Position Paper on Handling the TVBS Ownership Structure Issue

I. Background Information

In an interpellation on October 7, 2005, Legislator Tseng Tsahn-deng raised evidence of forgery and withholding information on foreign shareholdings by Liann Yee Production Co., Ltd. (widely known as TVBS) when obtaining its business license, and demanded that the Government Information Office (GIO), the authority in charge of radio and television affairs, investigate whether any unlawful practice was involved.

According to Article 10 of the Satellite Broadcasting Act, "the total shares of a satellite broadcasting business directly held by foreign shareholders shall be less than 50 percent of the total shares issued by the said business." When TVBS applied for license renewal six months ago, it merely claimed that 47 percent of its shares were held by the foreign legal person, TVB Investment Ltd., with the remaining 53 percent held by the Taiwan legal person, Countless Entertainment (Taiwan) Company Ltd. According to the GIO's preliminary understanding, however, 100 percent of investments in Countless Entertainment (Taiwan) Company Ltd. originate from TVB Investment Ltd. In other words, TVBS is in reality a purely foreign-owned company.

In a separate interpellation on October 27, Legislator Hsu Kuo-yung pointed out that TVBS Chairman Norman Leung served as chairman of the Hong Kong Broadcasting Authority from 1997 to 2002. Given his background as a Hong Kong official, Leung's capacity as TVBS chairman may have violated related laws.

Given these legislators' serious concerns and at their request, the GIO has both asked relevant government agencies to conduct further investigation on this case and, on October 31, officially demanded TVBS to provide explanations within a set time period.

The GIO's letter to TVBS asked for explanations on a number of doubtful points so as to gain an understanding of the TVBS ownership and financial structure and to ascertain whether TVBS is involved in any illegal matters such as forgery, tax evasion, or violation of the Company Act. The points of doubt raised by the GIO include:

1. According to this year's report by the directors of the TVBS parent company in Hong Kong, Television Broadcasts Ltd. (commonly known as TVB), TVB has already increased its shares in TVBS to 100 percent. This requires clarification.

2. Given that the total registered capital of Countless Entertainment (Taiwan) Company Ltd., a legal person shareholder of TVBS, is only NT$1 million, how can it own TVBS shares worth NT$466.4 million?

3. Through what procedures did the two persons who originally acted on behalf of the TVB Investment Ltd. come to act on behalf of Countless Entertainment (Taiwan) Company Ltd.?

4. Is Countless Entertainment (Taiwan) Company Ltd. merely a dummy company?

II. The GIO's Conclusions regarding TVBS's Explanations

TVBS offered its explanations on the above points in question on November 4. After careful review and discussion with the Executive Yuan's and GIO's legal affairs committees, academics, and specialists, the GIO has come to the conclusion that, although the TVB Investment Ltd. owns only 47 percent of TVBS's shares, with the remaining 53 percent owned by the Taiwan-based Countless Entertainment (Taiwan) Company Ltd., since the shares of the latter are completely held by the former, TVB Investment Ltd. does in fact own 100 percent of TVBS's shares. This is a substantive breach of the law.

Consideration of the background to enactment of Article 10 of the Satellite Broadcasting Act shows that this Article was passed with the following intent: "Given the great influential power of the satellite broadcasting industry on the interests of society as a whole, the Legislature has decided to pass such an article to avoid improper interference. This will also help safeguard the media's impartiality and independence, while preventing foreign investors from monopolizing the market and constricting the domestic satellite broadcasting industry's opportunities for development."

Judging from the background and intention of the legislation as outlined above, it is clear that "directly held," as stipulated in Article 10 of the Satellite Broadcasting Act, should not be taken in the literal sense to merely indicate "direct investment by foreigners." Instead, it should go one step further to include foreign investors achieving the purpose of direct investment in satellite broadcasting enterprises through a 100 percent indirect investment. The GIO concludes, therefore, that the TVBS ownership structure clearly violates Article 10 of the Satellite Broadcasting Act.

III. Ruling and Follow-up Investigation

The GIO has acted in accordance with the law to safeguard the dignity of law. On November 8, in accordance with Subparagraph 1 of Article 38 of the Satellite Broadcasting Act, TVBS was issued a fine of NT$1 million under the principle of proportionality and required to rectify the situation before December 20, 2005. Further penalties will be imposed should rectification not be undertaken by this deadline. TVBS was also asked to clarify points of doubt, as yet unexplained, regarding Countless Entertainment (Taiwan) Company Ltd. Furthermore, the GIO will continue to investigate whether there are any PRC investment holdings in TVBS; whether it is appropriate for Norman Leung, former chairman of the Hong Kong Broadcasting Authority, to serve as chairman of a Taiwan media company; and whether there were any illegalities in TVBS's license acquisition process.

