By Glenn Su, Jeanette K. Chan and Hans-Gunther Herrmann
In March 2013, the State Council announced the merger of two Chinese regulators: the General Administration of Press and Publication and the State Administration of Radio, Film and Television and created a mega-ministry, the General Administration of Press, Publication, Radio, Film and Television ("GAPPRFT"). The merger of the national press and broadcasting regulators is intended to boost the development of Chinese culture industries and increase their global influence.
As Chinese media grows exponentially and shows its strength on the international scene, leading media partner Jeanette Chan and counsel Hans-Günther Herrmann from the Hong Kong office of US law firm Paul, Weiss, Rifkind, Wharton & Garrison and partner Glenn Su from the Beijing office of PRC firm Fangda Partners have joined forces to explain the implications of the regulators' merger for industry participants.
WHAT DO YOU THINK IS THE MAIN DRIVER OF THIS INSTITUTIONAL REFORM?
The merger of the State Administration of Radio, Film and Television ("SARFT") and the General Administration of Press and Publication ("GAPP") was part of a broader institutional restructuring involving a number of other ministries and was also part of the systematic cultural reform that began in 2003. More specifically, the merger of SARFT and GAPP was driven by the need to reduce overlap of responsibilities between the two regulators, trim red tape and streamline bureaucracy. For instance, the lack of administrative consistency and coordination between SARFT and GAPP had led to the situation where SARFT might allow certain contents to be published in the form of radio, film or television programs while the same or similar contents were banned by GAPP from print publication, or vice versa. In addition, with the arrival of the Internet era, SARFT and GAPP each tried to exert control over the various Internet-based new media. Finally, the Chinese government expected that the merger would serve to promote the development of China's modern communications system, underpinned by digital information technology, and strengthen the competitiveness and influence of Chinese media and culture.
WHAT ARE THE FUNCTIONS OF THE NEW "SUPER MINISTRY OF BROADCAST AND PRESS"?
According to the Plans for Institutional Reform and Functional Transformation of the State Council, the newly merged ministry of broadcast and press is principally responsible for the overall planning of the development of the press, publication, radio, film and television industries, the supervision and administration of the relevant organizations and businesses, as well as the contents and quality of publications and radio, film and television programs, and copyright administration.
WILL THE NEW "SUPER MINISTRY" HAVE INCREASED POWER COMPARED WITH OTHER AGENCIES?
The new "super ministry" was formed by combining and streamlining the functions previously performed by each of SARFT and GAPP separately on its own. Such combination does not appear to have changed the power configuration among itself, the Ministry of Culture, the Propaganda Department of the Communist Party and the Ministry of Industry and Information Technology ("MIIT").
WILL THIS REFORM LEAD TO MORE LIBERAL REGULATION IN THE MEDIA INDUSTRY IN CHINA?
Before the merger, SARFT and GAPP regulated the Chinese media industry through a tight licensing system. The nature of the merger, namely whether it is simply a merger of previously separate functions or a true reform, hinges on whether the newly merged ministry is willing to deregulate the current licensing system. At this stage, the merger of SARFT and GAPP appears to be only a merger at an organizational-structure level. While such a merger may result in the streamlining of the regulatory process in the Chinese media sector, it remains unclear whether the merger will lead to immediate liberalization or even deregulation of the industry. Reduced numbers of regulators may not necessarily translate into more relaxed regulatory oversight. In addition, the Chinese government is prudent about reform having an impact on culture and ideology, and liberalization in the media industry requires more than the efforts of a newly merged ministry alone, which is also under the leadership of the Communist Party's Propaganda Department.
WHAT DO YOU THINK THE REFORM WILL DO TO THE EXISTING APPROVAL REGIMES IN THE MEDIA SECTOR GOING FORWARD?
The media industry is characterized by the competing claims of various agencies. In addition to GAPP and SARFT, other media regulators such as the Ministry of Culture and the MIIT approve "cultural products," license Internet content providers and intervene in other aspects of content production and distribution. The GAPP/SARFT merger does not change this, because their respective regulatory turfs have little overlap. Media businesses – both foreign and domestic – may still have to obtain many concurrent, time consuming approvals.
In one respect, the new agency may add even more approvals. In December 2012, GAPP put out draft regulations under which online publication of works of any description would require a GAPP license. This licensing requirement already exists, but GAPP rarely granted these licenses and tolerated operators without a license. By issuing new regulations, GAPP wanted to lay claim to this area again. There is no indication that the new ministry will abandon this attempt.
WILL THE REFORM HAVE ANY IMPACT ON PLATFORM CONVERGENCE?
SARFT – and the new ministry as its successor – actively work to implement convergence. A national cable TV network operator – expected to be set up within a few months – will focus on promoting connectivity, including inter-connectivity of regional networks, and convergence of technologies, operations and management. The ministry is also preparing a three-year convergence plan for the period 2013 to 2015. Under the plan, all cable TV networks at county level and above will be digitalized by 2015, with 80% of them able to provide internet access, IPTV, video-on-demand and interactive entertainment services.
One interesting question is whether GAPPRFT will become more active in regulating TV games than SARFT was. GAPP approved operation of online games and import of foreign online games, and imported online videos have to be registered with the National Copyright Administration (previously under GAPP). SARFT, by contrast, had not created a licensing regime for TV games. Will GAPPRFT expand GAPP's authority to TV platforms and close what some see as a loophole in the current regime? Will GAPPRFT try to encourage interactive content on TV sets to strengthen competition against other devices? Will GAPPRFT reconsider its ban on importation of set top boxes for games?
WHAT IMPACT DO YOU THINK THIS WILL HAVE ON FOREIGN INVESTORS?
Both print media and broadcasting are prohibited industries for foreign investment and will remain so for the foreseeable future, apart from the limited avenues for foreign participation in content, distribution and technology that exist today. Opportunities in these areas will increase, since the Chinese government is pushing for the growth of large media groups, and the merger of GAPP and SARFT is part of this drive.
WHICH OF THE MEDIA SECTORS INVOLVED WILL BENEFIT MORE FROM THIS REFORM?
The Chinese authorities see television as the more strategic medium, because it connects more directly with people as a propaganda tool and satisfies a stronger demand for entertainment and information. If the new ministry has to choose between print and broadcasting interests (e.g., in authorizing acquisitions, facilitating cross-media licensing or providing State funding), it is more likely to favor broadcasters.
WILL THIS REFORM LEAD TO HEIGHTENED MERGER AND ACQUISITION ACTIVITY IN THE MEDIA SECTOR?
Yes. The Chinese government wants industry consolidation so that large and strong media groups will emerge. The new ministry will encourage mergers and acquisitions among broadcasters and publishers. Unlike its predecessor authorities, the ministry will not be concerned that a state-owned enterprise under its supervision will escape from its portfolio and come under the authority of another regulator in such a deal.
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