The Secret of Gehua Cable Loss: Government's Annual Subsidy of 428 Million

Recently, Gehua Cable delivered its 2014 transcripts. The company’s revenue was 2.466 billion yuan, a year-on-year increase of 9.62%. The net profit was 569 million yuan, a year-on-year increase of 50.96%. Gehua Cable explained that the sharp increase in profit margin was due to a steady increase in revenue, but the cost was basically the same as in 2013.

A careful study of its annual report found that in the “non-operating income”, the Beijing Municipal Government’s subsidy for set-top boxes was 428 million yuan. After deducting non-recurring gains and losses (including government funding subsidies), Gehua’s net profit in 2014 was only 130 million yuan. In response, Gehua responded that the government subsidy income of RMB 428 million confirmed in the company's non-operating income was mainly the amortization of government subsidies for high-definition interactive digital TV set-top boxes in the previous period.

"China Business" reporter found that the annual report found that in recent years, Gehua Cable receives an annual subsidy of at least 400 million yuan from the Beijing Municipal Government. Even so, it wasn’t until 2014 that Gehua Cable was able to make its debut. After deducting non-recurring gains and losses, it turned losses into losses for the first time in three years. According to the data, Gehua Cable's deduction of government subsidies actually lost more than 66.17 million yuan in 2013, and the amount of losses in 2012 reached 129 million yuan.

Over-reliance on government subsidies has become an inertial growth model for Gehua Cable. In the process of continuous upgrading and evolution of the broadcasting and television system, as a subordinate enterprise in Beijing, coupled with its unique content transmission "fairway" status, Gehua is quite blessed by the Beijing government. Since 2009, after Beijing Gehua Cable proposed the goal of popularizing high-definition set-top boxes, Beijing has come up with a huge financial subsidy for free distribution of high-definition interactive set-top boxes, paving the way for Gehua Cable's enclosure.

With the help of the government, the number of high-definition set-top boxes has soared. The current number of users has reached 4.2 million.

The abdomen is backed by the enemy

In addition to performance concerns, in fact, Gehua Cable has realized that aggressive competition from rivals is rampant, and monopoly status is worse than one year. According to the data, Gehua’s two-way network covers 5.2 million in 2014, including 4.2 million high-definition interactive digital TV users, which ranks first in the nation. The advantage of Gehua Cable's existing users of storage products has always been the envy of the industry. At present, major content operators are racking their brains to compete for content. "As long as it can occupy the entrance, it means unlimited resources such as content, games, and TV shopping." Wu Chunyong, executive editor of the broadcasting network and an executive editor of the Fusion Network pointed out.

In 2013, the IPTV year was lifted in the Beijing market. Unicom’s packages were more favorable, including not only broadband services but also free airtime and free set-top boxes. Da You and the Gehua Cable Branch are anti-courtesy. At that time, there was an argument that Gehua’s golden age had passed.

After China Unicom, afterwards, the Internet companies represented by Le Tournament almost took a subversive gesture, honing Huo Huo into the heart of Gehua. The above companies use low-cost internet set-top boxes and Internet TVs as the carriers to output content.

Since 2015, the ambitious Tencent has been plunging into the content market in the form of pulling together the entire company. The shortcomings of the entire company's enterprise content became its breakthrough point, and Tencent became the content provider of Hisense Gaming and Television. Recently, Tencent has begun to win over Konka and integrate video and game resources such as video resources, QQ music, games, WeChat, and QQ, etc. into the new products of Konka. Tencent also formed a joint development team with Konka for more than 100 people.

In addition to Tencent, Ma Junying, chief analyst of Goldman Sachs Lion Culture Communication Co., Ltd., pointed out: “Other small and medium-sized Internet companies are also eager to try. Such websites are similar in cooperation, and they are based on TV's stock and incremental market, through games, software, and content. Promote the market, cultivate the market, occupy the port, and prepare for the later business model."

Gehua said frankly: "With the increasing richness of Internet TV on-demand content and the gradual improvement of user experience, cable TV continues to increase the average ARPU (average revenue per user). There is still some pressure." But through the promotion of high-definition interactive digital TV, the company A regional video operation advantage has been formed to effectively resist the vicious competition of IPTV and Internet boxes.

In fact, the originator of the competition for importing the entire machine manufacturer is Gehua. In order to promote high-definition digital viewing methods, in 2007, under the vigorous promotion of Gehua, Beijing hypermarkets successively connected to Gehua's cable HD signals. The entire machine company discards the original DVD or stream meter display mode, and shows high-definition programs directly to consumers through the HD set-top box. Luo Xiaobu, who was then the head of Gehua’s cable operations, said at the time: “In the digital high-definition industry chain, we cannot do without a terminal company.”

