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China: Control over Foreign Movies and TV Shows on Online Video Sites Tightened

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China: Control over Foreign Movies and TV Shows on Online Video Sites Tightened

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The Library of Congress > Law Library > News & Events > Global Legal Monitor

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New Chinese Rules on Foreign Firms’ Online Content

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New Chinese Rules on Foreign Firms’ Online Content

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"This is the latest in a series of legal changes that seek to restrict the influence of foreign or western ideas," said Jacques deLisle, an authority on Chinese law who teaches at the University of Pennsylvania. "And it's also part of a larger attempt to exercise control over the Internet and new media."

The new regulations, though, do not detail exactly what types of content and which organizations would be affected. Though the new rules, for example, might seem to apply to foreign news organizations in China, existing rules already restrict global media outlets from posting content on the Internet using servers inside China. Most global news outlets, including The New York Times, are published on servers outside China, and are unlikely to be affected by the new rules.

Still, legal experts say the regulations announced this week are broad enough to pose challenges to a wide range of foreign multinationals operating in China, since many of them act as distributors of online content or services.

There are also questions about how such regulations would be enforced, and what types of companies would be considered distributors of online content. As a result, they could raise market-access issues for foreign companies in China ahead of trade talks with the United States.

Analysts say Chinese laws are often vague and broad, which gives regulators the ability to claim greater jurisdiction. As a result, how laws are implemented is often more important than the letter of the law.

One key question is the impact such regulations would have on companies like Apple and Microsoft, which run online platforms in China that provide services and sometimes content. For example, Apple's Chinese App Store offers games and other apps in the country while Microsoft has a joint venture through which it provides a cloud version of Windows and Office software. Internet companies, like Akamai and Cloud Flare, have operations that work to speed traffic to foreign websites or host them through servers in China.

A large number of foreign games for smartphones are released through joint ventures between Chinese companies and multinationals, and it appears the new regulations could affect those partnerships.

Multinational companies have long complained that the rules in China are discriminatory. Foreign firms need licenses that can be difficult to get to operate web services in China, and there are restrictions on their ability to invest in many Chinese sectors. Several big companies, including Microsoft, have also been the subject of anti-trust investigations.

The regulations stipulate that anything published online should "serve the people" and promote socialism and do no harm to national interests, barring, for instance, the spreading of rumors or propagating evil cults.

Paul Gillis, an accounting expert who teaches at Peking University in Beijing, says a lot will also be determined by the way China executes and enforces the rules, since there is tremendous variation in the way laws are enacted and enforced in the country and to whom they apply.

"What about law firms and accounting firms - are they going to be subject to these rules?" he said. "And what about companies that just have an instruction manual online, are they also going to fall under this type of rule?"

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state administration of press  publication  radio  film and television (china)

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New Chinese Rules on Foreign Firms' Online Content

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"This is the latest in a series of legal changes that seek to restrict the influence of foreign or western ideas," said Jacques deLisle, an authority on Chinese law who teaches at the University of Pennsylvania. "And it's also part of a larger attempt to exercise control over the Internet and new media."

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The rapid growth of streaming is taking the globe by storm, but no country seems to have the market potential for OTT video streaming quite like China. While the United States OTT market is beginning to show signs of saturation, it is not a surprise that more than 720 million Chinese internet users seem like the next big opportunity.

The reality, however, is less than perfect.

Controlling the free world of streaming

Prior to 2014, it was like the "Wild East" in China, with little regulation and rampant piracy. This radically changed following a SARFT regulation in 2014; since then, the OTT business in China consolidated and became highly regulated by the government. Indeed, only seven companies were granted the license to distribute streaming video.

The majority of broadcasted content is controlled by China Central Television ( CCTV), which owns the internet-based China Network Television ( CNTV) and its subsidiary Future TV. The additional OTT players include CIBN (established by China Radio International), Best TV (a subsidiary of Shanghai Media Group), Wasu Digital TV Media Group ( Alibaba partners), Southern TV, CETV and Twitch-like live streaming platform Panda TV. With Tencent (the country's biggest online gaming and social media company) distributing OTT content under a CCTV license, one can easily understand that gaining such permission is not an easy task for newcomers.

Additionally, U.S. content is very popular in China, but also heavily regulated. Tencent acquired rights to distribute NBA games, as well as some HBO and Time Warner titles. Other examples include online streaming company Sohu, which streams Netflix's House of Cards, and web services company Baidu's online video unit, iQIYI, which carries Fox's theatrical releases. But online content providers have to put emphasis on homegrown content, as well, because, according to Chinese regulations, broadcasters and streaming services can't dedicate more than 30 percent of their programming to foreign content. That is likely the reason Netflix is not rushing to go big in China.

China has its own way

Chinese viewers are accustomed to local alternatives of the most popular online global giants, including Baidu for Google, Alibaba's Youku for YouTube, Renren for Facebook, Tencent WeChat for WhatsApp and Weibo for Twitter, to name a few. For a long time, China has been mastering the art of creating substitutes of Western solutions in order to feed the digital needs of the internet-hungry population.

Government censorship dictates the rules that foreign companies unsurprisingly find difficult to abide. Unlike YouTube, almost half of the content on Youku includes full-length episodes, cartoons, movies and TV shows that have been uploaded by license-holding partners, such as film and TV production companies in China. On top of sourcing original and licensed content, Youku is investing in high-end user-generated content and programming created by semi-pros, targeting audiences that turn to online platforms for entertainment.

