According to Screen Digest, the UK-based media analysts, at the end of 2005 China had 368 million TV households including 126 million cable households. This makes it the world’s largest TV market.

While it may be the largest market, it is not necessarily the most advanced. Nor is it the easiest place to do business. But with next year’s Olympic Games in Beijing and Expo 2010 in Shanghai in the offing, major infrastructure investment is required. Communications network upgrades are an integral part of the expected growth. By 2015 the country’s analog TV systems are already scheduled to be switched off. Analog cable operators are subject to the "Ping Yi" program for the switch off.

Analog v. cable

China’s analog TV system began with CCTV (China Central Television). A national monopoly, CCTV represents the centralized, top-down approach that characterizes business in China.

“Interestingly, the cable infrastructure started from the bottom up,” says Luke Chen, Chief Operating Officer, NDS China. “Originally there were several thousand small cable TV operators all around the country, but the government encouraged them to merge so that today there are about 300 operators,” he says. NDS works with some of the largest operators, some with a million subscribers or more.

The effect of central control in the pay TV sphere makes the Chinese business environment unique. “We have to work very closely with the government,” Chen says, “because television stations and content providers all report to the State Administration of Radio Film and Television (SARFT).”

For pay-TV operators, the effect of government intervention is that ARPU is incredibly low, he continues. The average monthly fee – which is also set by SARFT – is under $2. “Despite the restrictions there is still serious competition between operators in China today,” he says.

NDS’ Solutions for China

“What NDS can supply to the Chinese market is low-cost end-to-end systems,” Chen continues. “A key milestone for NDS is that we recently shipped our 3 millionth smart card to China.”

“As soon as Chinese operators can offer more valuable content – especially from abroad -- this will no doubt attract hackers and then local pay-TV operators will have to implement a better secured CA system. That is why NDS is in China now.”

“While regulators don’t feel comfortable with CA platforms that are exclusively supplied by foreign vendors, they realize that local CA providers don’t have sufficient proven experience. As a result almost all operators have simulcrypt – a combination of local and foreign CA systems,” he says. “NDS not only provides a solution that is mature and robust but also a solution that is an important factor in reducing costs.”

There are currently an estimated 14 million digital pay-TV subscribers in China, Chen says. “Even the migration to digital TV is mandated by the government,” he explains. “Unlike in other countries, in China the municipal or provincial authorities are involved in pricing set-top boxes and smart cards. They also discuss with the operators how much they are allowed to increase their monthly fees to subscribers. This puts a serious financial burden on the operators,” he says. “But the local authorities don’t want the population to complain about either the increase in monthly fees or the cost of equipment.”

50 different STBs

Chen explains that one of the complications is that Chinese operators want to offer set-top boxes from multiple vendors. “They have a preference for local vendors,” he says. “This means our testing and integration procedures are very challenging. Our customers are working with more than 20 STB vendors. Because they want to lower the cost and increase functionality, we are testing about 50 different STB models for the Chinese market,” he says. Most of the testing is conducted locally.

While the TV operator still supplies STBs to subscribers, when the market sees the introduction of DVRs, operators will have to subsidize them as well. “This means either squeezing the manufacturers to lower costs or offering low-end DVR boxes,” Chen says. “This is definitely different from Western markets where operators can offer a wide variety of functions. In China, the price will have to be very carefully set in order for them to be accepted.”

Next steps

What’s the next step? “Operators in China – like elsewhere – want to increase their subscriber bases and their revenue. They are looking ahead to when China goes digital,” he says. “They’re already looking for value added applications including VOD, interactivity and games. There are a lot of opportunities in China, but to take advantage of them, NDS recognized the commercial and cultural differences that require adaptation to the Chinese market. We know that just because a solution has worked in another market doesn’t necessarily mean it will succeed in China.”

Chen expects to see major changes in programming and pay TV platforms within the next 10 years. “NDS is in an advantageous position,” he says, “because we have a sound financial base so that we can react to changes. In addition, we have established an excellent reputation with our security solutions.”

“When the market opens up we expect that the larger operators will be attracted to NDS because they prefer market leading products that provide the best security. What is important to operators in China is that NDS can help increase their revenue. As long as we can do that, we are in a good position.”

Chen explains that because of the requirements of local regulators, operators have heavy financial burdens. “But this is a very large market with a lot of competition so anything that will help operators achieve ROI sooner interests them.”

Looking further ahead, Chen says that as operators require more advanced applications, NDS can provide end-to-end solutions that help them offer more in the future.

By 2015, when analog signals in China are switched off, Chen expects the television market to begin opening up “gradually but not completely.”

“It may take a while for the triple play to come to China, but it will definitely come. Even when this happens, the government will still want to keep an eye on what type of content is offered to subscribers. Competition between operators may increase but the government will continue to regulate.”

Where does this place NDS China in the next decade? “We can build our business based on the large operators who are going to need and want the solutions that protect their content best.” Bottom line: NDS has attractive propositions that can help Chinese digital pay-TV operators make the next great leap forward.

For more information:

NDS China (Chinese)