Market Insight

China media watchdog continues to tighten control over foreign content

October 05, 2018

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The National Administration of TV and Radio (NATR), the newly formed Chinese media regulator, has published a draft discussion of the Provisions on Administration of Import and Broadcasting of Overseas Audio-Visual Programs. The provisions will aim to regulate the distribution of foreign content, including movies, TV shows, animation and documentaries. Media industry players were invited to comment on the draft until 19 October 2018.

NATR was formed as a part of a government bureaucracy restructure earlier this year to replace The State Administration of Print Publication Radio Film and TV (SAPPRFT).

The main objective of the proposed regulation is to support the domestic entertainment industry, as well as to control the content consumed by people in China. Key provisions include:

  • Clause 19: NATR will be required maintain and publish a catalogue of foreign programs approved for streaming in China. OTT service providers will be prohibited to stream any foreign content that is not listed in the catalogue.
  • Clause 22: TV broadcasters will be required to limit foreign content to 30% of the broadcaster’s daily broadcast time for each category. Primetime broadcast (7.00pm-10.00pm) of foreign programs (of all categories) will be prohibited without NATR’s specific approval.
  • Clause 23: Online video service providers will be required to limit the size of foreign content to 30% for each category, namely movies, TV shows, documentary and animation.

Our analysis

OTT video platforms will need to reduce the volume of foreign movies and focus on boosting local titles to comply with the new regulation

The new regulation is a part of an ongoing effort by the Chinese government to regulate content distributed online and to reduce foreign influence on the Chinese media industry. There is already regulation in place that limits online video platforms’ catalogue to no more than 30% foreign content. The new rule is going to expand the existing rule, forcing online video services to limit foreign content to 30% in each category.

All online video platforms should comply to the current 30% limit on all overseas content. Across all categories, movie is the category with the biggest foreign content ratio: foreign movie account for around 40%-60% of total movie catalogues of the three major online video platforms, Baidu, Alibaba and Tencent.

There is no clear definition on how the percentage of foreign and local content is measured. The average number of episodes per season in Chinese drama is around 40, longer ones could reach 80, while for foreign drama, it is usually around 20 or less. IHS Markit believes that the total size of the catalogue is measured by number of individual pieces of video content, being inflated by number of drama episodes, making the share of foreign programming over total size of catalogue to be less than 30%. With the implementation of the new rule, online video platforms will need to reduce the volume of foreign movies or focus on buying and producing more local movie titles.

The proposed rule of having the media regulator approve every foreign title and maintain the catalogue of foreign content is going to interfere with and delay the windowing of foreign movies to be streamed on online video platforms. This is counter to the initiative by major online video platforms in the market, as services are working on shortening the windowing process for movies in order to tackle piracy and engage with their subscribers by offering them exclusive content. Local web movies like Absurb Accident by Youku and Hong Kong Rescue by iQiyi were released simultaneously in cinema and on Youku’s online platform. Fox’s partnership with iQiyi has also shorten windowing process for foreign movies. Gifted was release in US on April 12 2018, and iQiyi was the first digital platform to add the movie to its subscription video-on-demand catalogue for all its subscribers, on May 2, 2018; X-Men: Apocalypse and Logan, meanwhile, were made available on iQiyi (paid-for catalogue) 60 days after debut in cinema.

Primetime foreign content ban for broadcasters will further minimize importing of foreign content and encourage local production

In China, TV broadcasting is a more regulated medium compared to online platforms. Previously, foreign films and TV series were banned from primetime hours and the quota of foreign programming during the rest of the day was 25%. The introduction of the new regulation will mean a primetime foreign content ban including animation, documentary, educational programming, variety shows and sport, unless special approval is granted; and a quota limit of foreign programming during the rest of the day to increase from 25% to 30% for each category. Thai and Singaporean TV series, as well as Japanese animation and game shows, are among the popular foreign content acquired by Chinese broadcasters. We expect the new legislation to further minimize the import of foreign content by broadcasters and encourage local content production.

For programmes made in China, NATR is proposing a 20% cap on the number of foreign talents and production staff they can employ (not applicable to Hong Kong, Macau and Taiwan). This restriction will pose an even higher barrier for global studios to do business in China. In February 2018, NBCU sold its shares in Oriental DreamWorks to Chinese Media Capital (CMC), giving CMC full ownership of the studio that made Kung Fu Panda 3. On top of this, the market saw shutdowns of foreign companies that provided digital media services (including distribution of music, films, books, magazines, etc.) either through a wholly foreign-owned company, or a joint venture with Chinese partners. Those services included DisneyLife and Apple iTunes Movies and iBooks stores, which were all closed in 2016. The companies and the authority did not reveal the regulatory reason of the closures.

Considering all the above, we expect the implementation of the add-on rules will further limit the amount of foreign content making its way into China, and heighten the barriers of foreign companies to co-produce with Chinese companies. We expect this to pose opportunities to local content creators and owners, not limited to the three online giants Baidu, Alibaba and Tencent. As Chinese content continues to thrive, China is set to become one of the largest content exporters in the Asia Pacific region, alongside Japan and South Korea. Chinese content is able to reach global audience quickly through global video streaming platforms such as Amazon and Netflix. iQiyi’s original titles Chosen, Tientsin Mystic and Burning Ice had been acquired by Netflix and made available to its global subscribers; Netflix also bought the global rights for Alibaba-owned Youku Tudou’s original drama Day and Night.

Research by Market
Media & Advertising
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