Terrestrial TV is facing problems so profound and on so many levels that toward the end of a two-hour interview, Jack Hsiao-Cheng Chi, senior specialist, department of planning, National Communications Commission (NCC), asked his interviewer, “Why do you feel such pity for them?” In the context of the discussion, newcomers Formosa Television (FTV) and Taiwan Broadcasting System (TBS) were excluded. Instead the reference was to the once mighty ‘Three Channels’ – China Television (CTV), Chinese Television System (CTS) and Taiwan Television Enterprise (TTV) – that dominated Taiwan’s airwaves during martial law. In Taiwan, power emanated from the TV screen, and terrestrial TV was controlled – directly and indirectly – by the Kuomintang (KMT). In 2000, Chen Shui-bian was elected president, and his Democratic Progressive Party (DPP) issued a whitepaper calling for the divestiture of political parties in media. For television, that plan is complete. The past two years have seen CTV sell shares held by the KMT to publisher, China Times Media Group. CTS, formerly owned by the ministries of defense and education, donated that stock to the Public Television System Foundation, and became part of the Taiwan Broadcasting System (TBS), along with PTS and two minority/ethnic broadcasters. For TTV, majority control shifted to privately held Unique TV. Accompanying the divestiture was a painful downsizing, with CTV, CTS and TTV each halving staff from their peak of 1,000. The troubled threesome is still losing money, and remains ill-equipped to compete in Taiwan’s modern broadcast environment. “In most countries, terrestrial TV channels have audiences much larger than those of the cable TV channels,” said Chi. “In Taiwan, the opposite is true. Sometimes you can’t even see them in the viewership data. Is there still a reason for their existence?” he asks. Twenty years ago, in 1987, the year martial law was lifted, CTV, CTS and TTV commanded 38 percent of all of the island’s advertising dollars. During the evening primetime slot, the nation’s eyes were glued to the 7pm evening news and 8pm drama. A visitor to Taipei could walk down any street and find every TV set in every noodle shop, mom-and-pop grocery and motorcycle repair shop tuned to the current hit show. Now with a rival terrestrial, the DPP-owned FTV, which marked its tenth anniversary in March 2006, and with a hundred cable TV channels for home viewers to surf through, CTV, CTS and TTV are down on their luck. None of this is news – national soap opera is more like it – but one would think that the Taiwan market would have sorted itself out by now. Not so. Instead Taiwan television is watching its advertising income drop due to the ‘psychological’ recession – caused by political malaise rather than economic fundamentals – that has gripped the island since 2005, and the decline has been particularly hard on broadcasters. Total adspend has slid 16.8% from NT$54.6billion in 2004 to NT$45.4billion last year, according to Nielsen. Why has television (terrestrial plus cable TV) fallen 24% from NT$23.9billion to NT$18.1billion? Terrestrial TV, even with the highly successful FTV, has seen its income drop 28% during this three-year period (NT$5.6billion, 2004; NT$4.1billion 2007)while cable TV suffered a 22.8% decline (NT$18.2billion, 2004; NT$14.0billion, 2007). Interestingly, terrestrial TV outperformed cable TV last year, though it is ironic because -0.7% growth (NT$4.1billion, both 2007, 2006) while cable TV slid -5.7 percent (NT$14billion, 2007; NT$14.9billion, 2006). Does this signal an end to terrestrial TV’s protracted decline? ‘Maybe’ is the rosy view. But ‘no’ is the dour alternative. Terrestrial TV is enjoying a temporary reprieve, say pessimists, thanks to the political advertising for campaigns for the legislative election last December, and the upcoming presidential election this March. In contrast, cable TV’s -5.7% drop last year, matches the fall in total adspend, which slid from NT$47.8billion in 2006 to NT45.4billion last year. Domestic and multinational firms alike are slashing advertising budgets for nearly everything except finance and real estate. One last fact: terrestrial TV had a market share of 9 percent last year, compared to 31 percent for cable TV. Terrestrial TV’s woes are evident as well in gross ratings. From 2005 to last year, ratings for terrestrial TV sank from 2.06 to 1.95. During that same period, cable TV ratings climbed from 10.96 to 