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Tuesday, June 19, 2007

SACRED BROADCASTER TURF

TBS' Rakuten snub reflects protected world


Staff writer

Hiroshi Inoue, president of Tokyo Broadcasting System Inc., does not hide his displeasure when he talks about online shopping mall operator Rakuten Inc.'s attempt to make the broadcaster its affiliate.

News photo
Rakuten Inc. President Hiroshi Mikitani (above) speaks at a Tokyo hotel in May while Tokyo Broadcasting System Inc. President Hiroshi Inoue attends a news conference June 6. KYODO PHOTOS
News photo

"It's like you have a house of your own and, suddenly out of nowhere, someone comes up and tells you he wants to marry your daughter because he has purchased 20 percent of your land," Inoue said during a news conference June 6.

As tensions build between TBS and Rakuten ahead of the broadcaster's annual shareholders' meeting June 28, some observers note that behind TBS's fierce objection to Rakuten's bid is the fact that broadcasting has been a protected industry and its executives don't want outsiders to disrupt their vested interests.

"Tokyo's key TV stations cover seven prefectures in the Kanto region — home to the most wealthy segment of the nation's population," said Minoru Sugaya, a professor of media communications at Keio University in Tokyo. "Five private broadcasters control the lucrative market and they don't want newcomers."

Because TV stations rake in abundant advertisement fees, which account for most of their revenue, they don't see the necessity of interacting with the Internet business, Sugaya said.

The Internal Affairs and Communications Ministry gives licenses exclusively to five major private-sector broadcasters in the Kanto region. The ministry limits the number of licenses on grounds that excessive competition could destabilize the broadcasting business, which is public in nature.

Broadcasters, in return, are required to air news programs, information on natural disasters and cultural programs.

Rakuten is not the first Internet-related company to bid for a major TV station.

Livedoor Co. founder Takafumi Horie attempted to gain control of Fuji Television Network in February 2005 by acquiring a major stake in its parent, Nippon Broadcasting System Inc.

NBS responded by issuing new shares to dilute Livedoor's stake, while the Internet company filed a lawsuit to stop the NBS action.

After a two-month high-profile battle, the two sides reached an agreement under which Livedoor sold its NBS shares to Fuji TV and the broadcaster obtained a stake in Livedoor.

Back in 1996, Softbank Corp. and News Corp., headed by media magnate Rupert Murdoch, jointly acquired about 20 percent of TV Asahi Corp.'s shares and proposed taking part in management. But in the face of strong opposition from the broadcaster as well as its top shareholder, the Asahi Shimbun, the Softbank-News Corp. alliance sold its shares to the daily a year later.

Rakuten's bid for TBS began in October 2005 when it revealed it had acquired a 15 percent stake in the broadcaster and pressed it to integrate operations, stressing the benefits of a "fusion" of broadcasting and Internet services.

But after negotiations stagnated, Rakuten suddenly announced in April that it would raise its stake in the broadcaster to more than 20 percent from the current 19.86 percent and proposed that Rakuten President Hiroshi Mikitani be placed on TBS' board of directors.

The battle continues to intensify as the two sides engage in a harsh proxy fight before the TBS shareholders' meeting on June 28, where the proposal to put Mikitani on the board will be voted on.

On Thursday, TBS asked an advisory panel to decide within 90 days whether Rakuten is an "abusive acquirer." If Rakuten is deemed abusive, TBS plans to propose launching a takeover defense that involves the use of a poison pill to dilute Rakuten's stake.

Rakuten, for its part, claims TBS is trying to distort the facts about its bid and is "expressing views which are convenient only for themselves in a unilateral manner."

Jiro Yoshino, author of "Why TV and Internet Never Get Along," said Internet companies find broadcasters attractive because of their ability to reach tens of millions of consumers.

According to a 2006 survey of 7,700 people conducted by NHK, Japanese watch TV programs for an average of 3 hours and 27 minutes every day. Each percentage point of viewer ratings translates to about 600,000 to 1 million viewers nationwide.

"For broadcasters, it's all right to have business ties with Internet companies as long as they can take the initiative," said Yoshino, a staff editor at Nikkei Business Publications' Nikkei New Media. "But they cannot do so if the Internet companies are acquiring stakes in them and proposing cooperation."

Another reason TV stations do not want to deal with Internet companies, Yoshino said, is because of strong opposition from local TV stations that belong to each of the nationwide networks led by the key broadcasters.

On June 5, 27 local stations affiliated with the TBS-led network released a joint statement opposing Rakuten's attempt to turn TBS into an affiliate because it would damage the corporate value of local broadcasters as well.

"Local TV stations are effectively a mere transmitter of television programs created by the key broadcasters," he said.

"Their business will be hurt if Internet companies start distributing those TV programs online. That's why they are desperate."

Local TV stations earn "broadcasting fees" from the key Tokyo-based stations for airing their programs to regional viewers. For local stations, creating their own programs would mean higher production costs and less revenue.

However, a new move is emerging among production companies that have created the programs for the key broadcasters. Some are starting to sell their programs directly to Internet portal site operators and holding on to their copyrights.

Last July, some 22 production companies formed Creators Inc. to help member companies create programs for the Internet and other media.

Production companies earn a set amount for creating programs for TV broadcasters regardless of their ratings. But at the same time, they hand over their copyright to the broadcasters, giving them the opportunity to make secondary use of the content by selling DVDs and related products.

"There has been growing demand for putting their programs online, while business with broadcasters has been slow in the past few years as TV stations cut costs to make room for expenses on transition to terrestrial digital broadcasts" said Creators President Yutaka Takamura. "Production companies want as many viewers as possible to watch their shows, whether on television or the Internet."

Takamura, who is also president of production company Express CR, said the purpose of Creators is to act as an agent to gauge demand and to sell the member production companies' programs to Internet firms and other new media, including mobile phones.

"The broadcast industry is currently in a transition period due to digitization," Takamura said. "It is up to users to decide which media they will watch programs on."

For related stories:
TBS affiliates say no to Rakuten
TBS asks experts to analyze Rakuten's takeover motives
TBS demands Rakuten answer all questions



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