The drama that’s threatening to shake up Hong Kong’s media landscape is in many ways more gripping than much of what’s been seen on local TV screens for some years. With high stakes and highprofi le players, the current wrangling over new free-to-air broadcast licences is costing the protagonists hundreds of thousands of dollars, and has put on ice the expansion and investment plans of both existing terrestrial broadcasters and those applying for new licences.

Three aspiring free TV service providers applied for licences three years ago, yet, although the industry regulator made its recommendations to government two years into the process, and is understood to have endorsed licences for all three, no new licences have yet been granted, and there’s no official word on why there’s been such a lengthy delay.

What’s emerged in the meantime is a veritable soap opera, with accusations of industrial espionage, writs alleging defamation, mass defections of actors and behind-the-scenes staff, and claims and counter-claims about the viability of any changes to the TV landscape that would break the current free-to-air duopoly of terrestrial heavyweight TVB and its smaller rival, ATV. A televised rendition of Gangnam Style by one prominent TV executive outside the Tamar government offices – and an application for a judicial review of the entire licensing process – show just how desperate for a solution those involved have become.

City Telecom, formerly a provider of phone services and now calling itself Hong Kong Television Network (HKTV), along with pay TV service providers PCCW and i-Cable Communications, filed their applications for terrestrial licences at a time when the government was believed to want to open up the sector to competition and extend lighttouch regulation. All three promised a massive injection of funds into infrastructure and production – to the tune of up to HK$1 billion each in the first few years of operation.

The Broadcasting Authority, now rebranded as the Communications Authority (CA) in the time it’s taken for the debate to be played out, indicated it was still supportive of new licences. “The Government’s broadcasting policy is to promote the development of the local broadcasting industry and encourage fair competition, investment and the adoption of innovative technologies, thereby leading to the provision of more choices of quality programmes to the public,” a spokeswoman told TV ASIA Plus. “As the regulator for the broadcasting sector, the CA has all along adopted a liberalised, light-handed and pro-competition regulatory approach.”

For Hong Kong consumers – whose passion for television runs deep, and explains why about a third of all advertising investment in the market goes to TV – a more competitive terrestrial TV market would seem to be nothing but good news; more choices, a flight to quality and pressure on all content providers to deliver it. A recent survey by the University of Hong Kong found that 85 percent of people want more free-to-air choices, and more than 200 veterans of the entertainment business have signed a petition in support of a broader competitive landscape.

The terrestrial incumbents paint a very different picture, though, insisting that the market simply cannot sustain three or more free-to-air services. A third station did operate for a time in the mid-1970s, but fairly rapidly went bankrupt and there’s been a duopoly ever since. ATV’s major investor, Wong Ching, has predicted “disaster” if new licences are granted – and underlined his point at a protest in front of the government’s headquarters with a dance number accompanied by Miss and Mr Asia contestants. TVB, meanwhile, which has for decades dominated the local TV scene, says it’s not “blindly objecting to the issuance of new free TV licences and is not afraid of competition”, but says the government must first decide on the optimal number of free TV licences for Hong Kong, the criteria for deliberations over new licences, and announce when any new licences will be issued.

“The overall free TV advertisement revenue for the whole industry saw no growth in the past 15 years,” a TVB spokesman told TV ASIA Plus. “Consultant reports also confirmed that the advertisement market could only accommodate two free TV stations. In view of these facts, adding a third player in the market is not of the interests of the public.”

In January, TVB requested a judicial review of the licensing process, adamant that fundamental errors in the process so far mean the government cannot make a proper or lawful decision. It says the then-Broadcasting Authority failed to carry out a “lawful economic and/or competition analysis informed by correct findings of fact” and that deliberations by the authority and other government bodies involved “serious mistakes”.

On the other side of the debate, meanwhile, Hong Kong Television Network Limited’s CEO, Ricky Wong, has become the public face and voice of those running out of patience with the way the process is dragging on; the prospect of a judicial review causing further delays must be increasing the despair at a company which, having sold its telephone business to fund investment in the TV side of the business, is spending big money on facilities and talent, with no channels on which to broadcast. Wong is diplomatic, and still confident that eventually, a free market will prevail.

“At this moment, we have no plan to lodge legal actions against the government,” Wong says. “We are very optimistic about the free TV licence granted soon, and we believe that the government will not be irresponsive to public urges for more free TV licences. Hong Kong’s free TV market is dominated by two operators only; effectively, there is only one operator active in programme production. People watch a lot of pay TV as there is content that is not (provided) by existing free TV operators, and we see there is heavy demand on high quality and more variety programmes.”

The backdrop to the free TV debate is, indeed, growth in the pay TV market, which is not only gaining eyeballs; it’s also generating higher revenues per subscriber each year, and is, finally, convincing growing numbers of advertisers to switch at least a portion of budgets out of the terrestrial TV they’ve grown so used to buying and putting it into paid-for channels. The latest figures by CASBAA puts the number of non-terrestrial connections at 2.54 million, meaning multichannel TV is now in 86% of Hong Kong homes. While not yet at the saturation levels of South Korea and Taiwan, it is one of the highest penetration rates in the region. The portion of ad revenue going to pay TV is estimated at between 20 and 40 percent of all television spend, according to different industry estimates.

The pay services are certainly succeeding in capturing eyeballs. PCCW’s Now TV added 43,000 customers last year to swell its installed subscriber base to 1.18 million. Monthly average revenue per user (APRU) rose to HK$173 in 2012 from HK$169 in 2011, and the company’s success in winning the exclusive broadcast rights to Barclay’s Premier League for the next three seasons can only help build on that. Wharf’s i-Cable pay service claims just over a million subs, and the third pay TV service, HK Broadband, has about 200,000. At such high rates of penetration, the pay sector’s focus is shifting from one of driving subs to one of driving subscribers into higher-cost packages and extras, fuelling ARPU.

