Scaling the Great Wall: Landing on-air in China proves difficult for foreign prodcos

When China's State Administration of Radio, Film and Television announced in April 2004 that close to 60 of its provincial-level TV stations must each launch a channel catering to children by the end of 2006, there was much rejoicing in the international kids market. It's anticipated that these new channels will require 60,000 new minutes of kids programming, and with Chinese production companies only able to produce 20,000 of these, foreign producers quickly lined up to fill that 40,000-minute gap. But 10 months down the road, no straightforward blueprint for selling into China has emerged. In fact, Western producers looking to entertain the country's 300 million kids might have an easier time scaling the Great Wall than finding a broadcast berth.
April 1, 2005

When China’s State Administration of Radio, Film and Television announced in April 2004 that close to 60 of its provincial-level TV stations must each launch a channel catering to children by the end of 2006, there was much rejoicing in the international kids market. It’s anticipated that these new channels will require 60,000 new minutes of kids programming, and with Chinese production companies only able to produce 20,000 of these, foreign producers quickly lined up to fill that 40,000-minute gap. But 10 months down the road, no straightforward blueprint for selling into China has emerged. In fact, Western producers looking to entertain the country’s 300 million kids might have an easier time scaling the Great Wall than finding a broadcast berth.

Considering the quota factor

For one thing, SARFT instituted steep local quotas just as Western producers were adding Mandarin tracks to their animation catalogues in anticipation of a Chinese sales bonanza. In May 2004, the regulatory body stipulated that TV stations must maintain a 3:2 ratio between domestic and imported programming, with no foreign shows allowed on-air during prime time. (To make the equation a little easier to work with, Western producers have reinterpreted the split to mean that every half hour of foreign animation must be matched by a domestic half hour.) Similar to quotas in France and Canada, this restriction is intended to help China’s animation industry develop since stations will have to buy locally in order to purchase foreign programs.

Nicholas James, CEO of London, England’s Chorion, puts it this way: ‘We have two networks in China that are very keen to show Noddy, but at the moment, they can’t get clearance for it. At 100 x 10 minutes, they have to find 1,000 minutes of local animation to pair up with it.’

The problem is that the local production infrastructure is quite weak. Few homegrown series reach worldwide airwaves, and many of the country’s animation studios – best known for their cel painting and CGI production capabilities – rely on service work to make ends meet. Despite China’s wealth of studios and animation talent, most of the core creative work (writing, character designs, boarding, etc.) on animated series is still handled by foreign companies, and even in a co-production relationship, the central government doesn’t classify projects boasting this type of work split as local productions. So foreign companies looking to get their shows onto China’s new kids channels will have to include their service partners in the show’s creative development to qualify as local.

To expedite the sale of his newest property and to help the local industry develop deeper expertise that will make co-production easier in the future, James may bring Chinese creative talent in on developing Mr. Men, but only if the company employs a service studio in the region. He says the market isn’t economically important enough yet to justify producing a show in China simply to get a broadcast deal in the region.

Furthermore, if SARFT’s goal is to build the local industry, James thinks it makes more sense to phase in local content quotas gradually. He suggests starting with a 10% to 90% ratio of local to foreign programming in year one, and evening that proportion out by 10% a year until the desired scale is achieved. James doesn’t underestimate China’s ability to develop a strong animation industry, but assuming that every studio in China has the will and the money to make children’s animation, time is still working against them. ‘It takes a year or two to make an animated series. So setting a barrier at around 50% in year one is not very realistic,’ he says.

More money, more money, more money

Even putting regulation issues aside, there’s the ever-present problem of funding, says CMM Intelligence research director Kristian Kender. Kender’s Beijing-based research and consulting firm focuses on the Chinese TV industry, and he cautions that youth and animation broadcasters in the region don’t have a lot of money to spend. ‘Advertising is not very developed on these channels, and so the broadcasters have very little money to buy more local shows,’ he says. And if there isn’t even enough money to properly support domestic programming, how much can Western companies realistically expect to get from a Chinese sale?

Truth be told, it hasn’t traditionally been easy to sell foreign products of any kind into China. And even if a kids producer follows the rules and does manage to land a broadcast deal, most say it’s even more difficult to get paid. ‘We shouldn’t be thinking China is a goldmine,’ says Chorion’s James. ‘Why would we expect to be paid more than nothing in one of the world’s poorest countries?’