12.04. What lies ahead for CTV, CTS and TTV? “Actually we don’t know what our future is, because our only source of income is advertising,” said Christine Che, manager program department, and director of acquisition and licensing for CTS. “Ratings have dropped because there are so many channels. In recent years, advertisers have begun insisting on a guaranteed cost per rating point. For example, SK-II must have a CPRP of 8.0. That means that all day long, through all the time slots, we are running ‘make-up’ spots.” Surf the terrestrial TV channels during the weekday, and the same TV commercials appear again and again and again. “CTS lacks funds for programming,” said Che. “In the early 1990s, CTS would budget NT$1.5 to NT$2.0million for the production of a one-hour segment of a primetime drama. Today we are lucky to scrap together NT$600,000 to NT$750,000.” Thus begins a vicious cycle. Low budget production leads to poor quality programming that leads to low ratings that leads to reduced advertising income. Making matters worse, Taiwan’s terrestrials evolved a system of sourcing production and even airtime sales to outside vendors instead of developing talent inhouse. During the past decade, Taiwan talent has discovered more lucrative opportunities in China where CCTV and other networks have money for the production of Chinese-language programming. Budgets in China are easily eight times higher than what Taiwan terrestrial channels can pay, say many sources. This is why Chi, of the NCC, says that CTV, CTS and TTV differ from their counterparts in most countries. Their political roots shaped their business model and vital components are still missing. “For CTV, CTS and TTV, the only bright spot is the weekend,” said Vince Cheng, managing director, Mediaedge:cia Taiwan. “If they have a hit show, like the talent search contests this year, the rating might approach 8.0, or even a 10.0 for the season’s climax. But the rest of the week, the cable channels usually do better.” But FTV is another story all together. Love – a Taiwanese language drama which pulled 6.19TVR% – gave FTV the top rated show for the year. Of the top ten shows, FTV had eight. In ninth-place was CTV’s singing contest Super Starlight Boulevard (3.68TVR%), while TTV’s was 10th place Miraculous Mr Liu Bwo-wen (3.45TVR%). A CTS program doesn’t appear until the 29th slot, with Supermen, Superwomen (2.21TVR%) TBS doesn’t appear in the top 100. “FTV always has the top rated program from 8pm to 9pm Monday through Friday,” said MEC’s Cheng. “FTV has a good strategy. It is based in Kaohsiung, and it focuses on southern and central Taiwan. Its shows are in Taiwanese.” FTV, due to strong ratings that allow for advertising revenue, has the money to invest in programming… be it a soap opera, variety show or news program. Said Cheng, “FTV has a news program on its regular channel, and a separate cable news channel. Each has its own dedicated staff, and there is little overlap in programming between them.” This is something that CTV, CTS and TTV would be hard pressed to duplicate. The Sanlih Group, a local cabler, had six of the top 10 cable TV programs. Five of them were dramas. In first place was The Greatest Taste in the World (6.64TVR%) and – amazingly – in second place (4.53TVR%) was the program’s “greatest hits” version. Repeating that feat – miraculously – was another drama, I Must Succeed, in fifth (3.31TVR%) and tenth place (2.12TVR%. In the seventh spot (2.77TVR%) was The Tradition of Taiwan. Sanlih Group’s variety show, Golden Night Festival, was in eighth-place with a rating of 2.7TVR%. “Monday through Friday in the 4pm to 6pm timeslot, Sanlih has ratings that sometimes surpass FTV,” said Cheng. Filling out the top 10 cable TV shows were award ceremonies. In third place, was Asia’s 42nd Golden Bell Awards (3.38TVR%). In fourth, was MVE’s 44th Golden Horse Awards (3.32TVR%) and in sixth was Asia’s 18th Golden Melody Awards (3.28TVR%). Sports squeaked into ninth place with TVBS’ 2007 Asian Baseball Championship (2.34TVR%). Are there any new trends in local programming for cable TV? Not really, said C. Y. Chen, CEO Cable Broadband Institute in Taiwan. Nor is much happening on the business side of content, as far as fresh faces, partnerships or deals are concerned. Taiwan’s cable TV industry is stable after years of consolidation. Five MSOs control the market. The largest is CNS with 29% of Taiwan’s paying subscribers, followed by EMC, TBC, Fubon, and