TVB partners with SMG and CMC to develop its Mainland businesses

28 August 2012 15 h 21 min Comments Off

On August 8, China Media Capital (CMC), Shanghai Media Group (SMG) and TVB from Hong Kong have established a joint venture on the mainland.

The JV is called Shanghai Feicui Dongfang Communication Co., Ltd 上海翡翠東方傳播有限公司 (“TVBC”) and will operate all TVB’s business in mainland China.

According to TVB, “upon obtaining the final approval and a business license certificate from the relevant PRC authorities on 8 August 2012, the Group has formed a joint venture company together with the Shanghai Media Group (“SMG”) and China Media Capital
(“CMC”) in the shareholding ratio of 55% owned by the Group and in aggregate of 45% owned by SMG and CMC. Total investment of the shareholders in the JV is RMB200 million (approximately HK$245 million).”

TVB will have a majority presentation on TVBC’s Board with 4 seats. TVB will contribute Rmb110mn toward the JV under a master license agreement, and will be charged around HK$250mn, with the amount to be reviewed annually, while the JV will take on the business risk.

“This marked the beginning of a very significant step forward for our business operations in the Mainland. I would like to wish the joint venture every success, and look forward to working closely with our partners in this venture”, said Norman Leung Nai Pang, Executive Chairman of TVB. “Through TVBC, we hope to transform our business in the mainland China market from licensing and distribution to one with involvement in different dimensions of the media industry. We will have the opportunities to participate in the production of local dramas by means of investment, trades of production resources such as artistes, scripts, etc. Revenue opportunities in product placements inside the dramas that TVBC will take part in can be created by the synergies with TVB’s advertising functions.”

According to TVB, “TVBC will carry the primary objective to distribute TVB programmes and develop other business initiatives with TVB’s wealth of resources throughout mainland China. The key business scope of TVBC includes the licensing of TVB programmes to TV stations and Internet portals in the Mainland, the management and distribution of two TVB Hong Kong channels (Jade and Pearl) in Guangdong Province. TVBC will also handle matters in relation to the stage performance of our management artistes in the Mainland.”

In details, TVBC will:
. distribute TV and new media rights;
. manage and distribute TVB channels in Guangdong province;
. invest and distribute TVB-produced Mandarin drama;
. provide agency service for airtime on TVB channels; and
. procure stage performance for TBV artists.

According to Morgan Stanley, “TVB anticipates transferring the licensing business to the mainland-based entity in phases (licensing right away once team is in place and can negotiate with TV stations). New media licenses will be transferred in 2Q13 when TVB’s existing contract expires. Management’s 2-3 years target is for its China revenues to be the size of Malaysia and Singapore, or around HK$600mn, a 10% increase to earnings. Over a longer period of 5 years, they expect the impact to depend on the success of the dramas produced.

In a report about TVB, Morgan Stanley believes that by 2016, the Mainland business could double again for an EPS contribution of an additional HK$0.50 per share.

Recognizing the risk of importing content into China, TVB has commenced production of content on the Mainland. TVB is targeting revenue of Rmb50-60mn per title from licensing in both the mainland and international market at an investment of Rmb1mn per drama episode, or Rmb30mn per drama title.

The uptrend in China revenue continued in the first six months of 2012 and outgrew the
nation’s GDP for the period by far. In the midst of the cooling mainland China marketplace
especially in the media business, our business in the first half of the year grew as budgeted.
The growth was attributed to the increasing episodic price of our drama serials. The somewhat
conservative GDP growth projection in 2012 by the PRC government reflects its concerns of
the overall economy. In addition, a series of SARFT (The State Administration of Radio Film
and Television) policies which was issued to cool down the rapid growth in the Chinese TV
programme market began to make an impact. However, relaxation of some of those policies
that control drama types is expected after a cool down period.
As a major importer of programmes into mainland China, our business performance has been
much affected by the local policies and political environment.

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