Chinese live streaming has an additional aspect that U.S.-based networks haven't been able to crack so far: monetization.

To enforce copyright infringement and censorship rules for inappropriate or offensive content, Chinese internet companies allow the government to scan their video libraries. This is something that YouTube, the online video king in most parts of the world, will not allow. And yet Youku and iQIYI, the most popular online video services in Mainland China, reach tens of millions of unique users on their apps for TVs, and hundreds of millions on mobile devices.

Live stream going mainstream

Live streaming is a huge deal in China. Its skyrocketing popularity can be attributed to the fact that the young mobile users are hungry for more edgy content compared to what is made available on SVOD platforms that are constantly filtered by the government.

Live streamers are eager to build an audience, and many of them try to do this through crazy and provocative stunts. Because these feeds are more challenging to control, leading Chinese live streaming platforms caught the attention of regulators, who demanded these companies hire teams of censors to purge inappropriate videos from their platforms. But the Chinese live streaming phenomenon has an additional aspect that U.S.-based networks like Facebook, Twitter and Snapchat haven't been able to crack so far: monetization.

Chinese live streaming platforms like YY or Ingkee offer publishers, even the non-celebrities, money for their streams. The viewers can send the streamers virtual "gifts" when they see something they like, while the creators can then trade the value of those "gifts" for actual cash. For instance, Huajiao streamers' income can average $3,000 to $5,000 a month by broadcasting 3-4 hours a day. It is no wonder a recent report from Tencent showed 43 percent of the live streamers are in this space for the money and not to gain exposure.

The 4K paradox

What is perhaps most surprising is the adoption of UHD 4K TV sets and content in China, especially when compared to the United States. Some manufacturers we've met with have stated that close to 40 percent of their shipments in Mainland China were UHD TV sets. This aligns with the IHS TV Sets Market Tracker that reported two-thirds of big screen TV sets sold in China were UHD sets, compared with a significantly lower number in North America.

China is shaping up to be the land of opportunities when it comes to streaming business.

Based on these findings, one would assume high penetration rates of 4K content and existence of broadband infrastructure to deliver the high bit rates. However, the internet connection is unstable there. Viewers can experience great connectivity, and a few minutes later, have none at all. To overcome this challenge, OTT providers in China limit their content offering to 4 Mbps - and even less for mobile.

Content providers seem to be well aware of the fluctuating network: During peak hours they proactively limit the video resolution to lower quality SD. UHD requires at least 15 Mbps, which means the network and infrastructure is failing to support those 4K TVs. Indeed a paradox.

Virtual reality is perhaps a bigger deal in China than anywhere else

There has been a lot of hype in the media on Chinese investments in VR, with predictions for the local market to reach $8.5 billion in the next four years. It's expected that companies from all over the world will experience the "China VR rush," and it's beginning to happen already. Taiwan-based HTC is attempting to establish a $10 billion Virtual Reality Venture Capital Alliance, and plans to open 10,000 VR experience stores across the mainland. Disney-backed Jaunt is launching a VR content company called Jaunt China by partnering with Shanghai Media Group and China Media Capital. But as of today, high-quality and immersive experiences of VR streaming will be difficult to achieve because of bandwidth issues that cause buffering and fluctuating image quality.

That said, most everywhere in China recently, investors and vendors expect to see the two magical letters of "VR" on most presentations or documents. If anyone wants to raise capital now in China, having these two letters in your deck substantially improves chances of getting Chinese backing.

Upcoming challenges

One of the current challenges OTT companies in China are facing is the ability to deploy true UHD content. With subscription fees of 30RMB/$4.50 per month (versus $8 per month for a basic plan on Netflix), offering crisp 4K resolution to their consumers will generate additional revenue via premium subscriptions, as well as attract additional viewers from the cable and satellite base.

The majority of the costs stem from original content creation and licensing, so there is much pressure to improve the bottom line by reducing companies' CDN (Content Delivery Network) and server-related expenses. While the online video business flourishes, so do vendors' costs of distributing the content. For example, Baidu-owed iQIYI has been operating at a loss for the past few years, while its bandwidth and marketing expenses increased by 80 percent in 2015.

To find more cost-effective solutions, many content providers turn to Peer-to-Peer (P2P) technologies. By utilizing available storage space on users' set-top-boxes, Smart TVs and laptops, those companies can significantly reduce their delivery and storage-related expenses. This method is widely adopted in China, while (for obvious reasons) it is less popular outside the country.

Although complex, China is shaping up to be the land of opportunities when it comes to streaming business. The road to success is full of obstacles dictated by the local government, its unique way of doing business and consumer culture. It will be fascinating to see how both domestic and foreign companies will capitalize on this tremendous market opportunity.

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The rapid growth of streaming is taking the globe by storm, but no country seems to have the market potential for OTT video streaming quite like China. While the United States OTT market is beginning to show signs of saturation, it is not a surprise that more than 720 million Chinese internet users seem like the next big opportunity.

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New Regulations Worry China's Internet TV Industry

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New Regulations Worry China's Internet TV Industry

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Bitcoin, financial tech and startups in China Opinions expressed by Forbes Contributors are their own.

So far the Chinese Internet TV companies have been largely free from the stringent restrictions that traditional cable TV stations are subject to. The happy time may soon end: News has been circulating since yesterday that SARFT (The State Administration of Radio Film and Television), the country's top media regulator is considering to step up regulation over the industry.