PCCW, while apparently quietly awaiting word on its licence application – has declined to say whether it had made representations to the government over the lengthy delays – is expanding internationally. In October, its now TV pay TV service agreed its first overseas content distribution deal. Telekom Malaysia Berhad is now broadcasting now TV’s Chinese channels now Mango, now HaiRun and now International on its IPTV service HyppTV.

TVB’s international aspirations, meanwhile, have been downgraded over the uncertainty in the domestic market. The company late last year shelved plans for an international English-language channel aimed at overseas Chinese and targeting the US, Canada, Australia, Europe, Singapore and Malaysia. An international version of the Cantonese Pearl channel, with a focus on news, travel and Chinese culture, would have cost an estimated HK$50 million to establish, employed about 50 people – but taken three years to break even. “TVB has to re-consider the launch of Pearl International as the future of the free TV market is clouded by huge uncertainty when the government is considering issuing an unspecified number of new licences,” a spokesman told TV ASIA Plus.

Operating conditions in this climate of uncertainty are proving challenging all round. TVB, loved by audiences for its dramas, has endured mass defections of actors and behind-the-scenes talent to HKTV, which is offering salaries of 20 to 30 percent higher than TVB. TVB’s Executive Director and Group General Manager Mark Lee Po-on accuses HKTV’s Wong of having poached half its creative team in a single weekend, destabilising the whole operation. Wong accepts that most of the 200 artistes it has hired have come from TVB. It also has 500 off-air staff on its payroll, and has been acquiring content from Korea, mainland China and Japan, with still no word on if or when any of it might hit the airwaves. Yet there seems to be no plan B. “We are still very optimistic and well prepared for granting a free TV licence,” Wong says when asked what happens if there is no licence. “We are determined to be part of Hong Kong’s TV industry.”

ATV has meanwhile found itself facing hefty fines over its on-air coverage of the debate. In February, it was hit with bills totalling HK$260,000 for breaches of broadcasting codes, mostly for unbalanced programmes on the subject of new free-to-air TV licences. It was also fined for falsely reporting the death of former Chinese president Jiang Zemin in July last year. James Shing, ATV’s executive director is being sued for defamation by HKTV’s Wong, over claims Wong, who was previously with ATV, photocopied sensitive documents just before leaving the organisation in 2008. With real-world drama like this, who needs television?

Online Piracy in HK – an update

Online piracy is still rampant in Hong Kong, where attempts to bring copyright law up to date fell apart after six years of deliberations. In March 2013, a coalition of 21 industry bodies representing the makers and distributors of TV, film, music and software have made a joint plea for the Government to urgently update the Copyright Ordinance and make it relevant to the digital age.

“Unfortunately, not only has there not been any progress on piracy in the past year but things have gone backwards,” says John Medeiros, Chief Policy Officer at one of the signatory organisations, CASBAA. “The consumption of online pirated TV content, streams and whole TV bouquets has risen and continues to rise because there’s no effective legal constraint on it.”

Pay TV subscriptions remain strong, but many households buy only the basic packages, which tend not to include latest-release movie channels and live international sporting events. Research in Hong Kong late last year found that subscriptions to premium movie channels were in decline – not because people are watching fewer films but because they’re watching them illegally online. Medeiros is convinced that consumers know that they’re watching pirated content. “They’re going to dodgy web sites. If you’re watching HBO on a dodgy web site or using a black box you bought in an alleyway in Mongkok, you know bloody well what you’re doing.”

Copyright laws were last updated in 2007, and the coalition, which also includes the Hong Kong Internet Service Providers Association and the Hong Kong Motion Picture Industry Association, insists that technological and social change in the market since then means copyright protection is outdated, and lags behind that in other jurisdictions. “Effective copyright protection, particularly in the digital environment, provides the foundation for a vibrant creative sector, drawing foreign investment and advanced technology to Hong Kong and increasing Hong Kong’s competiveness on the international stage,” their joint statement says.

Attempts to update copyright laws were under discussion for six years before reaching the Legislative Council last summer; the amendment was scuppered when concerns that the new wording might limit people’s freedom to create parodies of protected work overwhelmed the debate. The amendment, while better than nothing, would still have failed to provide content makers and distributors with adequate protection, the coalition says. It is now demanding that the government clarify the “parody” issue, carry the amendment, then carry out a more thorough update. The amendment, Medeiros says, is “thin gruel” that will “do little or nothing to stem the rampant growth in online piracy of TV content in Hong Kong”. CASBAA is urging the government to quickly enact the bill, then move on rapidly to taking serious action to deal with the real problems of piracy in the digital age.

In other news from Hong Kong…

• CNN in January launched a new primetime evening news show, CNN NewsCenter, anchored out of Hong Kong by long-time CNN anchor Monita Rajpal. The move was the latest in a string of new launches from Hong Kong, including CNN Newsroom, Live from Hong Kong, a two-hour morning news show, CNN NewsCenter, and On China, a monthly show hosted by Kristie Lu Stout.

• Setanta Sports, the international rugby channel for live and exclusive broadcasts including the RBS Six Nations and the Aviva Premiership, has launched in Hong Kong on bbTV, the IPTV service operated by Hong Kong Broadband Network Limited, a City Telecom, now known as Hong Kong Television.

• HBO Asia has announced the launch of HBO GO on Hong Kong’s now TV, a broadband streaming service giving subscribers access to more than 1,000 hours of HBO Original content on multiple devices including computers, tablets and mobile devices (iOS, Android and Windows 7) on demand.