In face of the challenges posed by swift advancement in technology and rapidly changing market dynamics, 'What's up next?' is the question that is uppermost in the minds of broadcasting industry players, policy makers and regulators alike. And the challenges are particularly pertinent in the Asia Pacific region where we see both expansion of the marketplace and the advancement of top-notch technology.
The market potential in the Asia Pacific region is massive. Cable and satellite TV households in Asia Pacific grew by more than six times, from about 29 million in 1992 to about 188 million in 2002. The penetration rate of cable and satellite TV is still only 32% of the 570 million TV households in the region. The estimated total pay TV revenue in the region is about US$13 billion in 2002, projected to grow to US$31 billion in 2010.
Mainland China, India and Japan are the fastest growing markets in the region. Hong Kong, on the other hand, is a small market - but we are not only the most open and business-friendly broadcasting jurisdiction in the region, we are also the undisputed gateway to the vast and barely tapped Mainland market. And of course we are also home to CASBAA.
I wish to focus on two challenges which have particular relevance to Hong Kong.
The first is the challenge posed by a converging environment that has been driven by technological advancement. In the past, different networks were clearly distinguishable with different bandwidths and dedication to different services. The market and service structures were compartmentalised. For example, the capacity of the coaxial cable used by cable companies had 416,000 times the capacity of telephone twisted-pair wires.
Also, telcos could not do multi-channel broadcasting over their wires as cable companies could. But with the advent of digitisation, DSL technology, the Internet and optical fibre networks, each of these different networks can now support the delivery of voice, video and data.
Convergence opens door to increased competition
Convergence at the infrastructure level means cable and satellite broadcasters are facing increasing competition, not only from their peers, but also from telcos and new media firms that are branching out into the broadcasting business.
This has happened in the US where we saw telcos' attempt to move into broadcasting in 1994 when three of the Baby Bells invested US$300 million in the interactive Tele-TV project. In the same year, Microsoft and NBC attempted to integrate the Internet with TV by forming an alliance to launch the web-based, interactive MSNBC Online service.
Convergence at the infrastructure level also calls for a policy response from the policymakers and regulators. The AOL Time Warner merger in 2000 prompted the FCC to issue a Notice of Inquiry on the regulation of Interactive TV. To the best of our knowledge, the FCC has still not yet decided on the way forward. We await the decision with interest.
Piracy grows to global proportions
The second challenge is piracy, and that has grown to global proportions. Cable and satellite broadcasters depend on the use of reliable conditional access systems to obtain legitimate revenue from subscribers. The manufacturing and sale of illicit devices to circumvent protective measures poses a serious threat to the economic viability of the industry.
The pay TV industry in Europe estimates that the amount of annual sale of illicit devices for piracy is 1 billion Euros. Governments in advanced economies, including Hong Kong, have introduced legislative sanctions against dealers of such illicit devices. The industry has been asking for even more stringent laws to deter pirated viewing. The thrust of the controversy lies in whether there should be criminal sanction against end users. There are, however, questions concerning the enforceability of laws targeting end users in many jurisdictions. We need to sort that out.
In formulating the Hong Kong Government's response to these changes in the broadcasting scene, we adhere to the principles which we have been upholding all along, and that is, to ensure the provision of a level playing field and a conducive environment for investment and innovation in order to widen viewers' choice. Our objective is to enhance Hong Kong's position as a regional broadcasting hub by retaining and attracting an increasing number of broadcasters.
Convergence prompts review of broadcasting laws
In response to the trend of convergence, we are reviewing our broadcasting regulatory regime. In anticipation of the impact of convergence, we have updated our regulatory framework to facilitate the convergence process by enacting the technology-neutral Broadcasting Ordinance in 2000. It is now time for us to take another look at our regulatory framework.
Household broadband penetration in Hong Kong reached 49% in August, the second highest in the world after South Korea. The critical mass renders Hong Kong a favourable testing ground for converged services on broadband networks.
Indeed, we have witnessed such a surge of converging business models in Hong Kong, including PCCW's launch of its broadband TV service via ADSL in addition to its video services on the Internet portal, Yes TV's partnership with Hutchison Global Communications and PowerCom to distribute its service on broadband Internet in addition to distribution via ADSL, and Hong Kong Broadband Network's telephony, broadband Internet access and video triple-play service via its communications network.