The idea of bringing the richer and less-censored online video content onto bigger TV screens has propelled companies including Xiaomi and LeTV to release products such as smart TVs and video streaming boxes. These products are often sold with razor thin margins while the compaines make money by charging for content. LeTV, for example, has been selling its one year subscription for 490 yuan, which give subscribers one year limitless access to over 90,000 episodes of TV programs and over 5,000 movies. Although LeTV has its own content, some hardware companeis have partnered with third-party suppliers such as online video websites Youku and Sohu TV that don't produce hardware themselves.

According to an article published in today's 21st Century Business Herald, an influential Chinese business newspaper, SARFT had held talks with related agencies on the 11th and 15th and revealed some of its new regulatory measures including that all video content must go through SARFT's "uniform platform"; content will be subject to stricter supervision and censorship; display of branding information of content suppliers will be prohibited; no overseas produced content or Internet user self-made content will be allowed; all apps and hardware must be submitted to SARFT for review and approval before they reach the market.

This has caused much conern among investors and precipitated a strong selloff - the price of Shenzhen-listed Internet TV company LeTV has tumbled nearly 20% since yesterday. The company denied that it received any notices from the government, though on its website, preorders for its Internet video streaming boxes have been suspended.

Despite the Chinese government's efforts to keep the Internet under control in recent years, the level of influence that it can excert over TV is much stronger. Comparing with the information people can access on the Internet, TV content is often much more tamed and boring - or to give it a slightly positive spin, sanitory. Yet with the rise of Internet TV, the dichotomy of TV and the Internet is no longer there and the once clearly drawn line is becoming increasingly blurred. SARFT, with its sense of entitlement as the TV police, may feel intruded and even threatened. But no matter how hard it wants to restore the old order, if that is what it tries to acomplish with its regulatory measures, it should expect nothing more than causing some temporary nuisance, and have no illusions that it can bring the televasions back to what they were a decade ago.

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New Regulations Worry China's Internet TV Industry

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So far the Chinese Internet TV companies have been largely free from the stringent restrictions that traditional cable TV stations are subject to. The happy time may soon end: News has been circulating since yesterday that SARFT (The State Administration of Radio Film and Television), the country's top media regulator [...]

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Consumption in China: How China's New Consumer Ideology is Shaping the Nation

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Consumption in China: How China's New Consumer Ideology is Shaping the Nation

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BOOK

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Consumption practices in China have been transformed at an unprecedented pace. Under Mao Zedong, the state controlled nearly all aspects of what people consumed, from everyday necessities to entertainment and the media; today, shoddy state-run stores characterized by a dearth of choices have made way for luxury malls and hypermarkets filled with a multitude of products.

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Online series spark frenzy - China Daily

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Online series spark frenzy - China Daily

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They are low-budget productions, have no stars and are typically adapted from online novels. Yet they are massively popular with the youth.

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Online series spark frenzy - Chinadaily.com.cn

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This viral internet comedy about time travel and bisexuality has suddenly been banned in China

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This viral internet comedy about time travel and bisexuality has suddenly been banned in China

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A modern playboy accidentally time travels back to an ancient dynasty and becomes the wife of a crown prince. A straight man inside a woman's body, he enjoys flirting with his husband's concubines and touching their bodies with impunity. But after discovering his more feminine side, he truly falls in love with his husband, and has sex with him.

That's the story that unfolds in China's recent internet hit Go Princess Go. After its December premiere, the romantic comedy has earned Chinese video streaming site LeTV more than 50,000 paid subscribers and $1.5 million in profit. After last week's finale, the online series attracted over 2.4 billion views in total, the producer and broadcaster of the show said.

Unexpectedly, the viral show also just became a victim of Chinese censors. LeTV took down the drama off its website on Wednesday (Jan. 20), and issued a statement that it was asked by "relevant department" to do so. It said the drama would be put online again after "optimizing" the content, but didn't say when.

The low-budget adaptation of a novel has been a huge success thanks to its blending of time travel, bisexuality and gender identity. Sexual scenes and vulgar language have probably helped the show gain viewers, and attracted censors. Here's a (kinda SFW) trailer:

China's top media watchdog, the State Administration of Press, Publication, Radio, Film and Television (SAPPRFT), is notorious for its heavy-handed censorship (the name alone shows the agency's reach). Last year, it ordered TV soap opera The Empress of China to cut all the shots of buxom ancient women's cleavage before the show was allowed to go back on air. It has issued several orders to content providers-especially TV programs-to avoid a long list of topics from masturbation to one-night stands.

But its tightening grip had never really touched online series like this before. Besides LeTV's Go Princess Go, five other online series were taken offline, financial publication Caixin reported. An unnamed employee of Tencent told Caixin the internet giant pulled two of them because it was self-censoring.

Like their foreign counterparts, China's video streaming providers have begun to produce original content, from helping self-made stars produce better videos ( like YouTube) to producing their own programs from talk shows to soap operas (like Netflix). Prominent players include LeTV, Tencent, Alibaba-owned Youku Tudao and Baidu-owned iQiyi, to name just a few.

The internet dramas Chinese censors shut down have already streamed all their episodes, so most die-hard fans won't be left without knowing what happened to their favorite characters. One of them, The Lost Tomb, which was reportedly (link in Chinese) produced at a record cost of around $760,000 per episode, has brought 2.6 million new paid subscribers to video site iQiyi, translating into almost $8 million in profits. In LeTV and iQiyi's business models, paid subscribers are allowed to watch all the episodes in one season instead of waiting for weekly updates.

