Recent announcements by major broadcast and cable networks, digital recording devices, and Internet portals in the US are blurring the lines between TV and Internet…what ramifications will this have on the future of TV advertising and content? What are the implications for China?

Below is a summary of some of these events:

(November 7, 2005) David Lieberman from USA TODAY reports that, “Tailored, ad-free TV gains ground”

CBS and NBC delivered another hammer blow to the traditional TV economic model on Monday by agreeing to let some Comcast and DirecTV customers pay 99 cents to watch certain hit shows on demand and ad-free

(November 6, 2005) Michael Singer from CNET reported, “Yahoo, TiVo to connect services”

Users of Yahoo’s TV page will be able to click on a record-to-TiVo button directly from a television program listing to remotely schedule recordings.

There seems to be a couple things going on here: (1) Networks are waking up to the fact that advertising dollars are eroding and must search for alternative pools, and thus video-on-demand as well as digitalizing content for the web seems to be two solutions; (2) Internet portals are looking to go the other way, for example TiVo is one of the few devices that provides consumers with the ability to both record broadcast and Internet videos and deliver this to the TV.

In a sense, we are truly seeing the convergence of channels, rather than mediums…I guess the question is who benefits the most from this convergence? It seems to me it might be the online players as they are leading the charge in real-time/rich media/contextual advertisement, for example, Yahoo reported a YoY 46% gain in 3Q05 advertising revenues…

…the networks by moving towards video-on-demand (or even a rental model) seem to be acknowledging the inadequacies of traditional TV advertising model…

Back to China and how events in the US might impact the environment out here…

Based on our analysis, TV accounted for 40% of total advertising spend in 2003, we expect this to decline to 32% at end of 2005. This decline largely comes on the back of an increase in interactive/web based advertising spend, which we are forecasting to grow on a 2005 to 2009 CAGR of 25% to US$1.5 billion.

If you trust that these numbers at least illustrate the macro trend, then what should we be looking to invest in to ensure we’ll hit the next wave — that is if we aren’t already in the next wave?

And finally, does this make IPTV irrelevant and portals, such as Tencent’s QQ increasingly more relevant?

mmm…I think it does…

Microsoft and Yahoo! announced they would make their IMs compatible, allowing users to seamlessly communicate between platforms regardless of which IM you’re on. Market analysts estimate that Yahoo! has 25m users and MS has 25m user; the leading IM in the US is AOL with 50m users.

Now consider that Tencent’s QQ IM has over 180m active users…

There are a couple real interesting things from this:

(1) MS has been speaking with AOL about merging operations, if this does in fact transpire that would increase MS/YAHOO/AOL/ICQ user base to 75m, positioning the group as the largest IM platform outside of Tencent;

(2) Google’s IM offering, Google Talk, will become irrelevant in near to medium term, perhaps forcing Google to move aggressively in a different direction; we think this might be to expand their already existing relationship with Tencent; it is clear Google’s traction in China is weak at best (as is MS), however a bolder relationship with Tencent would propel Google in a market leader position.

(3) Google-Comcast just announced they want to invest in AOL’s web business…is this more to block MSN or does Google-Comcast truly want to be investors in AOL…does this open the door for Google Talk to hook into AOL’s IM universe?

We think Tencent is one of the best positioned Internet companies in China, if not the world; we don’t buy into the fact that Microsoft’s MSN is a threat to any of the incumbents, especially in China, however if Google and Tencent want to strike hard and fast at any possible MS/YAHOO (AOL?) joint IM force…a deal whereby Google becomes a shareholder in Tencent would do it…

And then again…you could alway just go here to meebo.com