TINP. Independent cablers have the remaining percent. Rumors anticipate further consolidation at the MSO level. Yet that process is nearly complete at the micro level. Of the island’s 47 districts with cable TV service, 31 have only one provider, while the rest have two. The Cable TV Law limits foreign investment in MSOs at 20% for direct investment (60% combined direct and indirect investment). Foreign investment in CNS (MBK Partners), EMC (Carlyle Group) and TBC (Macquarie Media) reach those limits, and through “structures” make them wholly owned foreign enterprises. With Taiwan’s broadcasting industry mature, and more recently in a protracted slump, why would foreign groups buy into the market? “For cash flow and convergence,” said Chen. “The future is coming and once everything goes digital there will be a whole range of value added services.” “Look at this market,” he continues. “Cable TV has an 85% household penetration, and of that 95% is analog. Even the process of digitalization can be profitable. Convergence will create a huge market for hardware and software.” If such a bonanza looms on the horizon, why would some of the Taiwan’s savviest business groups sell their MSOs? “The price,” replied Chen. Collectively, cable TV dominates viewership in Taiwan, but it still must face a weak economy and battle for advertising dollars against a fast growing rival – the Internet. Even worse, there is a new kid on the block – MOD, or ‘multimedia on demand’, a service Chunghwa Telecom (CHT) began offering to its 4.3million ADSL subscribers in March 2004, and announced an optimistic target of 1million subscribers by the end of 2006. But to the MSOs, MOD is an unregulated cable TV operator. “It is a TV-based, not Internet based, IP service,” said Chen. “MOD should be made to follow cable laws.” The cable TV industry challenged the legal status of MOD, and on November 23, 2006 the NCC requested that CHT transform MOD into an open platform. Nearly a year would pass before the first outside channel provider, Taiwan Interactive Television (TITV), launched a trial of 24-channels on MOD last October 23, 2007. CBIT’s Chen is not satisfied, and can cite a long list of inequities. “Cable TV operators are restricted to carriage within districts, while CHT carries MOD over the entire island,” he begins. “MSOs cannot grow beyond a third of the market while CHT has no such limits. Cable operators must comply with ‘must carry’ rules for terrestrial TV and public access, while MOD doesn’t have to do any of these things.” CHT is forging ahead despite these setbacks. MOD had 410,000 MOD subscribers, as of the end of February 2008, including 7,000 MSTV trial users. CHT is evaluating the Microsoft system as a possible alternative to its current choice of Alcatel-Lucent’s open multimedia platform, OMP. The only thing CHT will not talk about is content. MOD has 4,000 hours of pay-per-view VOD programs, but its 61 channels are a wasteland of archival shows from the terrestrial’s free-to-air digital signals and a hodgepodge of other material. Every few months, CHT announces new programming, but to no avail. To succeed, CHT must obtain Chinese-language programming from local content providers, but most of them are cross-owned by cablers. For the short-term, CHT is pushing special deals to sign up subscribers. Current incentives include free set-top boxes, Dlink BPL adapters, and NT$1800 in cash coupons for 7-Eleven. Beyond an installation charge of NT$800, subscribers pay a monthly fee of NT$89 for the first six months. Upping the ante, CHT will begin supplying rebates of more than NT$5,000 towards the purchase of high definition TVs from Sony, Panasonic, Tatung and BenQ. A slogan popular in Beijing applies to Taiwan TV. “Go to Beijing, you discover you’re a nobody. Go to Shanghai, you learn you’re poor. Go to Taiwan, you relive the Cultural Revolution!” The partisan battle for control of the terrestrial TV networks has wreaked havoc on the island’s broadcasting industry, and stymied well-meaning attempts to establish an effective regulatory body, NCC. “Taiwan is a country that supplies the world with more flatscreen TVs than anywhere else,” said Simon Twiston-Davies, CEO of CASBAA. “But it has a lower domestic penetration of household flatscreen TVs than almost anywhere else in Asia. What is wrong? Ten years ago, Taiwan was the leader and now it is at the bottom of the pile. It is really disappointing and it comes down to political gridlock.”