IPTV: China's next big Internet growth opportunity

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Includes: BIDU, NTES, SINA, SNDA, SOHU
by: Ezra Marbach

Internet protocol television (OTC:IPTV) is about to become a reality. According to news from Hewlett-Packard (ticker: HPQ) and Orca Interactive, the two companies have completed installation of demo systems in Beijing and Shanghai. IPTV is expected to have huge consequences for Chinese Internet businesses. More here:


What is IPTV?

  • IPTV allows users to view television broadcasts, online content, and play online games on a television set using a
    broadband Internet connection.

HP's partnership with Israel's Orca Interactive:

  • Offers IPTV services to telecom carriers and service providers in mainland China.
  • Services include IPTV, video-on-demand, personal video recording, pay-per-view, and games.

Timing of IPTV licenses:

  • The State Administration of Radio, Film and Television (SARFT) is expected to issue China's first IPTV licenses this month.
  • ICCTV.com.cn Networks, and the Oriental Net Television, are expected to receive those licenses.
  • ICCTV.com.cn Networks is owned by China Central TV (CCTV).
  • Oriental Net Television is owned by the Shanghai Media Group.
  • Both CCTV and Shanghai Media are state-owned companies.

Television set and user statistics:

  • China has 400 million TV sets, 330 million TV users, and 110 million cable users.

Quick thought: Fixed-line telecom operators, China Telecom (ticker: CHA) and China Netcom (ticker: CN), are both pursuing IPTV. China Netcom is planning a major rollout of IPTV services this year in many cities in northern China. China Telecom already offers an unlicensed form of IPTV in areas including Shanghai, Guangzhou, and Hangzhou.

IPTV also represents a new growth opportunity for a variety of Internet companies.

Online game operator and developer, Shanda Interactive (ticker: SNDA) is one of those companies. IPTV presents Shanda with a new platform for online gaming, and a growing demographic to cater to. China's online gaming industry now attracts a broad
segment of users
, including women and white-collar professionals. And many of those are more inclined to play games from home rather than at Internet
cafes - and play games on high-end TVs (read further). IPTV provides that option.

The enthusiasm for IPTV is supported by China's growing embrace of digital products. According to ABI Research, "high-end TVs are gradually replacing CRT TVs in China and will do so at an increasing pace". With more Chinese homes enjoying high-end TVs with enhanced picture quality and larger screens than ever before, the appeal of online games and game-playing will undoubtedly increase.

Other Internet companies that could benefit from IPTV? IPTV users will gain access to online content from companies like Sina (ticker: SINA), Sohu (ticker: SOHU) etc. And with that will come opportunities for advertising services.

Marketing strategist Max Blumberg is ecstatic about the advertising opportunities for IPTV (you can find the entire piece here):

....Everyone is fighting for new media advertising revenue. Google and co are tripping over themselves to become the largest generators of Internet advertising revenue. Apple, Microsoft and Sony are vying to control portable media.

But the big advertising revenue still comes from the
granddaddy of electronic media: Television. How Internet media owners
would love to get their hands on this medium. This has not been easy
because broadcasting television over the Internet has not until
recently been legal nor technologically feasible.

But all of this is about to change with IPTV (Internet
Protocol Television): Microsoft is already providing telecommunications
provider Alcatel with technology make this vision a reality.

IPTV is an advertiser's dream. It facilitates the ultimate in
targeted personalised advertising where viewers see adverts (oh yes,
and content) tailored to their specific Internet/registration profiles.

And when TV and the Internet converge at your television set
(as opposed to at your PC), you will be able to view all of this on a
big screen.

Perhaps this is another reason for television media owner News International's renewed interest in the Internet after a series of failed attempts.

And where is Google in all this? Controlling Internet
advertising will not help if it does not have a significant stake in
the new converged media.

The logical move for Google would be to control the emerging IPTV search space, and indeed Google Video may indeed be its way in. Soon, you will undoubtedly be Googling your
television set for your favorite TV content (with a few adverts thrown
in for luck).

For a discussion of Chinese Internet search companies Baidu.com (expected to IPO in the Fall), and Google (ticker: GOOG), click here.

I look forward to your comments.