Ironically, The Lost Tomb had already made changes from the original novel it was based on to get around China's censors. In the online series, the leading tomb raiders voluntarily hand in the treasure they raided to the government every time.

This fresh round of government intervention is likely to serve as another warning sign to Netflix, which is entering global markets except China. Entering China could mean " many years of discussions," as CEO Reed Hastings said, not to mention a bunch of domestic rivals, and a tough regulator.
An earlier version of this article incorrectly said that the finale of LeTV's Go Princess Go attracted over 2.4 billion views; the series attracted 2.4 billion views in total.

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This viral internet comedy about time travel and bisexuality has suddenly been banned in China

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This article has been corrected. A modern playboy accidentally time travels back to an ancient dynasty and becomes the wife of a crown prince. A straight man inside a woman's body, he enjoys flirting with his husband's concubines and touching their bodies with impunity.

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China Video Market in China - Stats and Trends

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China Video Market in China - Stats and Trends

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China has the largest number of online-video viewers: around 450 million, which is nearly 80% of the internet-connected population. Their numbers will rise to around 700 million by 2016. Check out our new Infographic - "Online Video Market in China - Statistics and Trends" to know more about the Chinese online video industry, annual growth, market size , revenues and lot more.
Infographic by- GO-Globe.cn To Publish this Image on your Blog or Website . Copy this code Estimated Revenue of the Chinese Online Video Industry What Drives Revenue
In 2012, the revenue came mainly from advertisements, which accounted for 73.2% of the total of the Chinese online video industry income.
Preferences
76.3% of people surveyed chose online videos over TV

Reasons To Watch Online Videos

Reasons NOT To Watch Online Videos
Popularity
In June 2013, there were 464.72 million UV for search engines and 456.85 million UV for online video.
Chinese netizens spend more time watching video; as a result, social networking is losing popularity.
In June 2013, the total viewing duration of online video accounted for 33.9% in all internet services while the share of social networking dropped from 27.1% to 18.2%.
More Chinese Netizens Prefer Watching Online Video On Mobile Devices Time Spend On Online Videos
The time spent on online videos reached 5.7 billion hours in January 2013.
What Chinese Netizens Watch Online (March 2013)
Watching TV plays via the Internet has become the general behavior of most Internet users. Online video is becoming increasingly influential in the diffusion of traditional TV content.
Top Most-popular Chinese Video Websites

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Online Video Market in China - Statistics and Trends [Infographic]

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China has the largest number of online-video viewers: around 450 million, which is nearly 80% of the internet-connected population. Their numbers will rise to around 700 million by 2016. Check out our new Infographic - "Online Video Market in China - Statistics and Trends" to know more about the Chinese online video industry, annual growth, market size , revenues and lot more.

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on LETV.com membership

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2016年中国视频网站付费用户典型案例研究报告――乐视影视会员洞察研究报告

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研究观点,艾瑞网聚合互联网数据资讯,融合互联网行业资源

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Online-Video Viewers Open Wallets in China

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Online-Video Viewers Open Wallets in China

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More users become paying subscribers; ‘Lost Tomb’ is a boon for Baidu’s iQIYI

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Online-Video Viewers Open Wallets in China

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China Circuit columnist Li Yuan writes that online video in China is starting to look more like Netflix and less like YouTube, as more users agree to pay for subscriptions.

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China’s Online Video Market in the Middle of Transition to Paid Subscribers, Self-Produced Content

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China’s Online Video Market in the Middle of Transition to Paid Subscribers, Self-Produced Content

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As online advertising revenue drops, internet broadcasters are hoping users will pay their share for content — and make their share of it too.

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As online advertising revenue drops, internet broadcasters are hoping users will pay their share for content - and make their share of it too.
China is set to reverse the course of history and again defy expectations. iQiyi, an on-demand video streaming service, expects their advertising revenue to account for only half of their total revenue for 2016.

"iQiyi's total revenue for 2016 will be more than RMB 10 billion. Advertising accounts for only half of that with the rest coming from user-facing offerings [i.e., premium subscriptions] and other sources," said Gong Yu, CEO of iQiyi, at the 2016 China Internet Audio-Visual Conference (CIAVC) last week.

Major Chinese on-demand video sites are still struggling with fierce competition and profitability. Since 2015, they have heavily promoted paid subscriptions in an effort to diversify their revenue structure. The hope is to move away from an advertising model to a model based on paid subscriptions. In June of this year, Gong Yu told Yicai ( report in Chinese) that they want to reduce advertising from about 75 percent in 2015 to around 33 percent in 2016.

Subscription prices are relatively low, from RMB 15-25 per month. However, iQiyi Vice President Yang Xianghua told Jiemian ( article in Chinese) the average revenue per user was 20 times more than revenue from advertising.

At the same time, advertising growth is slowing. Monthly active users on Chinese mobile video apps reached 800 million in July of this year, according to QuestMobile ( report in Chinese), a mobile market research firm, With fewer new users, the growth of impression-based advertising revenue is set to flatten or decline.

At a media event last week, Yang Xianghua estimates that next year, major Chinese on-demand video sites will be able to generate more revenue from subscription than from advertising ( report in Chinese).
10 Percent of Monthly Active Users are Paying
At CIAVC, Tencent's Online Media President Sun Zhonghuai, said that Tencent Video estimates paying users now account for 10 percent of the total active of online video and audio services in China.

