Harbour View: Failing TV, thriving Hong Kong

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Let Ricky Wong have his HKTV. Succeed or fail, Hong Kong will be the better for it as Schumpeter’s gale wreaks creative destruction on our economy. It isn’t the government’s job to stop it. Indeed, it is dangerous to try.

Failure can be a wonderful thing – viewed from afar. Schumpeter’s gale, a.k.a. creative destruction, plays an important role in allowing economies to adjust and progress. Our government, however,  seems to think its new role is to shelter people from Schumpeter’s harsh winds – especially if they work in the TV business. Congratulations!

You’ve been healthily creatively destroyed!
In nature, when a mighty tree that falls in the forest, a hole in canopy opens. Its constituent parts become the food and topsoil that nurtures new life.

When a mighty business falls, you don’t want to be a leaf. For those who have lost jobs and perhaps pensions, the benefits of creative destruction are cold comfort. Knowing your skills will be ‘recycled’ into the economy and put to better use rings especially hollow for those at the end of their careers. Older workers with a high cost base and the least chance of finding new work can find the change traumatic. There are two main approaches societies take to this phenomena.

Zombies, Welfare, Hong Kong
Western and Japanese companies are legendary for bilking governments for billions of life-support dollars until the inevitable happens. Politicians feed companies money, cheap or free, hoping firms will recover – or said politicians will be out of office when the axe falls, saving them the political fallout of massive job loss. In Japan, zombie firms characterised their lost decades of economic growth. In the West, bankers saved their bonuses with taxpayer funds from printed money in the 2008 Financial Crisis.

Another approach is to save people instead, through generous welfare. However, this never seems to dim calls for corporate bailouts. After all, it doesn’t save the influential senior executives who ask for billions, not hundreds, in handouts from government.

Hong Kong has traditionally taken a two-pronged approach.

One approach has been to let companies fail. This has been the case for most industries. Most are regulated for public physical safety (food, building codes), avoiding fraud (advertising claims), and ineptness with other people’s money (financial regulatory codes). But companies shut down, lay off staff and resolve their issues through bankruptcy laws every day. Schumpeter’s gale blows and Hong Kong’s physical and human capital is reshaped and redeployed at world beating speeds. Recessions recur and persist for years in the West, decades in Japan. In Hong Kong, we turn on a dime with multi-year recessions unknown.

The other approach is to manage industries to guarantee success. This seems to be the line taken in the recent debate about terrestrial TV stations wherein Ricky Wong’s HKTV was denied a license to operate. This gruesome abortion came regardless of the station’s long gestation and his estimated expenditure of $900M, hiring of hundreds of staff and long public relations campaign.

Your friendly economic manager
The government manages industries ranging from outright monopolies to demanding financial backing to protect deposit making customers. The Jockey Club’s monopoly on legal gambling is ostensibly to control the scope of vice we indulge in. More realistically, it is a vital source of revenue and alternate tax-and-welfare agency for the government, funding universities, old folks homes, scientific research and pretty much anything worthwhile in Hong Kong.

The financial industry has accreted a range of regulations and requirements for financial backstopping, supposedly to protect consumers from having an unlicensed scoundrel abscond with or gamble away their money. Utilities have pre-agreed upon levels of profit related to their investment levels and nature. For most utility types, there is no theoretical barrier to entry, but until we all start hooking our own solar panels up to the grid, the government will treat them as de facto essential monopolies with regulated profits.

Prepare for “an endless parade of insufferable know-it-all children telling their parents not to smoke, text while driving, take too much food at the buffet ad nauseum in an endless string of public service announcements to prop up ‘too-chosen-to-fail’ TV stations.”

The government outsources the control of the professions to the professionals themselves, resulting in no end of conflict of interests, the impact of which has only become more apparent in recent years.  The shortage of doctors, created by Medical Council, is finally, albeit gingerly, being addressed by the government and Hospital Authority.

Mobile phone and radio spectrum are restricted in their number of players, the most like free-to-air TV. Here there is a need for someone to decide who gets what spectrum to avoid chaos. The government practice for the mobile phone spectrum has been to parcel out limited spectrum through auction, introducing market elements into controlled system. But with TV, it is different.

TV failure is not government failure… unless you make it so
The Hong Kong government has explained it has taken its decision to deny Mr. Wong’s application for a number of reasons. From this paper’s point of view, the most interesting one is the decision to limit the number of players at all, supposedly in the name of protecting them from failure.

