(Beijing) – Chinese companies have been busily tapping the potential of the Internet protocol television (IPTV) business over past year. More than 20 new Internet TV screens and streaming boxes have been launched by various companies.

At the end of 2013, Tencent Holdings rushed to launch its IPTV product, Weixin TV, in partnership with Internet video content provider iCNTV and manufacturer Skyworth. Earlier in the year, e-commerce giant Alibaba Group released a set-top streaming box developed with content provider Wasu Digital TV Media Group Co., and Baidu Inc also released its IPTV and streaming box based on its video subsidiary iQIYI.

Internet companies have shown they are ambitious about exploring the growing market, one that also involves appliance manufacturers, telecom operators and broadcasting companies. However, behind the excitement are some uncertainties because regulators are mulling gradually tightening controls.

A Free-for-All

In mid-December, the State Administration of Press, Publication, Radio, Film and Television, the country's media watchdog, held a symposium on IPTV oversight with representatives from various industry players.

"The meeting lasted an afternoon," one attendee said. "The essence was strengthening oversight of the IPTV market."

The implication, the meeting participant said, was that authorities thought IPTV services had crossed the line.

A broadcast industry source said that the IPTV market is too disorderly, with all sorts of content, including foreign programs, available. The industry, at least in the eyes of some, has circumvented regulation on content and the media regulator is considering updating its polices.

IPTV service is subject to a policy set out in 2011 in the so-called Document 181. The policy separated IPTV service operations into two parts: the integrated broadcasting platform and the content service platform.

The former is responsible for program integration and broadcast control, and the latter is responsible for program content review and copyright management. The idea was to put IPTV service in a manageable environment separate from ordinary Internet activity.

To date, seven institutions have obtained integrated broadcast licenses, and 10 have obtained content service licenses. Document 181 stipulates that all IPTV content should be placed on content service platforms and then broadcast through the integrated broadcast platforms. But most IPTV products have breached this provision, carrying programs directly from the Net.

"This made broadcast regulators unhappy," the industry source said. "They're bound to strengthen oversight."

About 10 million streaming boxes were sold in 2013, the source said, and less than 20 percent of them had partnered with licensed parties. Meanwhile, about 26 million IPTV sets were sold, most of which use content platforms run by manufacturers. Many of the products allow users to download a variety of applications and content directly from the Internet.

This sort of free-for-all indeed seems to be spurring the media regulator to act, but "right now, in what form, when and how the policy will be introduced has not been decided," an official at the watchdog said.

A source close to regulators said the rules would focus on cracking down on unauthorized streaming boxes, misconduct at online video aggregation websites, and the connection between IPTV producers and licensed parties. He expects they will be introduced in early February.

"Previously (the watchdog) was only responsible for oversight of content," an executive at a video website said. "This time people are saying they want to manage everything from software to hardware, so much that they don't rule out enforcing the law in conjunction with other ministries and commissions.

"It hopes to reference radio and television broadcasting management approaches to regulate IPTV."

The Debate

Many online video companies are nervous about the possibility of intensified oversight, and argue that if it is too strict it will not be conducive to the development of the industry. The main question, it seems, is whether IPTV service should be supervised according to Internet or television.

A source in the industry said computers, mobile phones and televisions are simply different broadcast channels, and standards should be unified.

"Think about it. The same group of people can watch content on a computer or mobile phone during the day, but at night they can't watch it on television," the source said. "Isn't that funny?"

Zhuo Yue, president of Wasu's Internet business unit, says the IPTV industry is still in its early stages. Document 181 has been misread at times, he said, and many companies have crossed the line with out-of-control content. If control and guidance of the industry are not stepped up in the early stages, uncivilized growth of the entire industry will be the likely result, leading to price wars, illegal services of inferior quality and excessive competition. From this perspective, tighter regulation is understandable, Zhuo said.

Liu Miao, president of online video site and IPTV producer Letv's government affairs department, said that that the industry is on the verge of breaking out and may impact many traditional industries. He, too, argues that the time is ripe for clearer rules.

Zhang Zejing, an analyst at Hong Yuan Securities, put it another way:

"Fundamentally speaking, licenses represent profit."

The problem is authorities awarded licenses to seven state broadcasting institutions, but many of these agencies have, in effect, "rented out" the licenses to private companies, established joint ventures or signed contractual joint operations under which they do not have to pay for costs but can get substantial income.

"The capital threshold for independent operators of integrated broadcast control platforms is high," Zhang said. "Estimated investment is a billion yuan to cover 2 million beta users.

A manufacturer of IPTV hardware suggested that the regulator should encourage private companies and market liberalization, going so far as to say: "They should launch a pilot program for private companies to operate content services platforms."

Many industry sources also say private companies with copyrights, funds and operating capabilities deserve the confidence of regulators and they should be allowed to operate content platforms.

Despite the calls for more industry liberalization, ideology presents a tricky "red line" – no pun intended – in a country where the Communist Party insists on having the final say on what is acceptable in media and art. However, amid the rise of the IPTV business, regulation has proved thorny. The story, it seems, is to be continued.