname.lastname@example.org to ask for your copy of the article.
With more than 70% of the metro network upgrade complete, SCN has introduced new value added services to leverage its new network capacity. In early 2002, the Shanghai municipal government "advised" SCN to accelerate the digital TV project and gradually migrate to interactive TV services in the next few years. The government also provided millions of dollars in subsidies specifically for the digital TV project. SCN expects to soon combine its "digital iTV service" with its cable modem service to enhance its brand image and prepare for the more fierce competition in the future when market convergence becomes a reality. Beijing and Guangzhou have stolen the thunder of digital TV, and Shanghai is therefore more than happy to add the word "interactive" to "digital," becoming number one in this uncharted but promising market.
In order to receive the new service, consumers within the upgraded network need to rent or (preferably) purchase a Nokia set-top box (at a price of $200) and buy a smart card (for about $13). Then they can start enjoying the new service for free until the end of the year. Starting in 2003, monthly subscriptions are expected to run about $4.50, which covers a number of new services including near-video-on-demand (or NVOD), impulse pay-per-view, interactive news magazine, weather and stock information, and gaming. Additionally, the service includes 18 analog-to-digital channels, 10 audio , and 12 specialty/theme channels including movie, discovery, and shopping channel.
However, given that the set-top box does not have an integrated high-speed return channel (which serves to keep the cost low), the interactivity is mostly limited to locally-cached content. Moreover, without interactive content from producers and aggregators, SCN cannot offer true interactive TV services. The company is well aware of these limitations, as reflected in its strategy. Phase one of SCN's timeline (Oct. 1st 2002-Oct. 1st 2003) focuses upon digital TV and pay-TV. Phase two focuses upon adding more interactivity, including VOD services.
Even in this first phase, SCN faces abundant obstacles, and the expectation for the project has been lowered several times from the original 10,000 subscribers to only 2,000 by year-end. The reasons for a lackluster opening are clear.
First of all, consumers are not convinced that the new content is worth the price. Existing analog cable subscribers are currently paying a monthly fee of 1.5 dollars, which is actually just a network maintenance fee. In other words, analog cable subscribers watch more than 20 analog channels for free! Second, the Chinese government still has tight control over content production and distribution, and viewers have access to a very limited pool of content through the new theme channels. Third, pirated content steals a large portion of the cable company's potential revenue - for example, VCD/DVDs come out ahead of the release date in North America and cost around $1 per copy, and young techies can conveniently go online to swap and download free movies. Last but not the least, SCN intends to focus more resources and attention on higher-margin broadband services, where telcos claim a whopping advantage of 5 to 1.
What have I learnt from my behind-the-scene investigation? First, the real intention of the iTV/DTV project is to fulfill a promise to Shanghai municipal government and to start the transition towards Pay-TV. Second, as the largest commercial city and economic center of China, Shanghai hates to finish second!
Michael Cai, email@example.com
The content & opinions in this article are the author’s and do not necessarily represent the views of HomeToys
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