This is a marked change in policy. The back and forth about no cap, cap at four, no cap again was of course the source of much ballyhooing. The idea that the government can look into a crystal ball, measure all possible economic outcomes and determine an appropriate number of operators, is a  problem. Spectrum is not a limiting factor here, so the only concerns can be programme quality and financial viability. The government is claiming to guarantee taste and success.

Governments fear business failure only where people connect it to government legitimacy. In Hong Kong, there are some completely unnecessary requirements for starting a newspaper (having recently had the experience), but at least no one expects the government to guarantee their success. The same goes for practically every other industry in Hong Kong. Some regulated industries mentioned above are connected to government legitimacy. A failure in basic transport or electricity would land in the government’s in-tray as a major disaster.

It is completely unclear why this should be so for TV. The government has put itself in the odd position of being the guardian of quality content and financial viability of television when it should be doing the opposite. Currently, there is no surplus of operators seeking to clog the limited bandwidth of free-to-air TV. The available bandwidth can support many more than 5 players. Our unusual geography may make it difficult for some players to make the most of their allotted space, but that is a technical challenge for the operator.

If an operator provided shoddy coverage, terrible programming and attracted neither viewers nor advertisers, so what? It is possible it could provide brilliant programming and still fail. Most high-brow television in Western countries is government funded on the premise that they would fail  if it had to actually attract an audience. This is not a suggestion that the government should immediately fund an unwatched 24 hour Cantonese opera classics channel, but an assertion that value would result from more players, even if eventually unsuccessful.

One man’s failure, education for the many
There has been the claim that HKTV had the weakest of the propositions and the industry can only  upport four stations. It will be a shame if these claims are never tested. Even if one or more of the five licensees fail, the industry in Hong Kong would benefit. More young people, whether graduating from the HKAPA or schooled at facilities like the Hong Kong Federation of Youth Group’s training studio in Aberdeen, would get their first experience in the business. Print media journalists often have the names of failed publications on their CVs and no one thinks any the less of them for it. They provided work and experience for a while and helped them to get ahead.

Broadly speaking, there would be a bigger pool of people for the industry to draw from, helping it to grow. If displaced cameramen and studio make up artists didn’t go immediately to rival free-to-air TV, there is cable TV and Hong Kong would be more attractive for regional and international movie and TV producers. The government’s intention to develop our creative industries would be served by Mr. Wong’s investment, successful or not. It doesn’t have to all be government grants – let the industry invest in its educating its own workforce.

A dangerous place
Even Western leaders that understand that government should not be in the position of rescuing business find themselves without the political will to say ‘no’ when the time comes. Supposedly  free-market national leaders have had their hands forced to economics they abhorred because of political expediency. If Hong Kong develops an expectation that government should protect businesses, it will quickly find the pressure, coming from all quarters, unbearable.

Let the market weed out the purveyors of irregular transmission, terrible shows and bad business plans. The government doesn’t have a dog in that fight.

Indeed, by determining that four can succeed and five cannot, the government now has a vested interest in ensuring that the four chosen ones succeed. If there were a panoply of aspiring operators demanding spectrum for free-to-air TV, then an auction system could be set up that would introduce some sort of market forces for entrants who would then survive or fail on their ability to please their customers. The government could declare their role to allocate spectrum, enforce minimum standards of decency, and stand back.

But then the politics…
Of course, an enduring money loser is probably what the government fears most. A platform for a vocal, independently wealthy agitator would be irksome, to say the least. Much of the speculation is that Ricky Wong was blocked for political reasons. ExCo minutes or not, this will never, short of a smoking gun, be determined one way or another.

But the official line matters. What is certain is that the rhetoric of government management of the economy, if made into reality, will lead to fewer opportunities for people to succeed – and to fail. Zombies and bailouts will supplant movement and life. The government should not be putting itself in the position of telling us it can determine who can win and lose. If it does it for TV, others will arrive demanding similar governmental crisis management when another major business fails.

Hong Kong has always been about risk taking. Some succeed, some fail. The failures pick themselves up and try again. The flexibility in the economy and the knowledge that complacency has real threats has kept Hong Kongers on our toes. The inertia of a workforce with false hope of government rescue is not for us. Our employees smell the blood in the water and get their CVs ready. Our economy sees talent redeployed to where it can best be used and gets this city productive again.

The government has an opportunity to reposition itself on the HKTV issue. If it surrenders the mantle of market omniscience, it can allow as many operators as the spectrum – and the market – can bear. The fallout of a failure will be the investor’s, not the Secretary of Commerce and Economic Development.

Let Mr. Wong have his slice of spectrum. Allow him and other operators to fail. The industry, the government and Hong Kong will be stronger for it.