Chinese Broadcast Blues

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In 2001, AOL Time Warner (parent of TIME) was granted the right to broadcast its Mandarin-language channel, China Entertainment Television (CETV), to 19 million households in the southern province of Guangdong. But all those eyeballs were never successfully converted into ad dollars—the venture lost $17 million on a paltry $450,000 in revenue in 2002—and last week, the company sold off a controlling 64% stake in CETV to media company Tom.com, part of Hong Kong billionaire Li Ka-shing's empire. Tom.com has an extensive mainland advertising network, but it has no TV experience and now must overhaul CETV's lackluster slate of dubbed foreign soaps and cartoons. Rival News Corp.'s mainland channel, Starry Sky, operated through its Asian subsidiary STAR TV, has won audiences with racy original programming and by exploiting regulatory loopholes allowing its channels to be carried on cable systems outside the boundaries approved by Beijing. STAR TV officials have said they expect to break even in 2005.

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Forced to play catch-up, Tom.com CEO Sing Wang says he plans to relaunch CETV early next year with more China-produced shows "geared to the younger crowd who want lighthearted, racier entertainment." Given billionaire Li's mainland connections, there is also hope that CETV will eventually be granted wider broadcasting rights.

The CETV sale is the second recent setback for AOL Time Warner in China. Earlier this year, a partnership between the company and Legend Computer, the mainland's largest PC maker, was shelved before it could launch a planned Internet venture. Now, many are wondering if the debt-burdened media giant is making a broader retreat from its once ambitious China strategy, mapped out during the headier days of the Internet bubble by the then CEO Gerald Levin. But the deal does have a potential silver lining for AOL Time Warner: if Tom.com can turn CETV around, AOL Time Warner has the option of buying back the channel between 2007 and 2010.