As the user scale rapidly expands, the digital cable TV industry is transitioning from quantitative to qualitative changes and is gradually entering a "post-transition era."

Industry insiders believe that the "post-transition era" is characterized by the shift of focus from the amount of digital cable TV subscribers to the building of a sustainable profit-making model for the industry. In other words, investors will pay more attention to the growth of user satisfaction over the course of digitization.

In the "post-transition era," the revenue of digital TV operators will come from three major channels. First, operators will raise the basic subscription fee to obtain clear cash flow. Second, a multi-layered charging system based on various video services, including pay TV and video-on-demand, will develop. It is routine practice that cable TV network operators, TV program producers and channel integrators share the revenue 5:3:2 or 5:4:1, respectively. Hence the boom of pay TV will greatly promote the performance of the cable network. Lastly, operators will cash in on new value-added services after the network digitization is complete.

More content should be offered to users in the "post-transition era" as program quality becomes the decisive factor in the pay TV market. The success of cable TV in the United States lies in its massive wave of content to cater to general, segmented and niche viewer groups. A major hurdle to the development of digital TV in China has been revealed to be the lack of compelling content.

At present, despite that nearly 100 digital pay channels are offering programs in China, only four companies, namely CCTV, Shanghai Media Group, Top DTV and China Film Group, have obtained licenses to integrate digital TV content nationwide.

Cable operators benefit

The direct beneficiaries of the rapid development of digital TV are cable TV operators. Their regional monopolies will be manifested more profoundly. Earlier this year, SARFT made it clear at the CCBN general assembly that this year's target is to open at least 10 pay TV/movie channels and various digital cable TV and radio programs, launch a variety of value-added services, establish brand names, secure the market and develop new operational models. Currently there are 50-80 pay TV/movie channels under SARFT.

The rapid development of the business will directly enhance the revenue of cable TV operators. It is reported that in the fiercely competitive U.S. digital TV industry, 60 percent of the business revenue comes from new services, including interactive TV, data broadcasting, value-added services, and high-speed broadband Internet access.

It is self-evident that the launch of new business will benefit the monopolistic cable TV operators. As soon as the new business begins, the revenue and profit will increase accordingly.

The arrival of the digital TV era will facilitate the gradual rise of the cable TV subscription fee and make it possible for pay TV to develop. On one hand, the subscription fee will be raised as average household incomes grow; and on the other hand, quality and quantity will determine the price.

Digital TV requires more investment in capital and technology and enjoys many advantages compared to analog TV, such as its multiplied channels, high definition and superior video-audio effects. Thus, the price hike is reasonable. For example, the subscription fee in Suzhou, one of the digital TV trial cities, is 40 yuan per month. Effective from July 1, the Beijing Municipal Government raised the cable TV fee from 12 yuan to 18 yuan per month, which in turn, adds 0.3 yuan to the annual earnings per share of the Beijing Gehua CATV Network.

Defining television

As high definition technology and the high definition market grow, high definition becomes the direction to which the set-top box technology will turn. The progress in compression and transmission technology has significantly reduced the signal transmission and storage costs of high definition television (HDTV).

Zhang said that CCTV is going to test terrestrial HDTV broadcasting in Beijing this October. He pointed out that this year's focus is to strengthen the production capability of HDTV programs and expand the channel coverage of HDTV in order to become prepared for the broadcasting of the Beijing 2008 Olympic Games via HDTV.

At present China is nearly ready to promote HDTV, in terms of conditions such as the hardware and software, user demand and the policy environment. Fuelled by the Beijing 2008 Olympic Games, China's HDTV is expected to step into its boom period from 2008 to 2010.

Statistics from CMP Consulting show that the entire scale of the digital TV industry reached 33 billion yuan last year, 93 percent of which came from the high definition terminal market consisting mainly of HDTV sets and set-top boxes. The content production and the network transmission market accounted for only 1.2 percent.

From 2007 to 2011 the digital HDTV market will continue its fast growing pace. It is believed that the market scale will exceed 100 billion yuan with a balanced industry structure so that the proportion of the program production market will rise year by year.

(Xinhua Finance)