According to WTO agreements, China does not promise to open its broadcasting and television sector and forbids foreign capital to enter into the country's radio station, television station, broadcasting and television network and movie studios. However, China has promised to import 20 foreign firms per year on a revenue-sharing basis, permitted distribution of audiovisual products (films excluded) in the form of contractual JV, and allowed cinema and theatre JVs with foreign ownership up to 49% after it joined the WTO. Therefore, China's film and television industry, which inevitably receives fierce foreign attacks, will have to restructure itself in face of great challenges brought about by the WTO entry.

With accelerating economic globalization, another wave of mergers and acquisitions swept across the international film and television circle. Developed countries one after another began to reshuffle their film and television industries, expand enterprise scale and elevate industrial competitiveness. However, China's film and TV industry has been much slower to reform than the rest of the economy, because films and TV programs have traditionally been seen as a medium for promoting idealism and not commerce. In order to survive fiercer competition resulting from the WTO entry, China's film and TV industry should reorganize industrial capital, take part in international work division and raise international competitive strength.

1. China's film and TV industry urgently calls for capital reorganization.

(l)．The unsound enterprise structure hinders the development. China's film and TV industry is plagued with repeated investments and repeated constructions. In China's film industry, there are numerous small movie studios but very few giants with sharp competitive edge, leading to little convergence of industry and severe waste of resources. While in the TV industry, China currently boasts more than 3,000 TV stations, each with two to three or even more channels on the average. A large number of these stations still use outdated equipment and BVU, which have been phased out by stations in other countries, and compete for investment and ads. A lot of province-level TV stations can just keep the pot boiling with meagre revenue and cannot afford new equipment and refined programs. Dispersed investments have slowed the technological upgrading in China's film and TV industry.

(2). Businesses are not market-oriented. For a long time, Chinese people regarded the planned economy as the basic feature of the socialism and planned allocation became the only way of resources allocation. In China, most enterprises in the film and TV industry are State owned and obtaining resources under the planned mechanism has become deep-rooted in them. Capital reorganization in developed countries' film and TV industries proves that industrial expansion is realized with enterprises' own development enthusiasm and government support. So, the Chinese government should employ administrative measures to promote capital reorganization in its film and TV industry and enterprises in the realm should also speed up market orientation.

(3). Administrative restriction is an obstacle in reorganization. Administrative departments subjectively divided up the film and TV industry and managed them according to these divisions, thus hindering the full play of the industry's functions as an integral part. As a result, the industry cannot make full use of social resources, only has a single investment channel and suffers insufficient market demand. Therefore, China should also carry out the system reform while reorganizing capital in the industry.

(4). Low level of industrialization raises an entry threshold for social resources. Capital reorganization is the way of capital accumulation in the film and TV industry. The process of capital accumulation is actually the process of industrialization. Only with accumulating capital can the industry speed up its development. The process of capital accumulation is also a process of "the fittest survive" from the perspective of industrialization. Capital accumulation can lead to emergence of several giant groups, which will lead the development of the industry. Industrialization is the process of reorganization and adjustment of industrial capital.

In recent years, slow capital accumulation mainly attributed to low level of industrialization. At present, the government does not allow film and TV studios (or stations) to go public. In order to put enterprises in the film and TV industry on the market, cooperation between these enterprises and public companies might be feasible, because in this way the financing advantage of public companies can bring into play the project advantages and corporate advantages of film and TV enterprises and make capital expansion possible. The cooperation can ensure smooth project implementation on the square, facilitate capital reorganization and make possible for the involvement of private and social capital in the film and TV industry. Establishing film and TV industry venture capital funds can be one way of operation worth consideration since it can pipe social capital into the industry through the industrial financing channel and thus solve the problem of fund shortage.

(5). The industry should have large-sized film and TV studios. Film and TV making sectors in developed countries feature high-tech techniques, large capital input and high production. The United States is not only a country with the most developed IT industry but also the No. 1 exporter of film and TV products, which has created a great amount of profits for the country. The entertainment sector in the United States is called a copyright-based manufacture sector. While China's film and TV program production is still in the fledgling state and has not realized production of scale yet. Therefore, China should formulate favorable industrial policies to support the industry, regard film and TV program production as a real industry and try to foster Chinese "Hollywood" through adjustment and reorganization.

