China Part Two: Video Platforms and Their Revenue Models

In the previous edition of this blog series we looked at China’s online video audience. A consumer-base with a huge appetite for content that entertains on the move, often on mobile devices. It’s an engaged audience, and given the country’s size, it’s also an enormous one.

To satisfy the video-munchies of China’s audience, a number of online video platforms serve up a rich mix of user-generated content, domestic TV shows and imported international shows and movies. In part two of our exploration of China’s online video landscape we’ll get to know who the big players are and how they make their money, while acknowledging the challenges they face in keeping up with a rapidly changing media landscape.

Who’s big in the game?

China has five or six ultra-competitive online video platforms duking it out for supremacy and the rapidly growing revenue the channel is generating.

China's online video platforms

Youku-Tudou, owned by ecommerce giant Alibaba, is the result of the 2012 merger of what were previously the #1 and #2 local video platforms. It’s content is largely user-generated, but it does have licensing deals with producers of series such as The Walking Dead.

Sohu Video, backed by the eponymous search engine and online gaming company, focuses on hugely successful domestic programs, with exclusive rights to The Voice of China, and distributes foreign content such as the US’ Breaking Bad and South Korea’s wildly popular TV dramas.

Tencent Video (v.qq.com), part of the Tencent family, which is the fifth-largest internet company in the world after Google, Amazon, Alibaba and Ebay, and the publisher of China’s #1 app - WeChat - has partnered with Warner Bros., Universal, Miramax Films and Lionsgate for its paid Hollywood VIP service.  

iQiqi is a video sharing platform launched in 2010 and now owned by Baidu, China’s biggest search engine. It has a broad range of video content, from sport to music, anime and over 200 imported TV shows. LeTV, an online video portal headquartered in Beijing, offers syndicated TV programs and movies, while PPTV is a peer-to-peer freeware service based on the cloud platform PPCLOUD. Videos are available to stream across a variety of devices, from PCs to smartphones and connected TVs.

As you can see, China has a rich video content ecosystem that features the usual YouTube-style user-generated content (Youku-Tudou), as well as premium local TV shows and imported international content. The content-hungry Chinese video consumers aren’t short of things to watch on their commute or relaxing at home.

As Zhu Xianyang, Head of Content at Youku-Tudou says:

"Hollywood TV content has got great stories, characters, performances and mature packaging and marketing, all of which work in the Chinese market."

However, the Chinese government is cracking down on the ease with which Youku-Tudou et al can license imported content, amid institutional concern at the influence of Western culture termed ‘cultural pollution’. This is driving the local video platforms to invest heavily in original content to attract viewers.

What’s the revenue model?

Given the enormous audiences China’s online video platforms have access to, they’re an irresistible draw for brand advertisers. Advertising accounts for 62.3% of all online video revenue, with subscriptions, content-licensing and value-added video services, which may include branded content, making up the rest.

62% of China's online video revenue is attributed to advertising

As with Western video entities, the most common advertising format is linear pre-/mid-/post-roll. On Youku-Tudou, the length of pre-roll ranges from 15 to 75 seconds proportional to the length and the popularity of the video.

As well as pre-roll, many of these platforms have implemented in-video overlay advertising in a similar style to YouTube’s Adsense for Video product and our very own overlay format. These formats, led by pre-roll, are the main drivers of video advertising revenue, with subscription models beginning to get some traction with certain platforms.

Growth in China's online video advertising

As you can see, over the last two years online video advertising revenue has increased dramatically, fuelled by increasing numbers of China’s population becoming connected to the internet via low-cost smartphones and tablets.

Looking to 2015 and beyond

Despite revenue being on the up, China’s huge domestic video platforms do face significant pressures. Profits in the short term can be low, due to the fierce competition for audiences’ time. With the Chinese government reducing the number of the wildly popular foreign shows and films allowed to be imported, the natural response is for China’s video platforms to mirror the move towards producing original content, which we’ve seen the likes of Amazon Prime Video and Netflix pursue with hit-series like House of Cards.

For companies like Amazon whose video services operate on a subscription model, original content is a unique-selling point that draws viewers to its paid service instead of competitors. With subscription models being not particularly prevalent in China, and numerous free platforms for consumption of premium content, investing heavily in this area is a risk.

Furthermore, China has a special copyright system that forces every video site to build out big, costly copyright procurement teams.

China’s online video market is only going to grow over the next few years, but real excitement will come from watching and being part of how it grows.

Next up: China’s online video advertising technology companies: the SSPs, ad networks, ad exchanges and DSPs.

Read Part One: The Chinese Video Consumer

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