These developments have called into question a number of hitherto firmly held concepts such as the meaning of "broadcasting" and the relevance of "spectrum scarcity" considerations. A number of regulatory measures may no longer be justified on public interest grounds in view of updated circumstances. Updating our regulatory regime to enable new converged business models to flourish, and yet providing a level playing field for all players, is high on our policy agenda.
New regulatory regime must be flexible
The objective of the review is to examine the need to redefine the regulatory ambit in view of the blurring boundaries among telecoms, broadcasting and the Internet. The emerging media, wired or wireless, are increasingly competing with the traditional media firms for advertising income and subscription revenue.
But the new breed of media firms often falls in the grey area of the existing regulatory framework. We, therefore, need to design a more flexible regime that will not stifle innovation and entrepreneurship, but at the same time, ensure fair competition for players in the same market segments. No doubt, this is not an easy task, but we must try!
An updated and streamlined regulatory framework would have to be implemented through a likewise rationalised and updated institutional set-up. We are examining the duties of the Broadcasting Authority and the Telecommunications Authority to see if there is room for rationalisation, and assess if there is anything which we can learn from overseas overarching regulatory bodies, such as Ofcom and FCC, the responsibilities of which span across both broadcasting and telecommunications.
Suggestions welcome regarding the way forward
We plan to complete the review in the next few months and consult the public on the way forward. We welcome CASBAA's expert input in this process.
On piracy of pay TV, we will continue to work with the industry to contain the problem in Hong Kong. When I spoke at the APEC CEO Summit in Bangkok last week, reaffirming Hong Kong's commitment to protect intellectual property, I pointed out that the industry had a key role to play in combating piracy.
Governments have the responsibility to provide a sound legal framework and a robust enforcement regime. But the primary responsibility for the protection of intellectual property rights rests invariably with the rights owners themselves. They need to build up their technical capability to guard against infringement and protect their services.
In Hong Kong, we have taken a three-pronged approach to tackle the problem. At the service supplier level, for example, we assisted the Hong Kong Cable Television Limited in digitising its transmission and urged them to adopt reliable encryption technology.
On enforcement, the Government mounted 14 special operations against illegal sale of unauthorised decoders in the past two years. Forty four people were arrested with 12 people convicted in court. The penalties imposed ranged from a fine of $5,000 to sentences of up to six weeks of imprisonment.
Piracy controls need to be tightened
On the legal framework, we see the need to tighten the control of piracy. We are now in the legislative process of extending the scope of criminal sanctions against dealers of unauthorised decoders to cover users for commercial purposes.
The legislative proposal also provides for civil remedy against domestic pirated viewing. We will consider providing for criminal sanctions against domestic users if pirated viewing is still rampant after the Hong Kong Cable Television Limited has completed its digitisation by mid-2005.
CASBAA and the industry have, as usual, kindly provided the Government with constructive comments during the legislative process. We understand the cable and satellite TV industry has done a lot to reduce the vulnerability of their systems, to monitor the piracy market and to combat circumvention devices. We recognise that there are practical limits to these efforts.
Similarly, we must recognise that there are also limits to what the Government can do in terms of legislation and enforcement. Our legislative proposal is based on the outcome of public consultation, our study of international practice both in terms of legislative provisions and enforcement, and our assessment of the proportionality of sanctions against the wrongdoing.
Gov't works with industry to find solutions
It may not be totally satisfactory to all industry players, but we believe that our approach is a balanced one, and is acceptable to the community at large.
We are working hand in hand with the industry. We will prove ourselves equal to the challenges ahead. The Hong Kong Government has unlimited bandwidth in receiving suggestions and ideas from the broadcasting industry. The process is not a linear one. It is interactive and multi-level. We cherish this partnership with you. Together we can work out fruitful and meaningful answers to the question 'What's up next?'.
Secretary for Commerce, Industry & Technology John Tsang gave this address to the Cable and Satellite Broadcasting Association of Asia Convention 2003.