At present, cooperation with color TV companies cannot effectively realize Gehua’s expansion ambitions. According to Liang Zhenpeng, an observer of the household appliances industry, even if the clique is popular, it does not apply to Gehua. Because Gehua is currently relatively weak in terms of content resources, compared with other Internet companies such as LeTV, the latter’s advantage in content such as stand-alone plays, American dramas, etc., is no exception. Internet companies are very helpful and flexible, and flexible marketing methods make Gehua more accessible. Shamelessly. In addition, the viewing groups of traditional television are shrinking. The data shows that in the first half of 2014, the penetration rate of domestic smart TV reached 56%, and the activation rate reached over 77%. Under such circumstances, Gehua is hardly able to fight back. Ma Junying believes that for Gehua, relying on content expansion is no longer possible. At present, only guarding wars can be started to prevent stock users from being diverted.

In fact, the situation of passive assault has already begun to appear. For instance, the "low subscription fee + free set-top box" model of companies such as LeTV has already appeared in many families after 80 and 90. Although the Gehua cable set-top box has not been completely "abandoned," the two-box model has become widespread.

Staged an alliance drama

Compared with brothers BesTV, etc., Gehua Cable's share price also performed generally in the capital market. Since last year, Gehua Cable has begun to break. Transformation has been particularly intensive this year.

On the evening of March 6, the suspension of Gehua Cable for more than one month announced a planned increase plan. The company plans to raise no more than RMB 3.3 billion from the non-public offering of shares at RMB 14.95 per share for the construction of a high-quality copyright content platform and upgrade of the cloud service platform. The application expanded two projects and tried to create a new media group.

This fixed increase not only won the favor of Beiguang Media Investment, the controlling shareholder of Gehua Cable, but also included several well-known companies or investment institutions such as China Film Holdings, BesTV, CITIC Securities and Xinhu Zhongbao.

Afterwards, Gehua staged an alliance drama and closely followed the concept of “Beijing-Tianjin-Hebei”. Together with Tianjin Radio and Television Network Co., Ltd. and Hebei Broadcasting Information Network Group Co., Ltd. as the allied forces, the three companies achieved comprehensive strategic cooperation in the fields of broadcasting, television and cable networks in Beijing, Tianjin and Hebei, and signed a strategic cooperation agreement.

According to reports, the three parties will form a close business partnership through various forms of cooperation in business, technology, and capital, and realize Beijing-Tianjin-Hebei network interconnection, technology interconnection, content resource sharing, market mutual opening, and value-added services. Expansion and cooperation at the capital level will accelerate the coordinated development of the three places.

In this regard, Wu Chunyong believes that Gehua’s layout has been loaded with the most popular Beijing-Tianjin-Hebei concept, and the conceptual composition is greater than the actual meaning. The integration of the three companies is not significant. However, the concept of “Beijing-Tianjin-Hebei” is conducive to pulling stock prices and increasing the attractiveness of potential financing parties.

While institutional investors are optimistic about Gehua, people in the industry generally believe that there are two reasons: On the one hand, it is the government's background. Wu Chunyong believes: “The government’s background is very important. At a critical juncture, Gehua’s ability to get through the borders and gain support from the backyard can all benefit from the powerful. The government's relationship, which is a policy resource that reflects the radio and television industry, is a dominant resource. Establishing a relationship with the government can evade policy risks to some extent.” In addition, the current number of existing users is the financing capital of Gehua Cable.

Sleeping lions need to be awakened?

Even if there is still disagreement about the outlook, the charge of the Gehua reform has already sounded. However, reforms do not happen overnight.

Judging from the current business model and fee standards of Gehua, this company is divided among the government and enterprises that the industry believes are typical. Gehua’s 5 million users are an advantage for them, but such a large number of users can only bring viewing costs of RMB 18 per household per month. As early as ten years ago, Shenzhen’s subscription fee was 28 yuan/month. “In other regions, HD viewing costs are much higher than this, and Gehua cannot achieve substantial profitability on the one hand because it fears losing prices and users, and the deeper meaning is because it shoulders the mission of the government to promote high-definition viewing modes. Therefore, it cannot be based on market demand. And the competitive environment is timely adjusted. The profitability needs top-down framework reform." Liang Zhenpeng thinks.

In fact, Gehua’s introduction of a market-oriented enterprise is conducive to revitalizing existing resources and ensuring stocks. Gehua Cable also said recently that it will use capital bonds to integrate resources, raise funds for business development, introduce strategic partners, improve the layout of the entire media industry, and strive to create new media groups with strong strength, communication, credibility, and influence. CITIC Securities analysts believe that in recent years, Gehua Cable has gradually transformed itself from a traditional TV network operator to a new media integrated full-service integrated content service platform. "The introduction of Tencent's highly-marketing companies is conducive to invigorating Gehua Cable's inventory resources. It can accomplish what Gehua Cable can't do." Ma Junying said bluntly: "The key question is whether the introduced companies can expand their efforts, according to modern companies. Layout of governance structure and market environment."

Liang Zhenpeng believes that if Gehua Cable cannot clarify its thinking, it will be difficult to achieve sustained growth expectations under the current state of government and enterprises. At present, the use of digital set-top boxes in consumer life is becoming increasingly weak. Newly emerging viewing methods such as IPTV and Internet set-top boxes will be dominated by Tencent and Leh. They will continue to erode the market share of companies represented by Gehua and relying on government support to survive.