Earlier this month, Youku-Tudou, the online video site of the Alibaba Group, announced it has 30 million paying subscribers. Tencent Video and iQiyi announced the 20 million user milestone last month and earlier in June, respectively.

The number of paying consumers for online video services in China has increased from 8 million in 2013 to 20 million in 2015, according to a report by the EntGroup ( report in Chinese). With this amazing growth, we can expect the total for 2016 to be another big increase.

Starting from the middle of 2015, iQiyi added a paywall for a selection of new releases. This strategy quadrupled their subscribers in just one year. Mgtv.com, the video site of China's leading TV broadcaster Hunan Broadcasting System, adopted the same strategy to sign up subscribers.

Youku-Tudou was able to sign up some 7 million subscribers from one campaign during the Spring Festival (Chinese New Year) holiday earlier this year. Jointly run by Alipay, Alibaba's online payment service, both companies promoted the new subscriptions through their various services to amazing success.
No Slow Signs for Costs Growth
Paid subscription offerings have actually been available for a long time. However, there were quite a few limiting factors: 1) pirated digital content was abundant and users were reluctant to pay; 2) online payment services were not as widely used; 3) there was little differentiation in content or services between the different video sites.

Now we see that the first two problems are virtually non-existent with many users already converted into paying subscribers for differentiated content. However, this paid user acquisition comes at a cost; almost all Chinese video sites have been spending heavily on exclusive content.

LeTV was one of the first companies that made a fortune from purchasing TV show rights at low prices. However, they are now exploring a new model as those rights get more expensive. In an internal email earlier this month, LeTV President Gao Fei disclosed that more than 70 percent of new releases in 2017 will be either self-produced or co-produced (source in Chinese).

Other sites are also placing big bets on self-produced content as it's easier to control costs and have more ways to monetize such as selling adaptation rights or licensing rights to game developers. Tencent Video found the views of self-produced content as a percentage increased to 14 percent in August from 8 percent at the beginning of this year.

And as TechNode has discussed before, the traffic to these video sites is mainly driven by a small number of hits or new titles, but the costs to produce these shows keeps climbing. Sun Zhonghuai estimates that the user base is growing by 10 percent while views are growing by 50 to 100 percent. The costs, however, are growing by 200 percent, according to Sun. On top of that, of course, is also the marketing spends for those shows that are increasing as well.

But that hasn't stopped big companies, including Tencent, iQiyi, and Youku-Tudou's parent company, Alibaba, from establishing film and entertainment content companies to produce and distribute content not only for their own platforms but also to movie theaters or TV stations. The content and related rights will be their new revenue sources.

- This article originally appeared on TechNode.

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China's Online Video Market in the Middle of Transition to Paid Subscribers, Self-Produced Content | China Film Insider

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As online advertising revenue drops, internet broadcasters are hoping users will pay their share for content - and make their share of it too. China is set to reverse the course of history and again defy expectations. iQiyi, an on-demand video streaming service, expects their advertising revenue to account for only half of their total revenue for 2016.

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Report: China's live streaming market grew 180% in 2016

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Report: China's live streaming market grew 180% in 2016

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China's live video streaming market was estimated to be RMB 20.8 billion (around US$ 3 billion), an 180% growth from the previous year, according to the latest report by internet market research firm iResearch (report in Chinese). At an event in January, Chen Zhou, CEO of YY, told the audience that their net profit for 2016 was RMB 1.5 billion (in Chinese).

The vast majority of the live streaming revenues was still from sales of virtual items, virtual gifts received by broadcasters and other items for premium features, with the rest from online games, advertising, and other related offerings.

Big money in live streaming

The related four public companies, YY, Tian Ge Interactive, Song Cheng (the parent company of 6.cn) and Momo recorded a combined more than RMB 11 billion in live video streaming revenue.

YY alone posted over RMB 7 billion in annual revenue, a 55% year-over-year growth, from its YY Live platform and Huya Broadcasting, a gameplay broadcasting focused platform.

Momo, the leading location-based social app, was the most successful newcomer in terms of revenue in 2016. Available to all Momo users in December 2015, the live video streaming service took only one quarter to become the company's largest revenue source and its 2016 annual sales, US$376.94 million (more than RMB25 billion), was way higher than veteran players such as Tian Ge and 6.cn. Quarterly paying users on Momo reached 3.5 million in the fourth quarter of 2016, up from 400,000 a year ago.

6.cn's revenue more than doubled in 2016 to reach RMB1.1 billion. Tian Ge reported 28.5% year-over-year revenue growth in its online interactive business, with the majority generated through the live streaming business and the rest from games offered to the viewers.

A few other mobile services also saw big revenue boosts thanks to the addition of the virtual item offerings. Meitu, the software and hardware developer with a focus on photo and video effects, sold RMB 45.6 million worth of virtual items in the rest seven months of the year after virtual item giving became available on its video streaming app Meipai in June. Kuaishou, one of the most popular short video and sharing app, didn't start monetization until it added a virtual gift-enabled live streaming capability in 2016.

A banner year

2016 was especially a good year for streamers. Since a new wave of mobile video streaming apps emerged in the last couple of years, the competition intensified in 2016. Many platforms, especially latecomers, were paying higher revenue shares than the established platforms.

