Regulator targeting Internet TV

Crackdown by regulator curtails growing popularity of devices

The Xiaomi Box connected to a television set in Hu Xiaojiao's sitting room lies covered in dust.

"I have not turned on the device in months as lots of US and Japanese dramas are now unavailable," the 31-year-old fan of overseas TV programs told the Global Times Tuesday.

Hu bought the TV set-top box last year, which allows viewers to watch a variety of online video content that domestic TV broadcasters could not offer. She had enjoyed watching her favorite dramas such as The Big Bang Theory on the big screen instead of her iPad, but gradually lost interest in the set-top box as fewer and fewer programs could be accessed through the device.

This is because since the State Administration of Press, Publication, Radio, Film and Television (SARFT), China's media watchdog, launched a campaign to enforce regulations on Internet TV sets and set-top boxes in June, almost all major video websites have removed their TV applications.

Stricter regulation

Youku Tudou Inc, a leading video website in China, shut down its TV service on September 23, citing a SARFT document.

The No.181 document, released in October 2011, requires Internet TVs and set-top boxes to only have access to online content provided by seven licensed providers, which are mainly State-owned such as China Network Television, BesTV New Media Co and Wasu Media.

iQIYI, another online video provider, also said in a notice on September 26 that it was stopping its TV service in accordance with the regulation.

The move came after SARFT held talks with major online video websites on September 18, setting a deadline within the month for them to remove their TV apps. SARFT warned that those which failed to meet the deadline will be stripped of their Internet broadcasting licenses, media reports said.

Repeated calls to SARFT went unanswered by press time.

Previously, Leshi Internet Information and Technology Corp, also known as Letv, an online video content provider and Internet TV manufacturer, had already stopped sales of its set-top boxes, which will be resumed after the company makes changes to existing problems found by authorities, the Shenzhen-listed Letv said on July 18.

SARFT's latest round of supervision is mainly targeting set-top boxes because there are many shanzhai, meaning knockoffs in Chinese, ones sold on the market, and some facilitate pirated and harmful content, the statement said, noting that sales of Internet TV sets have not been affected.

The statement came after shares of Letv plummeted by nearly the daily limit of 10 percent consecutively on July 16 and July 17 due to the strengthened regulation, which caused Letv a loss of 6.3 billion yuan ($1.03 billion) in market value. Its share price gradually rebounded to 37.62 yuan on Wednesday, but is still lower than the closing price of 40.2 yuan on July 15.

Currently tech firms such as Huawei and Xiaomi, TV manufacturers and many small Guangdong-based electronic firms all produce set-top boxes. Compared with Internet TV sets, set-top boxes are more affordable to consumers, with prices ranging from 100 yuan to 1,000 yuan per unit.

"Big companies will follow SARFT's rules, but it is difficult for the authority to target tens of thousands of smaller makers," Zhang Libo, sales director of a Shenzhen-based set-top box maker, told the Global Times Monday.

Interest conflict

The latest regulation has raised the ire of some TV viewers who had bought Internet TV sets or set-top boxes.

"I really do not understand SARFT's logic. Why can we watch a TV program on PCs, tablets or smartphones, but not on TV sets?" an Internet user calling himself Jimmy complained Tuesday in an online chat group of set-top box fans.

"I had not watched TV programs for a long time before getting a set-top box. SARFT's move will force viewers to migrate to PCs or iPads from TV sets," another Internet user Quincy in the same chat group also commented.

This is not the first time SARFT has targeted set-top box makers.

Shanda Interactive Entertainment, one of China's biggest online games distributor, released a TV set-top box named EZ Station in 2005, but later announced it would give up the business in April 2006, as Shanda did not have a license from SARFT to operate services based on Internet protocol TV technology.

Analysts said the latest regulation is also part of SARFT's efforts to protect the interests of itself and cable TV operators under its administration, as the authority has faced an increasing threat from the booming Internet-based set-top box market.

New installments of Internet-based set-top boxes surged to 12.5 million units in 2013 from 1.25 million units in 2011, while new installments of set-top boxes provided by cable TV operators fell to 29 million units from 44.75 million units during the same period, data from research firm China Market Monitor Co (CMM) showed.

"SARFT has used administrative orders with the aim of reversing the trend," Zuo Yanque, brand director of CMM, told the Global Times Monday.

"Such a move will hurt video websites that aim to 'occupy sitting rooms,' but benefit the seven licensed providers and cable TV operators such as Beijing Gehua CATV Network Co," Zuo said.

A way out

Video websites and TV manufacturers are looking for solutions to the enhanced regulation.

"The regulation will push video websites to strengthen alliances with cable TV operators," Lu Renbo, deputy secretary-general of China Electronics Chamber of Commerce (CECC), told the Global Times Tuesday.

Letv signed a strategic cooperation agreement with Chongqing Radio and Television Group and Chong-qing Cable Networks (CCN) on July 23, shortly after the Internet company had been targeted by SARFT.

The agreement will see Letv set up a venture to operate the Internet TV business with CCN, and cooperate with the media group on the content.

TV manufacturers are taking a different approach.

Shenzhen-based TV manufacturer Skyworth released a 55-inch terminal called "smart screen" in partnership with tech firm Huawei on Monday. The terminal has a screen size similar to a TV set, but has no interface or remote control. Viewers can use any smartphone or tablet to control it and project videos and games on their devices to the screen.

The new product has attracted public attention because it can bypass SARFT's regulation by not being recognized as a TV set, though its price of 6,999 yuan per unit is higher than most Internet TV sets.

"It will take time for consumers to accept the new product given its relative high price and innovative usage method, but the product provides a new direction to TV manufacturers amid strengthened regulation on content," CECC's Lu said.