By staff reporters Ming Shuliang and Zhao Hejuan

(Caijing Magazine) As recently as three years ago, the president of China's second-largest TV broadcaster Shanghai Media Group (SMG) stubbornly objected to a proposal to split the company's broadcast and production divisions into distinct, separate entities.

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But eventually SMG chief Li Ruigang capitulated, and now the broadcaster has debuted as China's first broadcast media organization to reorganize – and lead a nationwide movement to gradually introduce market forces to what has been a tightly controlled, government realm.

A ceremony October 21 marked the official division of SMG, where Li has been president for seven years. It now operates as the public Shanghai Radio and TV (STV) and the Shanghai Oriental Media Group which will concentrate on production. The overhaul put STV in charge of channel management and news production, while Oriental Media will oversee all advertising.

For the time being, STV will function as Oriental Media's sole shareholder. But in the future, Oriental Media hopes to attract investors and launch an initial public offering.

Broadcasting had been considered off-limits for market forces and restructuring efforts before SMG's development won government regulator and Communist Party support last year.

The Shanghai broadcaster's progress has been seen as a crack in the door to nationwide reform. SMG's overhaul "is neither perfect nor an actual market operation according to international standards," said a senior SMG manager. But it is "the best way to marketize under the current framework."

Virgin Territory

Past efforts to reform the nation's TV sector were hampered by investment hurdles and false starts.

For example, Hunan Broadcasting and TV Group once tried to pioneer broadcast media reform. But its effort to form a listed company by spinning off a content production operation failed. Hunan TV's Wei Wenbin and Ouyang Changlin were considered shining stars of broadcast reform until the project collapsed in 2005.

Today, many investors at home and abroad have looked favorably upon China's broadcast industry, eyeing what appears to be virgin soil ready for planting public stock offerings. The entire sector encompasses more than 2,000 broadcasting and TV outlets with about 300 billion yuan in assets.

Nevertheless, investors have hesitated to get involved. They've been wary of such a sprawling industry with extensive bureaucratic control and ideological oversight. And even daring investors who would willingly dive into the pool have been frustrated for lack of a suitable springboard, since the industry has no basic corporate governance structure.