Not everyone’s view is as bleak. More channels, says BKN New Media chairman and CEO Allen Bohbot, means more possibilities for getting paid. His company is angling to widen its footprint in Asia as a whole, but with a particular focus on Mainland China. He says the territory’s second major kids channel that’s launching later this year will pay about 20% more than the first, and the third will pay more than that, eventually helping to build a healthy competition between the broadcasters.

Bohbot also sees greater opportunities for catalogue animation in China because kids there have never been exposed to many classic titles. ‘We can sell stuff we’ve made over the last 10 years and get full price because it’s never been sold there before,’ he says.

The pros and cons of third-party representation

But it’s not just a matter of meeting with Chinese broadcasters and striking a deal. Language issues, foreign quotas and business customs can prevent even the most pedigreed show from hitting the airwaves. CMMI’s Kender adds that the Chinese television industry is a minefield that cannot to be navigated from afar, which further complicates matters. ‘There are no affiliated networks, so broadcast deals have to be forged individually with each and every provincial and municipal TV station,’ he says. And this is the main reason why many Western producers are employing the services of third-party distributors or agents to get into the region.

But there’s also a cash-flow issue working in their favor, says Alicia Hannan, sales executive handling Asia for Australia’s Southern Star International. Many Chinese broadcasters only pay for programming after delivery, so agents sometimes step in and advance producers the license fee, thereby reducing risk and shortening payment cycles.

Martha Van Gelder, Nelvana’s senior VP of sales and distribution for the U.S. and Asia Pacific, has been investigating long-term business strategies in China since she joined the Toronto, Canada-based animation studio in April last year. And although she hasn’t signed any deals with agents, Van Gelder says she’s been offered between US$300 and US$1,200 for each of Nelvana’s 2,200 half hours.

Ragdoll has been looking into opportunities in China for 18 months. Last September, the legwork paid off in a three-year free and pay-TV rights deal with Guangzhou Beauty Culture Communication, which is negotiating with broadcasters to secure a Chinese home for preschool series Boobah. Well-equipped to handle some of the more important ancillary product categories, Beauty will also produce licensed Boohbah videos and DVDs, distributing this home entertainment line through its 58 branded retail shops in China’s main cities.

Ragdoll’s head of international sales, Nick Kirkpatrick, was introduced to Beauty at MIPTV 2004′s China Day showcase, and the company’s broad infrastructure impressed him. In addition to TV and video distribution, Beauty now plans to branch out into toy distribution and book publishing. Although Ragdoll hasn’t signed Beauty as a toy distributor, Kirkpatrick says he’s trying to avoid splitting rights among too many partners in China. ‘Keeping them all under the same roof is better for the brand in the long term.’

Even though Ragdoll and Chorion have made inroads with local partners, most producers say it’s difficult to identify leading agents and distributors in the region. Flip through the MIPTV delegate book, and you’ll see that there are literally dozens of entrepreneurial distribution shops looking for Western content to sell to Chinese channels. Southern Star’s Hannan, who is approached constantly, says it’s difficult to determine which companies are reputable and have strong relationships with the broadcasters, and which ones are opportunists who want to test the Chinese market by sending out a mountain of promo tapes before even committing to Southern Star as a client. (The risk inherent being that the property may become over-exposed in the region before it even launches.)

Choosing the wrong partner could also mean losing control of your ancillary rights, warns Hannan. ‘It hasn’t happened to us, but there are many stories about property owners who have tried to sell rights in China, only to find out that their distributor has already awarded them to another company – even though the distributor was not authorized to negotiate for them.’

Bartering for program placement

Given China’s landscape, it’s pretty clear that sussing out and pairing up with a reputable partner on the ground is a good idea. But there are other sales avenues to explore, including bartering for advertising airtime. If you’re unable to sell programming directly to a broadcaster, you may be able sell it to an advertiser looking to sponsor a time slot on that channel.

