Chinese Tech Giants’ Investments in Entertainment (1/2)
The development of mobile devices and their worldwide adoption have shpaed a new lifestyle: from how we work, to how we communictate; from how we learn, to how we entertain.
According to eMarketer’s latest forecast in 2017, adults in China will spend an average of 2 hours and 39 minutes daily on mobile devices in 2018, of which 58 minutes will be spent on watching videos. This represents more than 25% of their digital time and an increase of 26% compared to last year. eMarketer also forecasted that in 2018, for the first time, adults in China will spend more time watching digital videos on their mobile devices than watching television.
Video production, which used to be the exclusive domain of televisions, film production studios,or Hollywood, now has become an option for everyone with a smartphone.
While for technology companies, it is a cut-throat race to fight for people’s screen time. New platforms and channels for video consumption led by technology companies are booming. Particularly, online streaming services backed by China’s top three technology giants, BAT- Baidu, Alibaba and Tencent are expanding exponentially, with a growth rate of 89% in Q4 2016.
In this blog series, we will look at the most popular video-based platforms in China (Baidu’s iQiyi, Alibaba’s Youku Tudou and Tencent’s Tencent Video) and BAT’s strategies in online video market and movie industry. It remains to be seen who will become the biggest winner in this battle.
BAT’s Online Video Platforms
Online Video Market Analysis
According to the China Internet Network Information Center (CNNIC), by the end of June 2018, 609 millions Chinese internet users watch videos online, among which 578 millions watch videos on a mobile phone. These numbers represents 76% of internet usage and 73.4% of phone usages.
The online video mwarket in China is expected to experience continued explosive growth. Currently, the market is led by platforms backed by China’s tech giants BAT- Baidu’s iQiyi, Alibaba’s Youku Tudou and Tencent’s Tencent Video. To dominate people’s screen time, these tech giants are spending billions of dollars to seek more paying subscribers (or VIPs/members), gain more advertising revenue and develop their own original programs.
Between advertising revenue, copyright distribution and video value-added services (subscription services), iResearch Global Group estimates that membership fees will play a greater role and account for over 30% of the total revenue structure.
Since 2014, iQiyi, Youku Tudou and Tencent Video started introducing more exclusive content andbenefits to attract users to pay for subscription services. By the end of June in 2018, Tencent had 74 million paying subscribers, an increase of 45% compared to last year, followed by iQiyi with 66.2 million which was an increase of 66%. Youku Tudou has not disclosed their exact membership members, but eMarketer estimates that more than 60% of Youku Tudou’s current users will become paying subscribers by 2019.
Paying Subscribers Analysis
As China’s largest online video platforms, iQiyi, Tencent Video and Youku Tudou have different features and their own exclusive content and programs. Paying subscribers for these video platforms share a lot of similarities: most subscribers are the post-80s generation (born between 1980 and 1989) and post-90s generation (born between 1990 and 1999) based in China’s top four largest cities- Beijing, Shanghai, Shenzhen and Guangzhou. The majority (over 70%) of the subscribers hold a bachelor’s degree or above and their average incomes are higher than non-subscribers.
According to iClick Research, paying subscribers tend to watch videos more frequently across platforms: 85.8% of paying subscribers watch online videos on their mobile phones, followed by on laptop and desktop (84.3%) and tablet viewing (52.9%). Over 80% of subscribers watch videos online on a daily basis, with 66.4% of them spending over two hours on watching videos.
The top three reasons that subscribers give when surveyed that why they pay for the streaming services are: ad-free experience (50.3 %), higher resolution and quality (49%) and subscriber-only content/programs (44.1%).
When it comes to exclusive content, male subscribers and female subscribers demonstrate different preferences. Both male and female subscribers show interests in Hollywood movies and domestic movies. However, females are much more willing to pay to watch drama series produced abroad (e.g. U.S. and Korea) while males strongly prefer sports and comics related content. Particularly, subscribers under 30-years-old of both genders show strong interest in self-produced reality shows such as “Produce 101 (创造101)” on Tencent Video, an idol group survival reality show.
