Post on 29-May-2015
Analysis and Forecast of Online Video Industry in China
LEE Ki Kei 1155037783GONG Jiaolei 1155037583XUAN Muyun 1155037643
YANG Yanwen 1155039321ZHANG Yuemiao 1155037586
5 Prediction2 Structure 3 Conduct 4 Performance
1 Background
Background
5 Prediction2 Structure 3 Conduct 4 Performance
1 Background
The Classification
The Users
Chinese-style Copyright
Market
5 Prediction2 Structure 3 Conduct 4 Performance1 Background
The Classification
A: The online video sharing and web portal
C: The leading video live website
B: The leading P2P player platform
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The Users
5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Chinese online video users will reach483 million account for around 69.3% of its total internet users
4
32
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2
3
Decentralization of Copyrighted Material
Soaring Price of Legitimated Material
Remains of the Hotbed for Pirates
Chinese-style Copyright Market
2 Structure 3 Conduct 4 Performance1 Background 5 Prediction
5
Structure
5 Prediction2 Structure 3 Conduct 4 Performance
1 Background
Number of Buyers and Sellers
Barriers to Entry for New Firms
Vertical Integration
5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Number of Buyers and Sellers
Key Buyers and SellersContent sellers
Key video websites players
Users
TV stations
Content Production Firms
Program distributors
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5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Number of Buyers and Sellers Buyers
In November 2013, around 8 million monthly covered users.
57%
43%
users of online video webpages
users of online video PC client
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Number of Buyers and Sellers Sellers
Key video websites players
Youk
u Tu
dou
Sohu
Tenc
ent
iQiy
i
LeTV
PPTV0
50,000,000
100,000,000
150,000,000
200,000,000
250,000,000
300,000,000
350,000,000
Top Most-Popular Chinese Video Website
Unique Monthly Vis...
9
5 Prediction2 Structure 3 Conduct 4 Performance1 Background
5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Barriers to Entry for New Firms 1. Capital Barriers
Minimum registered capital: 20 million
Capital intensive industry Concentrated market --> C4&C8 analysis
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5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Barriers to Entry for New Firms 2. Technological Barriers
Technology-
Intensive
Industry
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5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Barriers to Entry for New Firms 3. Governmental Regulations Barriers
Required license authorized by central government
Audio Video Service Permission by SARFT
Internet Culture Operation License by MCT
Internet Content Provider License by MIIT
《增值电信业务经营许可证》
《跨地区增值电信业务经营许可证》
《短消息服务接入代码使用证书》
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5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Vertical Integration 1. Internal Integration
The Merger of Youku & Tudou in March 2012
An alliance between two giants
Competition absolutely NO.1
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5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Vertical Integration 2. Integration of Industry Chain
The Merger of LeTV and Huaerin March 2014
LeTV: Internet video website
Huaer: a TV series production company, which is famous for its sensational drama “The Legend of Zhen Huan”
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5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Vertical Integration 3. Cross Industry Integration
In Nov 2012, Baidu acquired dominant stake in online video firm iQiyi, buys out ex-Hulu investor Providence.
SDO game bought Ku6.
Renren, a social network website, bought the online stream website 56.
SUNING, a private owned retailing company, bought pptv.
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Conduct
5 Prediction2 Structure 3 Conduct 4 Performance
1 Background
Product Strategy
Investment
Pricing Model
Product Strategy Four Phases
2005
• Platform provider
2009
• Buy copyright
2009
• Original program
2012
• Hardware
？Future
• ？
2 Structure 3 Conduct1 Background 5 Prediction4 Performance
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5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Product Strategy Phases 1: Platform Provider (UGC) since 2005
Definition User Generated Content
<iResearch-China model UGC White book> 2013
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5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Product Strategy Phases 1: Platform Provider (UGC) since 2005
Current Situation Tudou: first, 35%, 2005
Youku: 30-33%
Ku6: 2011.9
56net: Renren, 2011.9
Sohu, Sina, Tencent……
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5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Product Strategy Phases 1: Platform Provider (UGC) since 2005
Strength a. Less cost pressure from legal drama
b. Avoid homogenization
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5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Product Strategy Phases 1: Platform Provider (UGC) since 2005
Weakness a. Permanent advertiser problem b. Users’behavior problem c. Copyright problem
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5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Product Strategy Phases 2: Buy Copyright (Exclusive Show) since 2009
Definition Online video companies
v.s.
