launched a pilot project in early July to integrate television, Internet and mobile networks in Shanghai and 11 other places in the country.
While still in its infancy, with obstacles to overcome, the so-called "three network convergence policy" has spawned new cross-platform services in the three sectors, and expansion of those services is expected in 2011.
Although China has the world's largest number of Internet users, now at more than 420 million, the traditional TV set still remains the most popular and affordable way for ordinary people to access information and entertainment.
While current TV networks are still single-way transmissions, the three network convergence has provided new opportunities for TV operators to embrace new technology, giving viewers more options in what they can choose and when they can watch their favorite programs.
Network convergence has also forced telecom carriers and content providers to think in each other's boxes and reorient their original businesses to a more integrated platform. The new model that's emerging will help boost the operations of online video websites, TV stations and broadband providers.
Platform operators
"TV program makers and platform operators are the most likely to ambitiously expand their business strategies because online video is one of the hottest Internet industry sectors," said Henry Yang, president of iResearch Inc. "We expect that sector to show 100 percent growth in the next few years."
Yang pointed out that Chinese netizens spend about 10 percent of their online time watching videos and TV programs. He said that figure will continue to grow as the number of Internet users expands.
China National TV, the online video site operated by the state-owned China Central Television, is also working on an integrated platform that would bring most of the programs made by national-level TV stations to the website.
"We were focused on making our own programs in the past, but now we have to open our platform and work with partners from all industry chains, including patent-content owners and smaller TV stations," said Wang Wenbin, general manager of CNTV.
Officially launched at the end of December 2009, CNTV now has 55 channels, including six in foreign languages such as Spanish and French.
After the launch, industry watchers dubbed CNTV the "national team" to differentiate it from successful, privately owned video websites such as Youku and Tudou.
Youku surged 161 percent on its debut on the New York Stock Exchange in early December after raising US$233 million, while Tudou is also expected to complete its initial public offering in the next few weeks on the Nasdaq.
CNTV has rich experience in live broadcasts of big events, such as the opening ceremony of the Olympic Games in Beijing in 2008. Now it has turned its focus to adapting to a cyber-era that allows users to access the latest news and sports results via the Internet on smart handsets.
Ensuring good content and well-made programs for web users and TV watchers has become a necessity for CNTV's expansion. "Combining the broadcasting platform and the rich content of local TV stations is our strategy, and the new technology has enabled us to spread our content on other wireless platforms and smart handsets," Wang said.
An integrated platform will be launched in the first half of next year to provide technical support to allow local TV stations and to share advertising income on CNTV's website, Wang said. "We want fellow TV stations to fully utilize this new platform because only by partnering with other content providers can the public platform realize its core value," he added.
Shanghai's TV network operator is also upbeat about deepening its convergence with the expanding Internet sector.
"Although the Internet is still an emerging business and has a small market size, it is expanding at four to six times the traditional media sector," said Peter Li, chief financial officer of BesTV, the Internet protocol TV operator under the Shanghai Media Group.
"It's better to cooperate than compete with fellow companies in the telecommunication industry," Li added. "We have to work together."
BesTV is Shanghai's exclusive IPTV operator, with about 1.2 million subscribers in the city and about 4 million elsewhere in the country.
Rui Bin, vice general manager at BesTV, said he is cautiously optimistic about the marriage between traditional TV stations and online video.
"TV stations are very old, and the Internet and online video are a much younger wife," he said.
BesTV's service is linked with China Telecom's household broadband service, at a 5 yuan monthly subscription fee.
Users can play back TV programs and TV series they missed within 48 hours after they're first aired on TV. They also can request popular movies they missed at cinemas.
Currently some of the videos are preloaded with advertisements. The service also has a movie database that charges users about 5 yuan (US$0.76) a time for on-demand programs.
Value-added services
Telecom carriers and broadband operators are also tapping into the new trend, providing services that were unimaginable not long ago, when Internet connections were relatively slow and smartphones weren't nearly as ubiquitous as they are now.
"Online video will evolve into a basic service because once cable TV networks are combined with the Internet, so many value-added services, such as online shopping, will come into play," said Kang Jian, vice director at the video center of China Telecom.
China Telecom in November officially launched its Video Service Center, located in Pudong New Area. It's a 100 million yuan joint venture with the district government to focus on Internet-based video services.
China Telecom is the nation's biggest broadband network operator as well as the third-largest mobile carrier.
The average time a China Telecom mobile user spends on mobile TV is about 14 minutes a day, Kang said.
China Telecom reported more than 12 million users of mobile TV as of August.
However, revenue from that income stream is still small, compared with broadband connection fees.
Fast-growing wireless Internet has emerged as a new money-spinner for companies like China Telecom, which can charge users whenever they send a request to play video clips on their mobile phones.
Telecom operators are no longer satisfied with merely charging users traditional communications fees.
They are betting that future profitability will depend on value-added services, such as online video.
