TVB Executive Chairman Xu Tao: Whether you can make money tomorrow depends on whether you can solve the burden of success

Xu Tao in his office in TV Broadcasting City. Photo courtesy of interviewee

TVB is undergoing an unprecedented reform, see Southern Weekend report "Hong Kong TVB Transformation: A "Life and Death Struggle"

With a rare open attitude, TVB management was interviewed by Southern Weekend reporters, and TVB Executive Chairman Xu Tao explained in detail why and how to change. The following is the full interview for the readers.

TVB is unique

Southern Weekend: What did Chinese Culture Group (hereinafter referred to as Chinese Culture) look for in investing in TVB?

Xu Tao: Chinese Culture acquired the largest stake in Young Lion, the controlling shareholder of TVB's listed company, in 2015, and after making this transaction, it became TVB's largest single shareholder. Chinese Culture is a comprehensive media group, and TVB is an important business, which is listed in a separate sector.

TVB's content production system is unique, with integrated production and broadcasting, highly vertically integrated, and broadcasts 4500 hours of drama content and thousands of hours of non-drama content every year, all of which are completed alone in its own cost structure and in the unique geographical environment of Hong Kong. This is basically absent in the whole world and is very unique.

The film library and IP precipitated in this production system are irreplaceable, and TVB has also established its own brand around the world for so many years, and the development space is very large.

Southern Weekend: From the financial data, some indicators of TVB in 2015 have declined, why do you still choose to invest?

Xu Tao: Many of TVB's problems are caused by its success. Mr. Run Run Shaw has built TVB into a very competitive platform, with a monopoly market position in Hong Kong for more than 50 years, and the brand is widely spread around the world.

In this case, TVB's profitability is very good, but this also leads to insufficient innovation motivation and insufficient forward-looking judgment of the global market. Enterprises, like people, since they can make money, why change? This is the burden that comes with success. Although you can make money yesterday and make money today, can you make money tomorrow?

The lack of innovation motivation is related to the previous management team being too conservative, but to go further, it is a problem caused by the excessive stability of Hong Kong society.

Hong Kong's social development is relatively early, and the ranking of all walks of life has been very stable. Although there is competition, unlike mainland enterprises, as long as they do not innovate for 3 to 6 months, even huge platforms may be crushed. Stability leads to insufficient motivation for competition and change, which is the biggest problem.

In the past 10 to 15 years, TVB has missed two major tides, one is the mainland's economic take-off and industrial development opportunities, and the other is the mobile Internet revolution.

In particular, the mobile Internet has revolutionized the habits of users, and audiences used to stare at the TV and follow the schedule of the TV station, but now they can choose independently. The traditional business model of the television industry has also been hit. Traditionally, 780% of TVB's revenue comes from TV advertising, but compared with Internet advertising, the effect of TV advertising is not easy to measure.

When Chinese culture invested, I also felt that TVB missed these two tides, but we believe that Chinese culture can do better than before after joining. We have always believed that no matter how the media changes, the demand for content will always be there. As long as TVB can maintain its ability to produce content, it can still return to a relatively high position.

In terms of overseas communication, TVB's previous practice was simply to sell Hong Kong content overseas, in fact, there is a lot of room for improvement, and TVB's assets have not fully realized its potential.

Accelerate reforms

Southern Weekend: After becoming a major shareholder in 2015, Chinese Culture has not participated much in TVB's business in the past five years, why did it start to adopt a number of reform measures in 2020?

Xu Tao: As a major shareholder, the management method initially chosen by Chinese Culture was to participate only at the board level, formulate strategies and introduce resources for the company, and the daily management work was still handed over to the chairman and senior management at that time. I am the COO (Chief Operating Officer) of Chinese Culture and joined the board of directors of TVB.

There are many companies that have become major shareholders of Chinese Cultural Investment, and if the company operates well independently and develops well, we generally only participate at the board level.

It is not easy for Chinese culture to participate in the specific operation of TVB, and I am the only Hong Kong person in the senior management of Chinese culture who can speak Cantonese. TVB is an independent listed company and a licensed institution, and it is not inappropriate for shareholders to participate in the board, but if they participate more, they have to send people over, like I do now, to come to work every day.

The reform in 2020 is due to some unforeseen circumstances, and a series of black swan events have hit TVB hard. Prior to this, some decisions of the TVB management team at that time were also wrong, such as investing in Star Beauty bonds in 2018, which brought great losses.

The impact of digital media on traditional media is obvious all over the world, and before 2019, TVB still has a certain defensive power, because its market share is large enough and its platform control is strong, and it will be hit less than the mainland, Europe and the United States.

After a series of black swan events, we believe that the pace of replacing traditional media by new media will accelerate. In such a context, the management team at that time had no background experience, and even did not have the determination to do a relatively large reform and operation on TVB, a store that has been old for more than 50 years.