Competitive Differentiation Analysis
Tencent Video, iQiyi and Youku Tudou are well-recognized as the top three players in China’s online video market. But the competition is still tight and other popular video streaming platforms like Sohu Video, Mango TV and Blibli are catching up. With a range of platforms to choose from, it is commonfor Chinese customers to move from platform to platform to watch different shows. Therefore, it is a big challenge for video platforms to build customer loyalty and convert frequent visitors to a long- term paying subscriber.
As the owner of the dominant social media networks WeChat and QQ Mobile, Tencent leverages its social media resources to promote its video platform- Tencent Video. Backed by big money, since 2014 Tencent has established exclusive online partnership with HBO, a channel which is blocked in China. But with this deal, Chinese audiences can watch HBO’s popular award-winning drama seriesand movies such as “Game of Thrones,” “The Newsroom” and “Band of Brothers” through Tencent Video, the only official provider of HBO content in China. All partnerships and exclusive content distribution deals with Hollywood and other producers all over the world allow Tencent Video to gain VIP subscribers rapidly with a full range of high quality and diversified content of TV series, variety shows, animations and comics and children programs. Similarly, iQiyi and Youku Tudou have been actively working with PGC (professionally-generated content) content creators and signing licensing deals with both domestic and international producers and other video streaming service providers such as Netflix.
After the fierce competition in getting online traffic and importing diverse content to distribute, all the major Chinese video platforms are investing a great deal on upstream production, hoping to moving from domestic distribution to content producers. Powered by machine learning and artificial intelligence technologies, these self-produced drama series premiered online are usually adaptations of best-selling Chinese novels which have amassed an enormous fan base, overlapping active users on online video platforms. Many of these original productions have turned out to become nationwide blockbusters.
iQiyi is committed to invest in its self-produced TV series and movies offerings. With 79 new original productions in 2018, iQiyi is the most productive among all the online video platforms. Its original TV series “Notes of Tomb Raiders (盗墓笔记)” experienced great success with 2.4 billion views over one summer. “The Rap of China (中国有嘻哈),” a rap reality show produced and streamed exclusively by iQiyi, produced 2.6 billion views for the 12 episodes and 6.8 billion views of the relevant hashtag on Weibo. To reach an even wider audience, iQiyi is also seeking for distribution on traditional Chinese television channels. This represents another possible new revenue stream for original content.
Tencent Video’s original productions have also achieved outstanding performance. Drama series like “Ruyi’s Royal Love in the Palace (如懿传)” and “The Candle in the Tomb (鬼吹灯)” further retained current subscribers and have driven rapid growth in new members. Self-commissioned variety shows represented by “The Coming One (明日之子),” “Produce 101 (创造101)” and “Roast (吐糟大会)” have also encouraged audience engagement and discussion online after the show. For example, “Produce 101,” a talent show among 101 young female performers completing for the final 11 to form a girl idol group, not only started a wave of interest in Chinese Idol Groups, but also drove more than 4.3 billion views in total, with 90 million mentions on Weibo. It is estimated that the total amount raised by audience and fans during the final round of competition alone may have exceeded USD1.5 million, which made “Fan Economy” a buzz word for 2018. All these online and offline engagement efforts with audiences will encourage more innovation in content and marketing, build up a premium content library consisting of various genres of TV drama series, movies, shows and thus create an even stronger content ecosystem for Tencent Video.
Acquired by Alibaba, China’s largest ecommerce company, Youku Tudou has a close partnership with Alibaba Pictures and Alibaba’s music and sport divisions on self-commissioned productions and distribution. Before the acquisition, Youku Tudou was mostly known as a UGC (user generated content) and PGC platform. Similar to Youtube, Youku Tudou shares advertising revenue with content creators, who regularly upload original videos to their own channels. Currently, Youtu Tudou is changing its model from a service provider platform to an integrated platform with its original production and a complete ecosystem. Although Youku Tudou has fewer self-produced shows in 2018, some of their productions became nationwide hits, attracting more than half of total views across all online video platforms and driving online traffic effectively.
As the race to get paying subscribers heats up, video streaming platforms like iQiyi, Tencent Video and Youku Tudou are all investing increasingly on production and transforming from content distributors to content producers and providers. The battle for content will lead to more experiments and innovation in content itself and the video industry’s business models. From a consumer’s perspective, it is a great time to enjoy abundant and diversified high-quality produced content and to witness all the opportunities and innovations behind the investment and competitive market.