Although many local distributors are owned by corporations that also have advertising subsidiaries, some Western producers, including Germany’s EM.TV, work directly with advertising agencies in China to place their shows on the small screen. ‘We sold some property rights for a puppet show we used to own to top advertising agencies in China with a minimum guarantee, and then they dubbed the content and sold it at their expense,’ explains Patrick Elmendorff, joint managing director of EM.TV‘s Junior TV and EM.Entertainment.

And the advertising partner need not be Chinese, either. In 2004, Procter & Gamble finished the year as China’s top advertiser, a first for a foreign-owned company. BKN’s Bohbot says packaged goods giants such as Nestlé are eager to book time on China’s kids TV channels, adding that there aren’t really any rules prohibiting product advertising within kids shows in China right now. ‘Some of the laws we’ve passed in the West haven’t even been contemplated over there,’ he says.

Nelvana is evaluating the viability of using sponsored blocks to get its animated properties onto Chinese terrestrial television. Van Gelder says discussions are in the works with broadcasters, ad agencies and client marketers to secure a branded schedule. ‘There are a lot of people in advertising who would like to reach families, and there’s a lot of co-viewing [between parents and children],’ she says.

Van Gelder would like to model Nelvana’s future investments in China on the partnership Viacom struck with Shanghai Media Group last March. Viacom was the first global player to announce an equity stake in a Chinese media company after the government opened its doors to foreign participation. And as part of the agreement, Nickelodeon and SMG will co-produce customized programming for Chinese audiences to premiere this year on more than 30 cable stations across the nation.

Deciphering broadcaster interest

But say you want to work directly with a broadcaster like CCTV? It can be done, but there’s an approval process to follow. According to Jan Nagel, American representative for Hong Kong’s Agogo International, producers must apply to CCTV in either January or July by submitting a 2,000-word treatment of the series, along with a bible. Within 60 days, CCTV will give the producer approval to proceed with greenlighting and producing the series. After two years, the producer must submit the completed series to the same commission, and if it’s accepted, the show will be certified and readied for air. ‘This is how CCTV does it, and that’s the way the majority of the country’s 2,000 channels do it. They do their own self-screening and self-certification,’ says Nagel.

Hannan says local distributors and agents can often identify which shows are likely to appeal to specifc networks, as well as helping producers customize their programs before they’re screened. But even if you’ve followed all the steps, it can still be hard to determine whether a network is interested in your show because the Chinese hate delivering bad news. ‘Instead of letting you know they’re passing, you may just never hear from your contact again regarding that title,’ says Hannan.

Agents can also give producers guidance on what is culturally acceptable in China, although there seems to be a bit of confusion about what demand there is for action-adventure versus educational fare. EM.TV‘s Elmendorff points out that Japanese imports such as Pokémon and Digimon are doing very well in China, and BKN’s Bohbot adds that SMG’s new animation channel, Toon Max, has pulled in healthy audiences with Jackie Chan Adventures since its post-Christmas launch. But Hannan notes that broadcasters and agents have to pay a tax on importing non-educational programming. Perhaps that’s one reason why most producers still concentrate on their preschool product in China.

Merch possibilities

There’s also a lot of debate about the market potential of consumer products based on foreign-produced TV shows. In March 2004, Chorion signed a deal with Foreign Language Teaching and Research Press to exploit Noddy’s educational properties in publishing. ‘The argument we’re having now is whether our licensing program should grow the property beyond its parameters as an educational brand,’ says James, adding that if Noddy had come onto the scene as an entertainment property with a touch of education, it never would have made it onto Chinese shelves.

BKN is planning to launch licensed products based on its action-adventure series Legend of the Dragon in 350 retail stores across China later this year, but Bohbot admits he’s dabbling in virgin territory. It’s difficult to assess how a successful show might galvanize Chinese kids to walk into a store and buy related toys and video games.

There’s no doubt China is an exciting market, but there’s a lot of speculation about how it will evolve over the next five to 10 years. Bohbot claims there’s a channel that’s thinking about broadcasting in English because it’s a cheaper, faster and more educational way to get foreign programming on-air. Ragdoll’s Kirkpatrick suspects the provincial stations might eventually amalgamate into three or four main channels. But everyone agrees that baby steps are the key to making progress, and Chorion’s James provides a reality check: ‘If you’re betting your company on China, you won’t have a company for very long.’

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