YY paid more than RMB 3 billion, over 40% of the total sales, to content contributors, according to YY CEO. Meipai, for instance, paid more than 60% of the total to contributors. It is reported that some platforms shared as high as over 90% of their sales to broadcasters.

A significant number of new broadcasters joined the market. On Momo, revenue-generating streamers grew in just over a year from zero to 540,000 by the fourth quarter of 2016. More than 50% of them received more than RMB 30,000 monthly in the fourth quarter of 2016.

E-commerce businesses emerged as an interesting new category of streamers that demo or sell products through live streams. While for businesses it's a way to market and sell goods, some fashion influencers or other celebrated streamers hired by these companies are also able to make handsome money from virtual gifts received.

But it is believed a majority of the total virtual gift sales went to a small number of popular broadcasters. MC Tianyou, one of the most popular broadcasters on YY, made more than RMB10 million annually, according to YY CEO. Two years ago he established his own talent agency which made more than RMB100 million in 2016. It's not surprisingly that major platforms like YY began signing exclusive deals with top streamers on their platforms.

Gameplay and sports have more users

While the biggest money was still from the virtual gift-based user-generated streaming content, gameplay and live sports streaming surpassed it in total usage as of the end of 2016 and live concert streaming also grew fast, according to China Internet Network Information Center (CNNIC).

Sports streams and concerts so far generate revenues from subscriptions, online accesses, or advertising. Revenue streams of gameplay streaming platforms are more varied, including virtual gifts, advertising, game publishing, among others.

Gameplay streaming saw the biggest growth in usage in 2016.

The revenue of Huya Broadcasting, the gameplay broadcasting platform of YY, increased 120% year-over-year in 2016 and had broken even as of the end of 2016, the company's management said during the recent earnings conference. YY expects to see triple-digital revenue growth this year.

Gameplay-focused platform Douyu announced in 2016 two massive rounds of financing, US$ 100 million in March and RMB 1.5 billion in August. Both rounds were led by Tencent, the largest gaming and social company in China, according to Tencent's own online media site. 6.cn's parent company announced recently the acquisition of mobile game developer Smart Space for RMB380 million.

Users of online live video streaming in China reached 344 million as of the end of 2016, accounting for 47% of the total internet users in mainland China, according to CNNIC.

Total monthly active users of live streaming apps increased 103% year-over-year to 108.6 million in September 2016, according to mobile market research firm QuestMobile. The top five live video streaming apps in terms of daily active users and monthly active users were Inke, YY, Douyu, Huya and Shiba (the mobile version of 6.cn) as of September.

But the total time spent on PC was still higher than that on mobile, according to iResearch.

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Report: China's live streaming market grew 180% in 2016 · TechNode

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China's live video streaming market was estimated to be RMB 20.8 billion (around US$ 3 billion), an 180% growth from the previous year, according to the latest report by internet market research firm iResearch (report in Chinese). At an event in January, Chen Zhou, CEO of YY, told the audience that their net profit for 2016 was RMB 1.5 billion (in Chinese).

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China Said to Push for More State Control Over Video Websites

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China Said to Push for More State Control Over Video Websites

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China's media regulator is proposing online video companies including Youku Tudou Inc. and Synacast Corp.'s PPLive sell equity stakes to the government in a move that would tighten its control over the businesses, according to people familiar with the matter

The State Administration of Press, Publication, Radio, Film and Television met the video providers on May 18 to detail the plan, said the people, asking not to be identified because the meeting was private. The regulator suggested the signing of non-binding agreements between video providers and the state companies taking the stakes by June 10, the people said.

The government would take at least 1 percent of shares, gain board seats and have some control over content with some companies in attendance expressing an unwillingness to cooperate, the people said.

The meeting offers new details about the scope of government plans to take "special management stakes" in Internet companies. Bloomberg News reported earlier this month that leaders were considering a pilot program for such an arrangement with web portals and mobile apps that focus on news content, but the idea of applying that to video-streaming companies was previously unknown.

It's still not clear what would happen if companies refuse to give stakes to the government or if the regulators will proceed with the plan. The move would allow Communist Party leaders to exert even greater control over the web and the companies that distribute content online, such as Tencent Holdings Ltd. and NetEase Inc.

The government already exerts strict control over licensing for online video by only giving licenses to seven companies, and has made it difficult for international firms to have a share in the country's $5.9 billion online video market.

Leshi Internet Information & Technology Corp., whose representatives were said to be at the meeting, declined to comment in a text message. IQiyi.com, the streaming service of Baidu Inc., and Youku Tudou's owner Alibaba Group Holding Ltd. declined to comment in e-mailed statements. PPTV didn't respond to a request for comment and Canny Lo, a spokeswoman for Tencent, wasn't immediately able to comment. The regulator didn't respond to a faxed request for comment.

Under President Xi Jinping, China has enacted stricter limits on media and Internet freedoms over the past year. The proposal for "special management stakes," first outlined in November 2013, would give authorities the ability to block content from reaching the web.

In the pilot program pitched to online news providers, officials offered to issue licenses in exchange for a board seat and stock, people familiar with the matter have said. The government wouldn't receive dividends or any other form of bonus and won't interfere in business decisions outside of control over content distribution, the people said.