2. New Features of Capital Reorganization in International Film and TV Industries

Since the 1990s, the fifth wave of mergers and acquisitions (M&A) has swept across film and TV industries worldwide and it has taken over the past four in terms of the wide areas it has covered, the long period it has lasted, the big number of enterprises it influenced and the large amount of capital involved. Differently, the capital reorganization in the media industry cut a dash in this wave and added the fuel to push forward the capital reorganization worldwide. In the mergers and acquisitions, film and TV industries demonstrated the following features:

(1). The wave was on a larger scale. In 1999, the announced M&A involved a transaction value of US$3.4 trillion, up 36% from 1998 and more than doubling the 1997 figure. M&A activities in the realm of new economy became active as never before and thus there emerged cross-sector and cross-border M&A in media industries. After1999, a wave of amalgamation between media and Internet swept across the United States. For instance, AOL merged with Time Warner, Yahoo! joined hand with 20th Century Fox, and AOL allied with Columbia Broadcasting System. M&A accelerates industrial amalgamation and will have far-reaching influence on industrial structure and economic development of film and TV industries.

(2). Film and TV giants began to emerge. Reorganization of film and TV industries will lead to emergence of new media giants, which will be able to take over conglomerates in petrochemical and automobile industries. Quite a few film and TV giants rank among the world's top 500 companies, such as Sony, Disney, Time Warner, News Corp, Bertelsmann, Viacom and Seagram. The developing speed of these media giants in recent years was obviously faster than traditional industries. Media conglomerates have two distinct features - they belong to multi-media industrial groups that combine newspaper, TV programming, broadcasting, publishing and audiovisual products, and they rapidly expand their scale through M&A and reorganization.

(3). Multi-media cross-sector reorganization is really eye-catching. In recent years, media corporations worldwide competed with each other fiercely, leading to various cross-media M&A and cooperation as well. Statistics show that the United States boasts 64 major media companies, 38% of which involve at least two medias in their business scope; 26%, at least three medias and some 60%, mixed media businesses. This signals the future trend of media industries. Since the 1990s, economic liberalization has removed restrictions on cross-sector operation among media, telecommunications and cultural industries, and ushered in a wave of cross-sector M&A and reorganization.

(4). There are an increasing number of cross-sector industries in film and TV circles. Cross-sector reorganization has become a new trend. For instance, more telecommunications companies opted to join hands with media, Internet, entertainment or consulting companies. It is predicted that in a couple of years new IT enterprises will accelerate M&A and alliance with enterprises in traditional industries. In the future, media enterprises will further expand into sectors of news, entertainment, education and information technology. Film and TV industries have big potential and are appealing to other industries. China's film and TV industry started late, so its reorganization is the most urgent task in face of external competition. Reorganization in developed countries' film and TV industry will provide much experience for China.

3.  Reorganization of the Film and TV Industry in China's Industrial Structure Adjustment

Developed countries have taken the lead in media M&A during the transformation from industrial economy to knowledge economy, and developing countries are also striving to keep up with them. As a developing country, China is even more supposed to give full play to the advantages enjoyed by latecomers to integrate new media and traditional medias, accelerate the media industry's development, raise its international competitiveness and include reorganization of the film and TV industry in the country's industrial structure adjustment.

(1). Reorganization of the film and TV industry is an important part of industrial structure adjustment. The film and TV industry is categorized as a service sector and falls in the tertiary industry in the WTO regime. With increasing high-tech advancement and accelerating information revolutionary, broadcasting, TV and film industries have shifted from a single social media to emerging industries and become an important component of the tertiary industry. The film and TV industry currently is still categorized as a kind of IT industry. In recent years, knowledge industries, which mainly cover telecommunications, computer, electronic media (television) and so on, played an increasing bigger role in contribution to the tertiary industry and even the GDP. For instance, knowledge industries account for over 50% of GDP in developed countries in Europe and the America. The majority of countries in the world have reached a consensus on the significance of developing tertiary industries in the adjustment of the global economic structure. China is certainly advised to include the film and TV industry into its national economic structure adjustment.

(2) Reorganization of the film and TV industry should insist in the dominant position of State-owned films and TV programming. Some film studios with heavy debts, abundant staff and slow transformation have reduced near to collapse and some grass-roots TV stations make a living on financial loans. In order to solve all these problems, large-size film studios can set up and improve their corporate management structure and make themselves responsible for profits and losses by introducing multi ownerships and separating business operations from administrative regulations. At the same time, these studios should speed up mechanism reform, encourage internal staff to hold shares, and change old enterprises into joint-stock companies. Based on State-owned enterprises reforms, grass-root TV stations are gradually severed with financial supports or are put on the market through M&A and reorganization. And, the government may employ administrative measures to guide reorganization of grass-root TV stations.

