Come the end of July, Taiwan’s five terrestrials, China Television Company (CTV), Chinese Television System (CTS), Taiwan Television Enterprise (TTV), Formosa TV (FTV) and Public Television Service (PTS), already digital, will turn off their redundant analog wireless signals. Home viewers would not be much affected as terrestrial programming will still be delivered via cable TV systems due to the  long-standing “must carry” rule.

Meanwhile, the island’s five big Multiple System Operators or MSOs – Kbro Company (kbro), China Network Systems (CNS), Taiwan Broadband Communications (TBC), Taiwan Fixed Network (TFN) and Taiwan Optical Platform (TOP) – until recently mostly still analog, face a 2014 deadline for a shift to digital.

“This is a big challenge for the MSOs, a really big challenge,” said Jen-Ter Chien, Chairman, Cable Broadband Institute in Taiwan (CBIT), the association for Cable TV operators in Taiwan, of which the leading MSOs are members. “Since 2009, they have been spending NT$2 billion annually to make the transition.”

The path forward is not set in stone, however. Taiwan TV broadcasters exist in a regulatory  environment that is a patch work of ad hoc directives – viewed as suggestions, with semi-firm  deadlines – issued from a hodge podge of a dozen government agencies and think tanks. Yet digital convergence is the expected result.

Cable Broadband Institute in Taiwan (CBIT) and the TV industry at large have responded with the Cloud & Connect TV Forum (CCTF), launched last October. The forum aims to boost Internet-connected TV based on cloud computing platforms through cable TV systems. CBIT’s secretary general, Claudia Peng, oversees CCTF’s planning. “We will see concrete results this year,” said Peng. “We plan a live demo of the cloud ecosystem for the TV summit in July or by the end of the year.”

Digital convergence? That’s a tech problem, and Taiwan, more than most countries, has the IT expertise and talent to get the job done. But, at the business level, Taiwan’s television industry is highly fragmented, perhaps more so than any other Asian country, as a result of a previous revolution that swept the industry two decades ago.

Taiwan’s current TV landscape was shaped by political backlash unleashed by the lifting of martial law in July 15, 1987. Under martial law, the island had three terrestrials, CTV, CTS and TTV, all indirectly owned and controlled by the ruling party, KMT. Only Mandarin-language programming was allowed. In the post-martial law era, the regulatory philosophy shifted to openness, allowing all players, regardless of political stripe and language to get their voice on the airwaves.

Two decades later, the result is a mindbogglingly, overcrowded playing field. The former KMT-aligned TV triumvirate, CTV, CTS and TTV, is pitted against a new DPP-aligned terrestrial FTV, which offers strong Taiwanese-language news and entertainment. Next come more than 100 cable TV channels. Homegrown standouts, such as Sanlih E-TV (SET, various channels), Television Broadcasts Satellite (TVBS) and Chung Tien Television (Cti TV), are among the island’s few profi table broadcasters. Then, there’s the usual suite of foreign channels – HBO, ESPN, Discovery – and locally produced lookalikes, followed by a long tail of obscure specialty channels.

Yet – or perhaps predictably – few programmes achieve ratings of more than one percent. Last year only five programmes achieved ratings above five percent. Two of them were FTV hit dramas, Rockies’ Diary (6.79) and Night Market Life (5.91), rounded out by FTV’s two Chinese New Year’s variety shows, and TTV’s 2011 Taipei Golden Horse Award Ceremony (5.91).

In Taiwan, any format that gains popularity is quickly replicated. “Does Taiwan really need seven or eight 24-hour news channels?” asks Robert Hsieh, CEO, ZenithOptimedia Taiwan. “News can bring ratings, but hiring a hundred-man news staff means the cost of production is high.”

So, to fill the island’s airwaves, programmers dream up low-cost productions. “Talk shows, like Kanghsi Laile, is the growing trend now,” said Hsieh. “Costs are low, and all that is needed is a celebrity host and some guests. With luck, the show will be popular.”

This programming lineup comes cheap – to the public, that is. Cable TV subscriptions average NT$520 a month.

That is, perhaps, why TV is Taiwan’s most widely used medium. Last year, TV viewing averaged 2.8 hours, according to the Nielsen Media Index. TV use (yesterday) was 90.4 percent versus 53.4 percent for the Internet, in Q4 2011. Other media, in contrast, have suffered. Luckily, for TV, there is an upside. During the past two decades, TV’s share of advertising has risen from a third to one half. Last year, TV adspend totalled NT$50.2 billion (51.9 percent), split 1:4 by terrestrial TV (9.8 percent) and cable TV (42.1 percent), according to Nielsen.

Taiwan’s philosophy of an open media also shaped television delivery. Under the Cable Television Law of 1993, Taiwan was divided into 52 districts, with each allowing up to five cable TV operators. Several hundred licenses were granted, but consolidation quickly ensued. Only 62 survive to date, according to CBIT’s tally, and more than half are affi liated with the five big MSOs – kbro, for example, owns 12 operators, giving it 1.1 million households, followed by CNS (10; 1.1 million), TBC (5;  749,000), TFN (5; 545,000) and TOP (5; 329,000). Combined, the five MSOs have a 75 percent share of cable TV households, while 25 independents hold the rest.

CBIT’s chairman Chien points out that legal cable – through MSOs and independents – reaches 62.8 percent of the island’s 8.1 million households. Legal cable TV households total 5.1 million.

“Total penetration is closer to 85 percent, which means there are still a lot of illegal hookups,” Chien said. A back-of-the-envelope calculation puts that number well over a million.

Kicking this analog set-top box jungle toward a gleaming digital future is no easy task. Each system started with  its own hardware confi guration, and each has unique cost constraints. Asked why the MSOs don’t band together and create a common standard and purchase hardware en masse, Chien said, “They can’t because it is prohibited by the Fair Trade Act.” Why not raise cable TV subscriptions to finance the upgrade? “Getting permission from the Fair Trade Commission to raise prices is next to impossible,” explained Chien.

“The government tells us we need to provide interactive digital broadband in order to survive,” said  Chien. ‘Big Brother’ might be right. Deeppocketed Chunghwa Telecom has announced that  subscriptions to its IPTV Multimedia-on-Demand (MOD) have passed the one million mark, though how many subscribers will remain as paying customers is uncertain because MOD is being offered with free installation, set-top box and two years basic service. More ominous is Chunghwa’s joint effort with Intel to develop a second  generation MOD with smart TV capabilities. That probably  explains CBIT’s launch of CCTF and its cloud computing initiative.

“Digital convergence isn’t far off for Taiwan,” said ZenithOptimedia’s Hsieh. “The technology is already
good enough, but the problem is the business model. Right now, everyone is wondering who will get there first. Logically, it will be whoever provides the infrastructure at the last mile. Right now that would be the cable  TV system. But we don’t know who it will be. It could just as easily be a telecom or a wireless provider.”