TV stationFilmmaking companyContent company ……
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5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Product Strategy Phases 2: Buy Copyright (Exclusive Show) since 2009
Current Situation 3.7 billion
<EntGroup consulting: copyright of online video white book > 2013.9
中國好聲音 3250million
爸爸去哪兒 2200million
我是歌手 2100million
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5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Product Strategy Phases 2: Buy Copyright (Exclusive Show) since 2009
Content focus of some online video corporation
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5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Product Strategy Phases 2: Buy Copyright (Exclusive Show) since 2009
Weakness
a. Cost > revenue
b. Gamble
c. Periodic issue
d. Homogenization
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5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Product Strategy Phases 2: Buy Copyright (Exclusive Show) since 2009
Weakness
d. Homogenization
group buying, 2012
Why do you choose these websites?
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5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Product Strategy Phases 3: Original Program (transformative UGC) since 2009
Definition
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5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Product Strategy Phases 3: Original Program (transformative UGC) since 2009
Current Situation
a. Customers’habit
b. Revenue
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5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Product Strategy Phases 3: Original Program (transformative UGC) since 2009
Current Situation
Top 10 LeTV: 5Sohu TV: 3Youku: 1Tencent TV:1
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5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Product Strategy Phases 3: Original Program (transformative UGC) since 2009
Strength a. Low cost, more profit
b. Flexible schedule
c. Fast spreading
d. Customization and interaction
“Excellent
original drama/programs may attract ten times the flow of copyright drama.
--- Gao Fei, President of LeTV
”
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5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Product Strategy Phases 3: Original Program (transformative UGC) since 2009
Weakness a. Evaluation risk
b. Profitability?
c. Transformation of buying model?
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5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Product Strategy Phases 4: Hardware (Internet TV) since 2012
Definition Self-making
Co-operated with hardware companies
Other companies fromInternet Companies(threatens)
Other companies
initiated
self-producation
o-operated with
hardware company
Ai qiyi TCL Internet TV
Ailibaba Skyworth CooCaaTV
Xiaomi
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5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Investment
Research
Vertical merger
New technology
Technology
Main Aspects
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5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Pricing Conduct
2010 2011 2012 2013e 2014e 2015e 2016e 2017e0%
10%20%30%40%50%60%70%80%90%
100%
Others
Viewer Payment
Copyright Dis-tribution
Advertising
<iResearch-China video website white book> 2013
2010-2017 China’s Online Video Industry Revenue Constitute
Where does the money come from?
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5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Pricing Conduct 1. Advertising Model
Definition video site
ads
video-frame ads
pre-video ads pause ads coner sign
ads
product logo ads seed ads rich
media ads
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5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Pricing Conduct 1. Advertising Model
Current Situation
96.2 billion
46.8%
2010 2011 2012 2013e 2014e 2015e 2016e 2017e0
50
100
150
200
250
300
21.542.5
65.5
92.5
135.2
180.3
229.4
282.2
2010-2017 China’s Online Video Industry Advertis-ing Revenue Unit: RMB
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5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Pricing Conduct 1. Advertising Model
Weakness a. Relation with length of ads
b. Three-party software
c. Online retailers: tangible flow
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5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Pricing Conduct 1. Advertising Model
Opportunities
Current model:CPM (cost per thousand)
New model:Charging by effect
Small to medium-
sized corp.+
Online retailers
Location+
Time (golden period)
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5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Pricing Conduct 2. Copyright Distribution Model
Definition
Video website
Copyright owners
Other video websites
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5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Pricing Conduct 2. Copyright Distribution Model
Current Situation
Diluting cost
Reducing risk45.63%
36.54%
10.04%
7.74% 0.10%
LeTV 2013 Semi-Annual Revenue
AdvertisingCopyright DistributionViewer PaymentHardwareOthers
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5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Pricing Conduct 2. Copyright Distribution Model
Weakness
Homogenization
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5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Pricing Conduct 2. Copyright Distribution Model
Opportunities Exclusive strategy
Reducing
中國好聲音 3250million
爸爸去哪兒 2200million
我是歌手 2100million
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5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Pricing Conduct 3. Viewer Payment Model
Definition User experience:
No-advertising
HD quality
……
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5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Pricing Conduct 3. Viewer Payment Model
Current Situation
Membership subscription
Video on demand
Site Year Membership Subscription Feeactivity price (original price)RMB/month
Video on Demand
RMB/month
Joy 2008 30 3
PPS 2009 4.99 (15) 5
leTV 2010 24 (40) 5-10
Youku 2010 20 (39) 5
Sohu 2011 9.9 (30) 5
iQiyi 2011 4.99 (15) 3
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5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Pricing Conduct 3. Viewer Payment Model
Weakness Behavior habit
Copyright environment
Profit sharing model
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5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Pricing Conduct 3. Viewer Payment Model
Opportunities Stable revenue
Diversified business
Development risk
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5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Pricing Conduct 4. Others
Hardware
Games
Others
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Performance
5 Prediction2 Structure 3 Conduct 4 Performance
1 Background
Status Quo
Economic Efficiency
Profit
Status Quo
Online video service is not a main profitable section within the whole PC Internet industry in China.