IV. The GIO's Position

1. Over the past half century, Taiwan has progressed from an authoritarian regime to a democratic nation. This was not easily accomplished. The GIO is keenly aware of the crucial roles that the news media have played in transforming, consolidating, and deepening Taiwan's democracy. For this reason, the GIO completely respects press freedom. The GIO's investigations into the TVBS shareholding structure and tax disbursements were carried out, upon the request of members of the Legislature, however, and in accordance with the law. TVBS's program content is irrelevant to this investigation, which has nothing to do with press freedom, let alone so-called political oppression.

2. Taiwan is a country that follows the rule of law. The GIO carries out its duty as prescribed by law. It has never wavered from this standpoint. The GIO's handling of the TVBS ownership structure issue is entirely in conformity with the law. By the same token, the media have a duty to follow Taiwan's laws. All controversies regarding the case should be resolved from a legal point of view to allow the truth to prevail. It would be a serious issue were the government not to respond to a clear-cut violation of the law.

3. Article 10 of the Satellite Broadcasting Act aims to protect local media businesses. The film and television industries are special service industries, as they possess far-reaching influential power and constitute core values upon which the continuity of a nation's cultural heritage hinges, such as the people's mindset, their attitudes toward life, and patterns of behavior. Governments worldwide attach great importance to the protection of their local film and television industries. Some even prohibit foreign ownership of film and television companies, or set restrictions on the proportion of their shareholding in local media.

One example was the Communications Act of 1934 enacted by the US Federal Communications Commission, which stipulated that "no broadcast ¡K license shall be granted to or held by ¡K any corporation directly or indirectly controlled by any other corporation of which more than one-fourth of the capital stock is owned of record or voted by aliens, their representatives, or by a foreign government or representative thereof, or by any corporation organized under the laws of a foreign country, if the Commission finds that the public interest will be served by the refusal or revocation of such license." (Broadcasting corporations were redefined to also cover satellite television in 2004.) Another example was a direction to the Canadian Radio-television and Telecommunications Commission (CRTC) modified in 2002 stipulating that a "qualified corporation" to which a broadcasting license may be issued refers to "a corporation having share capital, Canadians beneficially own and control, directly or indirectly, in the aggregate and otherwise than by way of security only, not less than 80 percent of all the issued and outstanding voting shares of the corporation and not less than 80 percent of the votes."

The GIO's handling of TVBS's shareholding structure is in no way an isolated case, therefore. The GIO has only one simple objective: to safeguard the dignity of law, uphold the principle of fair competition, and ensure media order under existing laws while providing a sound and healthy environment for development of the local media industry.

IV. Conclusion

Press freedom, a priceless asset obtained during the course of Taiwan's democratic progress, is a core value of Taiwan's government. The GIO fully respects and protects its substantive realization, while taking vigorous steps to establish a fair and reasonable media environment. Nevertheless, TVBS's ownership structure is a legal issue as well as a policy issue concerning foreign investment in the local film and television industries. There is no connection whatsoever with TVBS's views and positions. The GIO cannot accept attempts by some local individuals to create ideological and political misperceptions among the public under the pretext of press freedom.

The GIO wishes to emphasize that the media are a very important part of society. They form the fourth estate in a political democracy and play a guiding role in the development of culture and values. The media industry is not like any ordinary "industry" in the true sense of the word. It too must abide by laws and regulations and cannot place itself above the law. The Satellite Broadcasting Act is a special law that adopts concrete verification of businesses operated with permit or license. Suggestions that the Company Law be followed only in formality would, in practice, lead to specious arguments and completely ignore the fact that foreign capital accounts for 100 percent of TVBS's shareholdings. This contradicts the purpose of the legislation contained in Article 10 of the Satellite Broadcasting Act. Furthermore, it could encourage foreign investors to take advantage of legal gray areas to undertake business activities which, in fact, violate the law. The GIO's position on the issues regarding TVBS's shareholding structure is clear and void of a predetermined stance. Furthermore, TVBS's views and standpoints do not play a part in the investigation, which is being conducted with due respect for press freedom. We are committed to protecting the dignity of the law and promoting a healthy development of the local film and television industries while seeking substantive verification in this case with due respect to press freedom.