NEWSWEEK INTERNATIONAL, NOVEMBER 12, 2001

Phoenix Rising

A Hong Kong satellite-TV station leads the way in opening up China's airwaves to outside influences

BY PAUL MOONEY IN BEIJING

IN THE FIRST HOURS AFTER THE September 11 terrorist attacks, Hong Kong-based Phoenix TV was the only source of news for millions of Chinese. State broadcaster CCTV made only a brief announcement shortly after the attacks, then provided no more information until midnight. Five-year-old Phoenix, on the other hand, reported nothing else for 36 hours. Chinese around the country anxiously looked for friends who had access to the station, while university students pooled their money to rent hotel rooms so they could watch the unfolding coverage.

The company’s quick thinking has won the station rave reviews throughout China-just as Beijing begins to open up the country’s tightly controlled television market to outside influences. Industry analysts say that as a result, September 11 could be as transforming an event for Phoenix as the gulf war was for CNN. Phoenix CFO Liu Changle says only that “as a result of our coverage, Phoenix’s reputation among Chinese increased considerably.” But according to David Wolf, a media expert working for Burson Marsteller in Beijing, the station’s newfound clout could speed up the process of changing Chinese TV “from a means of distributing propaganda to a genuine industry.”

In theory, most Chinese should not have access to outside broadcasts, Phoenix, which is co-owned primarily by Liu and Rupert Murdoch’s News Corp., produces three Chinese-language news and entertainment channels from its studios in Hong Kong that reach most of Asia. But like the 21 other foreign broadcasters that send signals into China—including CNN, HBO, Cartoon Network and BBC—it’s supposed to be watched only in three-star-and-above hotels and in complexes that house international residences and offices. A fair number of Chinese officials and military compounds have satellite dishes that pull down the Phoenix signal, as do some of the more up market local housing complexes that are shooting up in major cities around the country. But the Chinese masses are only able to watch Phoenix on illegal satellite dishes or via cable providers which pipe out the programming illegally. Phoenix charges nothing for the feed, making money only from its advertising revenue.

Yet enough Chinese were able to tune in after September 11 to fill newspaper columns and Internet chat rooms with unflattering comparisons between Phoenix and CCTV, Chinese bedizens blasted the state broadcaster for its lack of coverage, highlighting the need for alternative voices on the air. “It’s fortunate that we have Phoenix,” Zhang Dandan, vice president of Macau Five Star TV, wrote in the Pinnacle Weekly newspaper. “Otherwise we could only have CCTV to depend on to learn about what’s going on in the world.”

Chinese viewers may soon have even more channels to choose from. On Oct. 22, AOL Time Warner announced that it had been given the go-ahead for its Chinese language channel CETV to be broadcast on cable systems in the Pearl River Delta area of Guangdong province next to Hong Kong. (In exchange, AOL will carry CCTV-9, an English-language channel from China, on its cable systems in several cities in the United States.) Phoenix signed a similar deal that also involves carrying CCTV programming in the United States, while News Corp. is expected to announce a separate arrangement soon.

The deals are in fact commercially insignificant. They allow these channels to reach only a fraction of China’s 1.26 billion people—in a market that Phoenix already penetrates. Furthermore, the designated area in southern China is already saturated with broadcasts from neighboring Hong Kong and Taiwan; the newcomers will face stiff competition for limited advertising dollars. Estimates for china’s total TV-advertising market vary widely, from $2 billion to as high as $12 billion, with the actual figure probably closer to the middle Goldman Sachs recently estimated the TV-ad market in Guangdong could be worth as little as $200 million.

The move, however, is symbolically significant as a first step in the opening of China’s doors to international television programming. “If China can allow Hong Kong and U.S. media companies to come into China, it’s a huge thing,” says Chui Keung, executive director of Phoenix. “It shows that the final closed door-ideology—is beginning to open. Just a little, but it’s a start.”

The vehicle for that revolution is in many ways an unlikely one. When it was first introduced, Phoenix brought lively news, talk, soap opera and other programs to a Chinese television market that could, at best, be described as dour. Since then, for reasons that are not entirely clear, the company has been granted considerable freedom to report on a wide variety of topics not open to the state media. The station avoids obviously taboo subjects, like Beijing’s crackdown on the Falun Gong movement, and was if anything more stridently nationalist in its coverage of the 1999 bombing of the Chinese Embassy in Belgrade and the Hainan spy-plane incident than were mainland stations. But it also broadcasts daily news about Taiwan, including interviews with leading Taiwanese personalities and, in a move unthinkable in the state media, covered President Chen Shui-bian’s 1999 inauguration live from Taipei.

The leeway has led to intense speculation about Liu’s background and connections. The 50-year-old Shanghai native served in the People’s Liberation Army briefly during the Cultural Revolution (1966-1976), before being assigned to China Central People’s Radio Station as a military reporter, where he made contact with senior PLA officials. In 1987 he went into business, soon amassing a sizable amount of money trading in petroleum and other products around the world. But Liu resents the implication that he has special ties with senior military or government leaders. “By virtue of the fact that Phoenix has been here five years, we’ve learned a lot and established a mutual understanding with people in China who regulate the media,” he says. “Phoenix knows better the rules of the game, and the regulators know that we are not harmful to China.”

The moves to relax controls on foreign broadcasters, in fact, may simply reflect a recognition that Beijing is gradually losing the ability to control what Chinese see and hear. Satellite dishes, which were officially banned in 1993 except for use by certain government officials and units, are beginning to sprout again on Chinese rooftops nationwide, a practice that is especially noticeable the farther one gets from the Chinese capital. Some newspapers are even advertising small dishes for as little as 3,000 yuan ($366), with Phoenix reception a hot selling point. “Even if the government banned the dishes, people would still have a way to get information,” says a Chinese TV journalist. “It’s not just from CCTV anymore.”

Phoenix’s experience, however, also serves as a warning to other broadcasters looking to break into the China market. The station has attracted a respectable lineup of advertisers—including Chevron Texaco, Mitsubishi and Lucent Technologies. But penetration in China remains quite low, and accurate estimates of how many people are actually able to watch its programming are hard to come by. “Phoenix is not an automatic choice for TV advertisers,” says Chris Walton of Mindshare China, the media-buying arm of Ogilvy Advertising. His company has booked time on the station for luxury advertisers such as DeBeers that are anxious to reach China’s affluent urban residents. But, he says, “It’s hard one to sell on black-and-white numbers alone.”

Walton predicts the Chinese TV industry will undergo a manor rationalization in the coming four to five years. Ultimately that should result in economies of scale and a more commercially driven industry, with Chinese broadcasters looking to become global players themselves. That also means, he says, that “the challenge to Phoenix will become greater.” The station will sorely need more of the nimbleness it displayed on September 11.