BLOOMBERG: AOL is tied up with Chinese red tape (Excerpt)

Media Censorship: Since China joined the WTO in 2001, foreign media companies have learned that selling news and information is more complicated than they thought

BLOOMBERG

Sunday, May 18, 2003, Page 11

AOL Time Warner Inc foresaw boundless opportunity in China in June 2001, when then-chief executive Gerald Levin signed a US$200 million agreement to sell online services in the world's most populous nation.

"New businesses, new dreams and new possibilities will proliferate," Levin told a Beijing press conference, announcing AOL's Internet venture with Legend Group Ltd, China's No. 1 computer maker. The world's biggest media company by sales aimed to have the service up and running within six months, AOL International President Michael Lynton said at the time.

Almost two years later, AOL hasn't signed up a single paying subscriber in a nation of 59 million Web users. Links on the AOL-Legend Chinese-language Web site to services such as e-mail, instant messaging and Internet access lead nowhere: Users get a message saying the system is still being tested.

Foreign media companies such as AOL Time Warner, News Corp and Viacom Inc are still on the sidelines in China, even after the nation's 2001 entry to the WTO helped companies such as Volkswagen AG and Motorola Inc make China their No. 2 markets behind their home countries.

Companies angling to sell Internet content, television programming and publications to China's 1.3 billion people are up against a Communist government that's reluctant to loosen its control over the flow of information, said Steve Marcopoto, president and managing director of Turner International Asia Pacific Ltd, an AOL television unit.

"We're not talking about cell phones or Buick's or toothpaste," Marcopoto said in an interview. "This is information, and it's highly sensitive in the Chinese market."

The Internet isn't the only area in which AOL Time Warner faces difficulty expanding within China. Turner's Mandarin-language TV network reaches just 2 million of China's 1.1 billion viewers.

Time magazine, AOL's flagship weekly, has been banned from Chinese newsstands for more than two years after publishing a story about the outlawed Falun Gong spiritual movement.

Piracy is also sapping sales: Bootleg DVD copies of films such as "Lord of the Rings: The Two Towers," released by AOL's Warner Bros studio, sell on Beijing streets for less than US$2.

Almost a decade after being allowed to introduce satellite-TV services in China, AOL Time Warner, News Corp and Viacom still have limited access to the country's households. Their sales of cable-TV programming are limited to one area of southern Guangdong Province bordering Hong Kong -- one of 31 Chinese Provinces.

In the rest of the country, they can offer satellite TV channels such as AOL's CNN and HBO only in foreign residential compounds, some hotels and select office buildings housing overseas companies.

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Chinese officials say the current restrictions on foreign media companies are in line with government policies.

"Media is the country's mouthpiece. It's different from other industries," said Xue Ling, head of the foreign affairs department of the State Administration of Radio, Film and Television in Beijing. "It is normal not to open it up to foreign investment."

The government owns or controls all of China's newspapers, television stations, publishing companies and film studios.

Editors and producers who stray from guidance given by the Communist Party's propaganda department can be fired or their publications shut down. The 21st Century World Herald, a Guangdong-based newspaper, was closed in March after printing an article advocating political reform, the Economist reported.

The government controls Internet content available to domestic viewers, who can't access some foreign Web sites such as Time magazine's. Until China acknowledged the country's outbreak of severe acute respiratory syndrome last month, CNN news reports went dark as announcers introduced reports on the disease's spread in the country and resumed when the reports were over.

Non-Chinese media companies haven't shared in the market-opening concessions China made to join the WTO. Carmakers such as Volkswagen and General Motors Corp have increased sales as China lowered tariffs and increased import quotas after joining the trade body in December 2001.

China made no WTO pledges to overseas TV companies, and didn't relax controls on the content media companies can distribute. It agreed to raise the limit on foreign films shown in domestic theaters to 50 a year from 20 by the end of 2004, and allowed foreign companies to control as much as 50 percent of Internet service providers by the end of 2003.

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http://www.taipeitimes.com/News/biz/archives/2003/05/18/211082