CHINA: An Introduction to TMT: Media & Entertainment (PRC Firms)

China: An Introduction to TMT: Media & Entertainment (PRC Firms)

Aligned with China's National Economic Industry Classification (NEDIC), the TMT sector broadly spans the realms of software and information technology, the internet, culture and entertainment, telecommunications, radio and television sectors.

Over the past decade, the TMT industry has seen rapid growth worldwide, with globally recognised entities like Google and Amazon from abroad and rising Chinese internet powerhouses such as Alibaba and Tencent. It is not an overstatement to say that the TMT industry has woven itself into the fabric of daily life, whether it is shopping on Amazon, messaging via WeChat or catching snippets of shows on iQIYI. In recent times, advancements such as Artificial Intelligence, Blockchain, Cloud Computing and Data Analytics have surged – symbolised by the acronym ABCD – ushering in the latter half of the internet era that is set to revolutionise people's lifestyles and work modalities.

The emergence of new technologies and sectors presents formidable challenges to existing regulations, prompting nations to develop a slew of laws to address tech innovations. China has responded by enacting numerous laws, regulations and normative documents, aiming to bolster TMT industry development while reinforcing oversight to prevent potential harm.

2022 was riddled with uncertainties, with the COVID-19 outbreak and shifts in supply chains affecting consumer behaviour and the entertainment and media landscape. Amidst this flux, however, the overarching trends and growth drivers in the market are crystallising; the global entertainment and media industry's structure is undergoing a transformation, consumer patterns are poised for significant shifts, and the metaverse stands on the brink of a new digitalisation wave.

The media & entertainment industry is segmented by type:

- print media (newspapers, magazines, billboard, banner, leaflets and flyers);

- digital media (television, music and radio, electronic signage, mobile advertising, podcasts); and

- streaming media (OTT streaming, live streaming).

The global media & entertainment market is currently valued at USD27.72 billion, with projections that it will reach USD40.36 billion in the next five years, growing by 7.8% during this period.

Print Media 

The publishing sector is witnessing a profound transformation. Traditional print media like newspapers and magazines are grappling with declining circulation and subscription rates, but physical books have managed a more graceful transition into the digital era. Although print remains the preferred medium for many readers, audiobooks and e-books are gaining traction and are expected to experience healthy growth rates in the coming years. Remarkably, audiobooks represent the publishing industry's fastest-growing segment, with projections indicating that the global audiobook market could surpass USD10 billion within the next five to ten years.

Digital Media 

The digital media landscape has been revolutionised by the internet and the burgeoning mobile app economy, reshaping the publishing sphere and consumer reading habits in China. The nation stands as one of the foremost digital publishing markets globally. Currently, advertising reigns as the top revenue source within the sector. In the coming years, market expansion is anticipated to be partly fuelled by growing digital reading subscription revenues and a flourishing online education arena.

On 28th August 2023, the China Internet Network Information Centre (CNNIC) released the 52nd Statistical Report on China's Internet Development. In June 2023, China's internet user base reached 1.08 billion, marking an increase of 11.09 million since December 2022, with the internet penetration rate climbing to 76.4%.

Over the last decade, numerous print media entities have embraced digital transformation, pivoting their focus to social media platforms like WeChat and Sina Weibo. Nevertheless, competing for consumer time and attention against video entertainment remains a challenge. With a nascent paid readership market, it is unsurprising that digital publications account for only a small proportion of China's digital publishing revenue, which has been predominantly ad driven. This trend is poised for a shift as an increasing number of Chinese readers show a willingness to pay for quality written content, coupled with a rising e-reader penetration rate.

The Chinese film market is on track to eclipse North America in revenue and viewership, positioning itself to become the world's pre-eminent market. In the realm of television, China is the leading producer of TV dramas, but looks to the global market for exports despite modest international demand for Chinese entertainment content – a cultural shortfall China is determined to address. The ascendancy of Chinese internet companies is swiftly altering traditional media dynamics in terms of speed and scope.

The Chinese government has lent considerable support to the digital publishing industry, enacting policies to safeguard copyrights and intellectual property rights, and establishing associations and organisations for internet authors in recent years. Industry pundits foresee that multi-channel networks (MCNs) will maintain their influential role in China's digital publishing sector. To boost traffic and conversion rates, an increasing number of media companies are expected to partner with video platforms to disseminate professionally generated content (PGC).

The lion's share of China's digital publishing revenue springs from online advertising. Embedded within this segment is a diverse array of digital advertising forms, with e-commerce and search engine advertising emerging as significant revenue drivers. With the growing purchasing power of online consumers in rural areas, the Chinese e-commerce advertising market is projected to see steady growth in the near future. In terms of mediums, mobile advertising has captured a larger slice of digital ad expenditure, which correlates with the surge in smartphone adoption.

The online education sector has also emerged as a lucrative component of the Chinese digital publishing landscape, attributable to the widespread adoption of smartphones and pervasive digital integration across the nation. In 2023, the e-learning industry is estimated to hit CNY440 billion, propelled predominantly by the higher education sector. Enterprises that offered complimentary streaming courses during the pandemic's quarantine phase have indisputably accessed new revenue streams, particularly in lower-tier cities, which contain about half of China's population.

Streaming Media 

Mainland China's over-the-top (OTT) revenue soared to USD11.4 billion in 2021, securing a position as the second largest market globally, trailing only the United States. The onset of government-imposed COVID-19 containment measures in early 2020 catalysed an upswing in screen time. OTT video has experienced remarkable growth, ascending to the throne as a dominant force in living room entertainment alongside IPTV. Despite a swift return to normalcy in Mainland China, the allure of annual subscriptions and direct-to-video offerings, combined with intermittent local lockdowns pursuant to the dynamic zero-COVID policy, has prompted users to continuously adapt to the burgeoning demand for streaming. In 2021, premier internet TV content and platform providers pivoted their strategic focus from mobile devices to smart TVs, spurred by a potent uptick in revenue and subscriber bases.

New Industry 

China is anticipated to be a pivotal player in the burgeoning metaverse market. In November 2021, under the auspices of the China Mobile Communications Association, the Metaverse Industry Committee was established to steer the industry towards sustainable growth. Despite existing restrictions on cryptocurrencies, the Chinese government is advocating for the metaverse as a beacon to attract talent and investment, and also to stimulate economic expansion.

The China Academy of Information and Communications Research (CAICR) published the “White Paper on Artificial Intelligence Generated Content (2022)”, which contends that AI-generated content (AIGC) constitutes a new category of content from a production standpoint, a novel methodology for content creation, and an ensemble of technologies facilitating automated content production. AIGC stands at the forefront of today's technological sphere. The release of ChatGPT at the year's end, which amassed over 100 million users within two months, marked a historic surge in adoption; this spurred major tech corporations to embark on the development of AI model platforms, igniting a frenzied expansion within the tech community. AIGC epitomises generative technology that rivals human intellectual capabilities, and an increasing number of companies are exploring its application to enhance their business operations and generate added value.

To navigate the swiftly evolving technological landscape and market dynamics, China's regulatory entities have responded promptly. On 13th July 2023, the State Internet Information Office, in conjunction with six other departments, enacted the “Interim Measures for the Administration of Generative Artificial Intelligence Services”. These measures took effect on 15th August 2023 and stand as China's inaugural regulatory framework for AIGC, offering pivotal policy support for the advancement of this burgeoning technology.