China’s Online Video Biz to Grow in Size and Sophistication

Chinese platforms will also invest more in in-house created content.

China's Online Video Biz Grow Size

China’s online video firms are likely to become more like powerful mainstream media as advertising and subscription continue to grow. The platforms will also become greater producers of content.

A seminar at FilMart in Hong Kong on Monday (March 24) heard that ad revenues at China’s online video giants are likely to overtake those of conventional TV broadcasters in the next six or seven years.

The online video sector in China earned advertising revenues of more than RMB10 billion ($1.61 billion) last year, and it’s projected to grow by a further 40% in 2014.

“Advertisers are now shifting a significant portion of their budgets to the online video sector, which they see as a good promotional platform that can replace TV,” said Gong Yu, founder and CEO of Qiyi.

“In the past, advertisers only turned to the online world when they had some budget left over after having spending on TV, or when they realized their ads could not reach all of China’s regions. Today, increasingly, online media is regarded as an independent advertising platform. This helps to generate resources for online media outlets to invest in their own production.”

Allen Zhu, senior VP of Youku Tudou, who also spoke at the conference, said that his company, China’s biggest video website, will this year invest RMB300 million ($48 million) in creating its own content this year. This includes travel and entertainment shows.

“We will invest in the kind of content that our users want to see, and I believe more and more resources will gradually be devoted to this area,” Zhu said. “In the future, in-house produced content will be the core factor supporting the growth of websites.”

Meanwhile, payments by online users, the second-biggest source of revenue for the online video firms, are also growing rapidly. Gong said that user payment growth outstripped the expansion of advertising revenue in the second half of 2013.

“Over the past three years, more than five million online users in China have paid to watch films online. Things are continuing to grow at a rate of something between 300% to 500%. One day, this could catch up with advertising income.”

Gong, however, warned filmmakers against relying on sales revenues from online media. “The amount of money people spend on online film watching is still relatively small. Film investors are not going to enjoy sufficient returns from video sites and still have to rely on box office takings,” he said.

One problem, according to Gong, has to do with the difficulty of making online payments for subscriptions in China. “Compared with North America, it is a real hassle to make online payment in China. Chinese banks do not authorize commercial websites to make automatically recurring monthly charges. So users have to take the initiative to make payments every month. This is a big disincentive,” Gong said.

Online video piracy has shrunk, but also evolved.

“This is a problem that has come under control in recent years, with big websites guilty of intellectual property rights infringement having been punished by law,” said Gong. “But piracy is still rampant among small websites and this poses a big challenge to the government. Nonetheless, we believe there will be further measures to curb the problem in the coming few years.”