The previous team also did a lot of work, but until 2018, Hong Kong TV broadcasting business accounted for 65% of the revenue, which was mainly traditional TV advertising, which previously accounted for 780%. It cannot be said that there were no attempts to change, but the intensity and effect were clearly insufficient.

Is it impossible to reform without these black swan events? I believe not. But the pace of reform may not be so fast, and the intensity may not be so strong. Chinese culture is the most motivated problem solver because it invests the most and loses the most.

Open source in the mainland, Hong Kong throttle

Southern Weekend: What has the reform changed?

Xu Tao: TVB's reform after 2020 can be divided into three aspects: personnel reform, content reform, and business model reform.

In the entertainment media industry, people are the most important component. Our executive team has replaced younger members who understand the Mainland business better, at least speak Chinese, travel to the Mainland more often, and use technology products more often. The content team has also changed the person in charge with more experience in mainland business.

Content reform is also very important, content is our core competitiveness, without content reform can not promote other things. An important change is greater diversity. TVB still produces and broadcasts most of its own content, but prefers to cooperate with outsiders. For example, the TV series "Beautiful Battlefield" launched in 2022 is directed by director Ye Nianchen, who is not an employee of TVB.

The direction of the reform of the business model is to reduce the dependence on Hong Kong TV advertising, diversify and monetize content in different business models.

On the one hand, it is to do things other than TV advertising in the Hong Kong market, collect membership fees in streaming (online video) platforms, earn commissions and price differences in e-commerce platforms, etc.

On the other hand, the mainland market is also exploring more ways to monetize content, including drama shooting, variety show cooperation, as well as B to C businesses such as e-commerce live streaming and MCN. Foreign markets will also break the original model of simply distributing copyrights and cooperate with video sites such as YouTube.

At present, in TVB's revenue, e-commerce business accounts for 24%, Chinese mainland business accounts for 20%, and Hong Kong TV advertising revenue accounts for 36%, and may continue to decline.

In terms of sectors, Hong Kong's TV broadcasting business is now losing money, because advertising has declined, and most of the content costs have been invested here. The e-commerce business is also losing money. The Hong Kong streaming business dominated by myTV SUPER, the international business with the distribution focus, and the Chinese mainland business are profitable.

In the future, the mainland business will be a relatively large starting point, especially after the customs clearance between Hong Kong and the mainland, the mainland business should have a relatively large breakthrough. The cost of the Hong Kong operation will also be controlled, and stricter KPIs will be set to filter out content or personnel that does not produce much.

"Open source and throttling" will be done in both aspects, open source is more sources outside Hong Kong, and throttling is more of Hong Kong's flow.

TVB's organizational structure is also undergoing changes. TVB used to be a big machine, all unified accounting. Now we want more autonomy for the business units. In the past two to three years, several business unit reforms have been promoted.

For example, myTV SUPER's operation department and technical department are merged, and independent accounting and decision-making can be made, and the CTO, who is in his forties, is the president. Integrate the original e-commerce platform BigBigShop of Shiduo Group and TVB to form an e-commerce cluster, which is unified by Cen Dizan, the founder of Shiduo Group after 80. Studio 77, which is responsible for co-productions, is also operating independently, with more independent business units being established.

My management logic is that the decision on business must be given to the soldiers fighting on the front line, and if they have to report to the headquarters, they may have already been killed. There will be a management system at the group level, which will be managed uniformly from the aspects of risk and finance.

Southern Weekend: How does TVB position itself in Hong Kong, the Mainland and the international markets?

Xu Tao: Hong Kong is still our roots and roots. TVB's business is to create content, and the content characteristics and Hong Kong culture are inseparable, which is the most competitive thing. But in the past, the content we created was enough to monetize in Hong Kong, and now it is not enough.

The Hong Kong market is already small, and we hope to invest more and more in content, and will not be satisfied with Hong Kong alone. The overseas market has become very important, and the mainland market is also very important.

For TVB, the mainland market is also divided into two parts, one is the Greater Bay Area market, which can be seen as an extension of the Hong Kong market. TVB Jade Channel and Pearl Channel were landed in the Greater Bay Area, and were previously contracted to others for operation, and will be transferred to TVB after July 1, 2023.

The other part is the national market outside the Greater Bay Area. In this region, TVB's own platform coverage is small, and it will look for partners extensively, including cooperation with major Internet platforms. Although the mainland's economic environment has also faced challenges in recent years, the volume that can be given to TVB is still much larger than it is now.

TVB's goal is not only to bring TVB content back to the international market, but also to bring TVB's content back to the international market. The international market is our third step, which is not only the third step of content influence, but also the third step of increasing revenue and generating profit. We hope to stabilize our cards in Hong Kong and the Greater Bay Area, create better profits in the mainland business outside the Greater Bay Area, and expand outward with a good foundation.

Southern Weekend reporter Wei Lincong