Why HBO Is Streaming Into China for 2015

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HBO, the star cable channel in Time Warner's (TWX) portfolio of media assets, has planted a big stake in the Chinese market. This past November it inked an exclusive content deal with one of that nation's Internet giants, Tencent (TCEHY), to stream its shows online.

Details and pricing of the arrangement were not made public. Regardless, we can safely assume that the amount is big. And no matter what, we can be certain that the move is a giant step into the Asian market for the famed cable network and its parent -- even though it might have to jump a hurdle or two on the way.

A Big Living Room

The Chinese market is home to around 460 million online video viewers, according to iResearch. What's more, that number is expected to climb to 700 million by 2016. That's an immense audience, and it's being fought over by some of the biggest names in the Chinese online world.

These Internet video streaming purveyors include Youku Tudou (YOKU) -- roughly speaking, the YouTube of the country -- which these days is partially owned by Internet titan Alibaba Group (BABA). Other players are Sohu.com (SOHU) and iQiyi, which is controlled by another online behemoth, Baidu (BIDU).

All are opening their wallets to pay for content. In less than two years, that trio has spent $1 billion on films and TV shows from established foreign markets such as the U.S., the U.K. and South Korea.

The uptake has been swift. For example, as of mid-November, Youku Tudou had a library of nearly 1,500 TV seasons from producers in those nations.

'You Win or You Die'

With that level and intensity of competition, any streamer hoping to claw its way to success has to distinguish itself on quality.

And the good stuff is already starting to go to determined buyers: This past July, Alibaba Group inked a deal with American movie and TV producer Lions Gate Entertainment (LGF) to make its content available on the Asian company's set-top boxes. That's quite a catch, considering that the haul includes the wildly popular "Twilight" series of film adaptations and the well-regarded TV period drama "Mad Men."

Shortly thereafter, a unit of 21st Century Fox (FOX) and Sohu.com signed an agreement to bring the seemingly immortal animated comedy "The Simpsons" to the latter's streaming video service.

HBO enjoys a reputation for delivering prestige TV as the originator of celebrated series like "The Sopranos" and "Game of Thrones." Chinese consumers are well aware of this -- after all, those shows are already big hits in their market.

Some of this is due to airings on broadcast TV, but much of it derives from the black market. As with other parts of the world, piracy of movies, TV shows -- really, any form of entertainment available digitally -- is rampant in the country. One Chinese entertainment fan site recently featured over 100,000 consumer reviews of "Game of Thrones" -- which, until the Tencent deal kicks in, still isn't available legitimately online. Those evaluations, by the way, were only for the show's first season.

Here Comes the Censor

Piracy might be the only way for people to continue to access such series, at least for a while. The government's State Administration of Press, Publication, Radio, Film and Television has served notice that content featuring what it considers to be excessive sex or violence should be removed by the streamers.

According to media reports, this currently unofficial oversight will become more formalized sometime in 2015, with the Administration granted a direct mandate to screen full seasons of foreign shows for such objectionable content.

HBO's material would be a primary target of such an initiative. The channel's shows can be dark and racy -- "Game of Thrones," for instance, features copious nudity, and a number of its characters meeting gruesomely violent ends. When the show was aired on Chinese broadcast TV in April, it was heavily edited to conform with existing standards -- a move that was met with a firestorm of criticism from the viewership.

Even if the new shows make it through this filter, it might be some time before they show up in the stream. Local media reports have it that the Administration might take up to six months to fully review a series.

Hungry Eyes

But the country's appetite for Western series is big and still unsatisfied. And companies like Tencent and its giant online colleagues are notable contributors to the national economy, not to mention popular destinations for Chinese entertainment seekers -- who obviously don't like when censors chop and slice the shows they like.

So we can assume HBO's offerings like "True Detective" and "Boardwalk Empire" will, in some form, make it through Tencent's stream to reach a great many of the country's viewers.

That's a massive audience ripe for advertisers. After all, there's nothing like feeding a big market famished for quality content.

Motley Fool contributor Eric Volkman owns shares of Lions Gate Entertainment, and finds series like "Mad Men," and "Game of Thrones" highly entertaining. The Motley Fool recommends Baidu, Lions Gate Entertainment, and Sohu.com, and owns shares of Baidu and Lions Gate Entertainment. Try any of our Foolish newsletter services free for 30 days. Is your portfolio ready for the new year? Check out our free report on one great stock to buy for 2015 and beyond.
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