With Youtube banned and a string of obstacles to overcome before Netflix can enter the market, domestic video streaming sites are battling it out and the competition looks like it’s getting close. The next two years could make or break these giants, and the battleground is content.
Unlike how Youtube built its empire by fostering its own community of users, Chinese video streaming users have a range of platforms to choose from, and, with little incentive for loyalty, tend to move from platform to platform by following quality content.
A recent report from data analysis firm Talking Data says that out of the 1.28 billion mobile devices in China that they looked at, 1.09 billion, or over 85% of the devices, used video streaming services. According to Talking Data, the biggest players are iQiyi, downloaded by 29.1% of users on the Android platforms they looked at, Tencent Video, with 27.7%, and Youku, with 24.5%.
Others lag far behind, with Sohu Video, the next most widely used app, at 12.3%. These companies are competing to get the best of three types of content: professionally-generated content (PGC), which includes self-produced content and content bought from film and TV producers, and user-generated content (UGC).
Like most other sectors in the tech industry in China, the video streaming market is moving towards conglomeration by the three big giants Baidu, Alibaba and Tencent. iQiyi, which is owned by Baidu, is a paid-subscriber service that targets the middle-class with content like golf and tennis. Tencent leverages its considerable social media resources of WeChat and QQ Mobile to promote its video platform Tencent Video. Youku Tudou is the result of the merger of two of China’s oldest and formerly its biggest video streaming sites. It was bought by Alibaba this year for about USD 3.7 billion.
Backed by big money, the main way to get ahead for video streaming platforms right now is by establishing partnerships with content providers to get quality content, including foreign movies and TV shows that are not available in China. Chinese video streaming sites have signed exclusive content distribution deals with Hollywood producers like Paramount and 20th Century Fox to show films like The Martian, Star Wars and James Bond. With sports quickly becoming a high-demand entertainment sector in China, deals are being made for exclusive broadcasts. Sites are hoping to establish a paid-subscriber base to charge for this content as well.
Another way for video streaming sites to ensure that they are providing quality content for their viewers is to produce it themselves, like Netflix is doing. Providing exclusive content also ensures user loyalty to their platforms.
The success of iQiyi’s original TV series Notes of Tomb Raiders, which received 2.4 billion views over the summer, indicated a profitable model for video streaming sites. A whitepaper from entgroup, an entertainment big data research firm, indicated that, as of November 2015, Tencent, LeTV or LeEco, iQiyi, Youku Tudou and Sohu Video all made money from advertisements on their self-produced content, doubling their investment or more, except for Sohu, with the highest being Tencent Video, which earned almost triple what it invested.
Youku Tudou is changing its model from a service provider platform to building an ecosystem that revolves around video uploaders. In August, it changed its name to “Heyi”, entailing the integration of its platform and its content production into a complete ecosystem, to reflect this. Similar to Youtube, the company has set up a program to share ad revenue with channel managers. In the next three years, it plans to use RMB 10 billion (USD 1.5 billion) in cash and resources to support self-produced content and user generated content.
For Tencent, UGC comes in automatically through its WeChat channel, the most widely used mobile social network in China. Every video uploaded to public WeChat accounts must be uploaded on Tencent Video. As well, Tencent runs a Paike campaign on its site asking users to upload self-recorded news videos for money.
Market leader iQiyi is focusing on PGC and self-produced content rather than UGC. It plans to spend half of its annual budget buying or producing original TV and movies, with a commitment to buy or produce 40 new original shows in 2016.
With quality content becoming a key factor in getting ahead of the competition and the race to get paying subscribers heating up, video streaming platforms are all increasing activity in upstream production, becoming content providers rather than just platform service providers. This battle for content will shape China’s video streaming market and determine its dominant players.
*This article was changed on Apr. 13, 2016 to correct a mistake in wording.