In the May 18 meeting, the regulator recommended that online video companies choose among five state media companies to serve as shareholders but said they could work with others as well, according to the people familiar.
- With assistance by Keith Zhai, Steven Yang, and Lulu Yilun Chen

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China Said to Push for More State Control Over Video Websites

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China's media regulator is proposing online video companies including Youku Tudou Inc. and Synacast Corp.'s PPLive sell equity stakes to the government in a move that would tighten its control over the businesses, according to people familiar with the matter

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Succeeding in China’s online video market

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Succeeding in China’s online video market

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Profits are coming, but only players with the deepest pockets will survive to enjoy them.

More than 700 million people in China will be watching online video content in four years, new McKinsey research shows (exhibit). The successful stock market debut of Youku, one of China's leading online video sites, reflects what many feel is the industry's dazzling future. Youku, whose shares rose 2.6 times on the first day of trading in the United States, in 2010, already has more than 200 million monthly users. Its closest rival, Tudou, has 180 million.

Despite that potential, many observers remain cautious about the industry's outlook. They note that although the market is growing at a furious pace, few companies are making money. Our research suggests that profits will indeed materialize, but only players with the deepest pockets will survive to enjoy them. Successful online video sites will need capital on three fronts: to expand their bandwidth; to attract experienced online advertising salespeople, who are in short supply; and, most important, to buy the content that will win the biggest audiences and the most advertising. The best-funded sites are therefore likely to pull steadily ahead, in what could be a winner-takes-all phase of the market.

The average Chinese user spends four hours a week watching online video content, such as movies, TV, and live sports-double the time spent by US users. That high figure partly results from taste: the user-generated content so popular on sites such as YouTube has proved less appealing to the Chinese, who prefer professionally made offerings. Yet the difference is also a question of supply: the online video sites often have a much wider choice of content than do China's pay-TV channels, which find themselves caught in a bind. Although more than 40 percent of Chinese households (close to 200 million) have pay-TV subscriptions, the charge of just 15 to 20 renminbi (about $2.32 to $3.09) a month is so low that the pay-TV operators have been unable to invest in either their networks or content. That explains why only 80 million viewers have switched to digital, despite government efforts, as it offers little more content, for twice the money.

Internet Protocol television (IPTV), with its video-on-demand offering, isn't about to take off. Telecommunications companies are currently preoccupied with upgrading their networks to offer faster broadband Internet connections, but regulatory hurdles prevent them from offering IPTV as an alternative to cable-based pay-TV.

This lack of imminent competition gives online sites some breathing space to strengthen their business models. Advertising revenues will undoubtedly grow. Last year, they were estimated at 3 billion renminbi, some 8.8 percent of China's total online ad expenditures. Advertisers we surveyed said that this sum would probably double in 2011, to 6 billion renminbi, and reach more than 13 billion renminbi by 2013-well over 16 percent of total online ad spending.

But what of costs? The single biggest future one will be content, which used to come cheap-not least because so much of it was pirated. But the government is now attempting to enforce licensing rights, and companies considering initial public offerings in Hong Kong or the United States are keen to comply. In addition, there is fierce competition for content among China's 200 or so online sites. Expenses have already shot up: Golden Marriage, a popular Chinese TV series, cost 8,000 renminbi per episode in 2008, the sequel the following year 80,000 renminbi. We estimate that costs will rise 50 to 80 percent in 2011.

As content volumes rise, so too will the cost of expanding the network to cope with user demand. Peer-to-peer technology, which lets viewers download content from each other rather than from servers, is relatively inexpensive. But the nature of the technology means that it is really suitable only for very popular programs that people watch simultaneously, such as a live football match, and is therefore a limited solution.

Another (often unconsidered) cost and a potential barrier to growth is the shortage of advertising salespeople with experience in the Internet environment. The industry experts we interviewed estimated that only about a third of the 2,000 Internet salespeople in China had enough. "Most of those at leading Internet players have stock options. They are reluctant to move unless you pay them very high salaries," said one executive. Increases of up to 40 percent are not unusual.

The best business model under these conditions is still unclear. Some sites charge advertisers to host their own branded channels, some charge subscribers for an ad-free service, and some have found partners to move into e-commerce and online gaming.

Other sites are creating their own shows-either in-house or with partners-becoming more like integrated media companies than simple distributors and cutting costs and differentiating themselves in the process. Still others are experimenting with additional foreign content: for Hollywood studios that want to crack the Chinese market, online video sites may prove to be critical collaborators.

Ultimately, as with Chinese Web portals a decade ago, the first online sites that can tap the capital markets may turn out to be those that prosper, thanks to the necessary financial firepower. These players, having built their brands, content libraries, and easy-to-use interfaces, will be in the best position to tap into new revenue pools as the default partners for telecom operators offering IPTV or for Chinese TV manufacturers integrating Internet TV into their television sets. At that stage, online video sites will be an even greater power to reckon with on China's media landscape. Content providers the world over should take note.

About the author(s)

Alan Lau is a principal in McKinsey's Hong Kong office.

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Succeeding in China's online video market

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Profits are coming, but only players with the deepest pockets will survive to enjoy them. More than 700 million people in China will be watching online video content in four years, new McKinsey research shows (exhibit). The successful stock market debut of Youku, one of China's leading online video sites, reflects what many feel is the industry's dazzling future.

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Leading online video platforms in China as of March 27, 2017

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Leading online video platforms in China as of March 27, 2017

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The graph displays China's leading online video platforms, by unique visitors. In the 30-day period leading to March 27, 2016, youku.com had ranked fifth with a total of 2190 unique visitors per million Alexa users.