(3). China should speed up the reconstruction of traditional industries with high-tech. The country's industries as a whole are 15 to 20 years behind those in developed countries. Statistics show that in 1997 the former Radio, Film and TV Ministry spent RMB40.18 million on R&D of TV research institutions. While Japan's NHK sets aside US$160 million for programming and R&D annually, and spending of French public TV organizations on audiovisual research alone reached US$107.3 in 1996. In order to improve the overall level of the film and TV industry, China should increase IT application in media industries - increasing cooperation between media industries and high-tech industries, promoting small-sized high-tech specialized enterprises to accompany development of large-sized film and TV studios and boosting inter-sector and cross-sector cooperation.

(4). China should adjust its film and TV industry according to the international structure. Western national newspapers, magazines, and film and TV industries such as the US five broadcasting and television networks, ABC, CBC, NBC, FBC and CRB, Canada's CTV, and Japan's TBS, NTV, ANB and TVTOKYO mostly adopt group business operation and boast tens of televisions. In recent years, the wave of mergers, acquisitions and alliances went beyond film and TV industries and media itself. Sectors of computer, telecommunications and television competed with and penetrated each other and allocation of resources became more and more reasonable. In order to strengthen competitiveness and anti-risk abilities, China is supposed to set up large-sized media industrial groups.

IV. Paying Attention to Particularities of Reorganization in the Film and TV Industry

(1). China's industrial structure is in a low level, especially the tertiary industry, which film and TV belong to, has an unsound internal structure, most importantly emerging service industries and markets are far from mature. Railway, aviation, post and telecommunications, finance and insurance, education, cultural arts and broadcasting, film and TV make up 35 to 40% of the total added value created by the tertiary industry. These important sectors should be opened to domestic private investment first before they are opened to foreign capital. Therefore, barriers and restrictions should be removed to pave the way for non-State economic entities, including collective economy, private economy and shareholding economy, to enter these sectors. China's entry into the WTO and increasing reform and opening-up has taken the film and TV industry to the frontier in direct face of foreign attacks and challenges.

US economist F. Machlup proposed the concept of "knowledge industries", which, in his view, include education, R&D departments in enterprises, media (news, publishing, broadcasting, television and so on), information equipment and information service. Film and TV are included in knowledge industries because they embody ideology and have the functions of spreading knowledge and culture as well. Media industries cover tradition media and new media. Compared with other industries, the film and TV industry features close relation with ideology, close connection with capital market and high degree of knowledge content and requires many knowledgeable talents.

(2). It is necessary to strengthen the protection of the film and TV industry. With the imminent WTO entry, the industry has felt the pinch from foreign attacks. In order to raise its competitiveness, the industry should have feasible, favorable laws and regulations to guide reorganizations. In the near future, the following policies may be taken into consideration: A. Policies to limit the number of TV stations and newspapers. There are more than 3,000 TV stations now; the number of newspapers in 1993 reached 2,202, with a new newspaper emerging per day on the average. The large number and small scale have resulted in waste of resources and should be brought to strict control. B. Policies to limit the floor level of scales and encourage TV stations, radios and newspapers that do not meet requirements to carry out merges and acquisitions. C. Policies to encourage and support reorganization especially in aspects of personnel diffluence and transaction cost.

(3). Reorganization in the film and TV industry has diversified ways - reorganizing according to different regions, cross-sector reorganization, promoting multimedia conglomerates and reorganizing that integrates film and television. And, the industry should employ suitable ways according to specific situations.

(4). China's film and TV market has great potential and we should implement the strategy of localization to lay foundation for international expansion. The industry should first focus on the country's national culture and then seek alliance with foreign investors. Foreign alliances have three options - allying with overseas Chinese film and TV operators, allying with developed countries' film and TV groups, and absorbing international advanced technologies to elevate overall industry quality so as to foster Chinese transnational film and TV companies. Since China's film and TV industry is a latecomer and still in its growing stage, it cannot compete with multinationals and needs to be protected by the government in order to sharp its competitive edge.

(5). We should ensure the ideological uniformity in the film and TV industry. As the components of the tertiary industry, television, film and multimedia not only keep the political nature of ideology but also have the given industrial rivalrousness. Due to the dual attributes, it is necessary and practicable to employ certain administrative measures to reorganize the present film and TV industry. In the process of media reorganization, we should bring into play both the market's basic function of resources allocation and the government's macro control and regulation. As the mouthpiece of the Party and the government, film and TV are not only propaganda and enlightening organizations but also industrial sections. These two are not in contradiction. In the market economy, China can raise the film and TV industry's strength through industrialized operation and thus better bring into play the mouthpiece's propaganda and enlightening functions.

(Author: Xu Donghua)