By David Wolf
In the October 14th edition of The Hollywood Reporter is an interview with Bill Gates, in which the Microsoft CEO tells the entertainment industry in its own publication that television as an industry is about to die of irrelevancy. "The idea of having that that one linear thing — you don't change your channel, so the local news leads to the whole lineup getting this great popularity — that's on its way out, but slowly," sayeth the Sage of Seattle.

Gates goes on to talk about how the idea for content people would be to build a direct relationship with the viewer and distribute their content over the Internet. He noted that Microsoft is already working with studios, cable companies, and satellite companies to make this vision come about, but in the meantime he is working with companies like ABC to add interactivity to the television through advanced split-screen technology that will work around Tivo-like technology by inserting ads directly onto the program screen.

While Mr. Gates seems to be partnering with nearly everyone in the modern broadcasting value chain in his multi-pronged effort to be a part of the future of TV, a careful analysis of his different projects leads to the conclusion that he is collectively dis-intermediating everyone in that value chain, leaving only a bunch of mini-broadcasters, interactive viewers, advertisers and, managing the entire deal, Microsoft.

Leaving aside some temptingly obvious problems with this vision, I instead would like to test his hypothesis by asking: is the Gates idea of a large-screened PC replacing the television set likely to happen in China?

(While it may seem like I am loading the dice against Mr. Gates by asking this question about China and not about a market in Europe, North America, or even Japan, in fact I am doing nothing of the sort. As the world's largest television market, with over 330 million homes reached, China is three times the size of the U.S. audience by households alone. The industry is just getting into its upward growth swing, meaningful content is just starting to get to the viewers, and the country is in the midst of upgrading its television infrastructure to digital. Any vision of the future of television that ignores China, therefore, is at best incomplete and at worst just plain wrong.)

The answer: not anytime soon.

China, unlike the US, has an extremely low penetration of PCs versus televisions. China currently has approximately 35 million installed PCs, of which the great majority is installed in enterprise, education, and government locations. Assuming that nobody at work is going to be watching TV, that means that today, the highest possible estimate of computers installed in the home is approximately 18 million, versus 330 million homes with TVs, and many of those with multiple sets. Even assuming a healthy 15% average growth rate in home PC installations, it would take nearly two decades for the number of PC homes to begin to match the number of TV homes.

Second, the kind of broadband infrastructure that would be required to deliver a high-quality TV signal with an interactive back-channel simply does not exist, and the wherewithal to upgrade China's fixed line systems does not exist, either. The problem in China is not the backbone — it's the last mile: upgrading the local loop is extraordinarily expensive, and a viable broadband-over-wireless solution of any type — much less one that would handle the kinds of bandwidth Bill's vision would entail — is simply not even on the horizon.

Third, while great ideas and technologies may trump governments in the U.S., there are substantial interests in China arrayed against the kind of "many-to-many" television approach in China. Despite substantial improvements in the government approach toward television (it is now actually recognized as an industry, and some regulators are starting to recognize the value of opening the industry to foreigners), the sector remains among the most tightly regulated in China. The Party drives the control, directly managing television content creators to ensure that the medium can never be turned against the state. Broadcasters like CCTV throw their collective weight behind the Party and ensure that the regulators, caught in the middle, will continue to support a highly structured industry.

Fourth, Chinese actually like TV, and are liking it more as it continues to improve in this country. The industry is starting to pull in very smart, talented, and creative young people and opening up the control just enough to allow them to begin expressing some of that.

Fifth, and finally, despite the best efforts of some of the smartest people in the television, software, and services business, nobody has come up with a compelling business model or bouquet of services that make interactivity on the television even the least bit interesting to the locals.

I could go on — but you get the point.

I personally like Gates' model very much. I, like him, think that television needs to rethink the way it approaches its business in many parts of the world. But in China, as in many other countries, it's far too early to be thinking that way. Television here is in a different, more compelling stage of its development than it is in the U.S. and Europe, and PCs still belong to the elite.

All the vision in the world won't change that.

About the author:
Silicon Hutong is an ongoing series of thoughts and commentaries by David Wolf, President and CEO of Wolf Group Asia'a management advisory firm providing strategic communications counsel to technology, media, entertainment, and telecommunications companies in Greater China and the Asia-Pacific region. David's opinions are his own and do not reflect those of either WGA or it's clients. Past articles can be found at www.chinatechnews.com, the Silicon Hutong Blog can be found here and David himself can be contacted at [email protected].