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China: top 10 online video platforms 2018 | Statistic

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The graph displays China's leading online video platforms, by unique visitors. In February 2018, youku.com had ranked first with a total of 24954 unique visitors per million Alexa users.

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Revenue of China's online video market from 2009 to 2018

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Revenue of China's online video market from 2009 to 2018

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This statistic shows the revenue of China's online video market from 2009 to 2014, with a forecast up until 2018. In 2016, the market size of the online video market in China is projected to reach around 62 billion yuan.

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China: online video market revenue 2009-2019 | Statistic

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This statistic shows the revenue of China's online video market from 2009 to 2015, with a forecast up until 2019. In 2019, the market size of the online video market in China is projected to reach around 146 billion yuan.

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China's Online Video Market in the Middle of Transition to Paid Subscribers, Self-Produced Content

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China's Online Video Market in the Middle of Transition to Paid Subscribers, Self-Produced Content

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China is set to reverse the course of history and again defy expectations. iQiyi, an on-demand video streaming service, expects their advertising revenue to account for only half of their total revenue for 2016.

"iQiyi's total revenue for 2016 will be more than 10 billion RMB. Advertising accounts for only half of that with the rest coming from user-facing offerings [i.e., premium subscriptions] and other sources," said Gong Yu, CEO of iQiyi, at the 2016 China Internet Audio-Visual Conference (referred to as CIAVC hereafter) last week.

Major Chinese on-demand video sites are still struggling with fierce competition and profitability. Since 2015, they have heavily promoted paid subscriptions in an effort to diversify their revenue structure. The hope is to move away from an advertising model to a model based on paid subscriptions. In June of this year, Gong Yu told Yicai ( report in Chinese) that they want to reduce advertising from about 75% in 2015 to around 33% in 2016.

Subscription prices are relatively low, from 15 RMB to 25 RMB per month. However, Vice President of iQiyi, Yang Xianghua, told Jiemian ( article in Chinese) the average revenue per user was 20 times more than revenue from advertising.

At the same time, advertising growth is slowing. According to QuestMobile ( report in Chinese), a mobile market research firm, monthly active users on Chinese mobile video apps reached 800 million in July of this year. With fewer new users, the growth of impression-based advertising revenue is set to flatten or decline.

At a media event last week, Yang Xianghua estimates that next year, major Chinese on-demand video sites will be able to generate more revenue from subscription than from advertising ( report in Chinese).
10% of Monthly Active Users are Paying
At CIAVC, Sun Zhonghuai, President of Tencent's Online Media Business, said that Tencent Video estimates paying users now account for 10% of the total active of online video and audio services in China.

Earlier this month, Youku-Tudou, the online video site of the Alibaba Group, announced it has 30 million paying subscribers. Tencent Video and iQiyi announced the 20 million user milestone last month and earlier in June, respectively.

According to a report by the EntGroup ( report in Chinese), the number of paying consumers for online video services in China has increased from 8 million in 2013 to 20 million in 2015. With this amazing growth, we can expect the total for 2016 to be another big increase.

Starting from the middle of 2015, iQiyi added a paywall for a selection of new releases. This strategy quadrupled their subscribers in just one year. Mgtv.com, the video site of China's leading TV broadcaster Hunan Broadcasting System, adopted the same strategy to sign up subscribers.

Youku-Tudou was able to sign up some 7 million subscribers from one campaign during the Chinese Spring Festival holiday earlier this year. Jointly run by Alipay, Alibaba's online payment service, both companies promoted the new subscriptions through their various services to amazing success.
No Slow Signs for Costs Growth
Paid subscription offerings have actually been available for a long time. However, there were quite a few limiting factors: 1) pirated digital content was abundant and users were reluctant to pay; 2) online payment services were not as widely used; 3) there was little differentiation in content or services between the different video sites.

Now we see that the first two problems are virtually non-existent with many users already converted into paying subscribers for differentiated content. However, this paid user acquisition comes at a cost; almost all Chinese video sites have been spending heavily on exclusive content.

LeTV was one of the first companies that made a fortune from purchasing TV show rights at low prices. However, they are now exploring a new model as those rights get more expensive. In an internal email earlier this month, Gao Fei, President of LeTV, disclosed that more than 70% of new releases in 2017 will be either self-produced or co-produced ( source in Chinese).

Other sites are also placing big bets on self-produced content as it's easier to control costs and have more ways to monetize such as selling adaptation rights or licensing rights to game developers. Tencent Video found the views of self-produced content as a percentage increased to 14% in August from 8% at the beginning of this year.

And as TechNode has discussed before, the traffic to these video sites is mainly driven by a small number of hits or new titles, but the costs to produce these shows keeps climbing. Sun Zhonghuai estimates that the user base is growing by 10% while views are growing by 50% to 100%. The costs, however, are growing by 200%, according to Sun. On top of that, of course, is also the marketing spends for those shows that are increasing as well.

But that hasn't stopped big companies, including Tencent, iQiyi, and Youku-Tudou's parent company, Alibaba, from establishing film and entertainment content companies to produce and distribute content not only for their own platforms but also to movie theaters or TV stations. The content and related rights will be their new revenue sources.
Image Credit: Shutterstock

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China's Online Video Market in the Middle of Transition

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China is set to reverse the course of history and again defy expectations. iQiyi, an on-demand video streaming service, expects their advertising revenue to account for only half of their total revenue for 2016. "iQiyi's total revenue for 2016 will be more than 10 billion RMB.