97%
3%
Revenue of China PC Internet Industry in 2013
Others Online Video
Performance in Internet Industry
2 Structure 3 Conduct 4 Performance1 Background 5 Prediction
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Status Quo Main Performance Indicators
Performance Market Size
User Behavior
Advertising
Behavior
Main Performance Indicators of Online Video Companies
2 Structure 3 Conduct 4 Performance1 Background 5 Prediction
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Status Quo
Total revenue reached 12.8 billion Yuan in 2013. Still has large potential value-added space.
Main Performance Indicators 1. Market Size
2010 2011 2012 2013 2010 2011 2012 2013
Revenues(bn Yuan)
3.1 6.3 9 12.8
%YoY growth rate
0.781 1.001 0.439 0.419
1
5
9
13
Revenue of China Online Video Industry
Re
ve
nu
es (
bn
Yu
an
)
2 Structure 3 Conduct 4 Performance1 Background 5 Prediction
51
Status Quo
Online video service occupies
people huge amount of time with small market share.
Main Performance Indicators 2. User Behavior
Online video m
edia
SNS service
C2C platform
Online TV
Online nevigation
Literature
Online se
arch se
rvice
B2C shopping
Page games
Community0
50100150200250300350400
358
51 35 31 28 27 24 23 22 22
Monthly Active Time in January 2014
Monthly active time (million hours)
2 Structure 3 Conduct 4 Performance1 Background 5 Prediction
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Status Quo
Top three advertising sections almost occupied 50% of advertisement volume.
Main Performance Indicators 3. Adverting Behavior
2 Structure 3 Conduct 4 Performance1 Background 5 Prediction
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Economic Efficiency Definition
2 Structure 3 Conduct 4 Performance1 Background 5 Prediction
Economic efficiency = Allocative Efficiency of Resources
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Economic Efficiency Profit vs. Market Share?
2 Structure 3 Conduct 4 Performance1 Background 5 Prediction
“I’m not saying
that online video is not profitable. Our companies want market share better than profit at this point of time.
”
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Profit The Milestone of Achieving Profitability
Non-GAAP Net (Loss) Profit (Thousand) For the Three Months Ended
December 31, 2012 (RMB)
December 31, 2013(RMB)
Net loss (113,570) (24,581)
Add back: share-based compensation 38,779 53,061
Add back: business combination related expenses
127 -
Add back: amortization of intangible assets from business combination
12,411 15,723
Non-GAAP net (loss) profit (62,253) 44,203
2 Structure 3 Conduct 4 Performance1 Background 5 Prediction
Youku Tudou Inc., became the first company achieved profitability in the whole online video industry.
Income diversification and cost control
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Profit The Turning Point
It may be a turning point of gaining profit.
2 Structure 3 Conduct 4 Performance1 Background 5 Prediction
57
Prediction
4 Performance
2 Structure 3 Conduct 5 Prediction1 Background
New Revenue Model
More Integration
Imports and Exports
Subscription ModelCorporation Based on
Original Program Hardware Trend
5 Prediction2 Structure 3 Conduct 4 Performance1 Background
New Revenue Model 59
5 Prediction2 Structure 3 Conduct 4 Performance1 Background
New Revenue Model Corporation Based on Original Program
More business model can be launched through original program-Cooperation with brand（ Soft implants）
For example: Miss. Paofu & Birdnest
采购内容 自制内容
60
More mergers and acquisition.
Be more likely happened cross industries.
5 Prediction2 Structure 3 Conduct 4 Performance1 Background
More Integration 61
1
2
3
4
1
2
3
4
Acquisition an existing one is far easier to start one from zero.
To obtain the newest technologies.
To go public.
To expand market share.
5 Prediction2 Structure 3 Conduct 4 Performance1 Background
More Integration Reason 62
Is there any chance for foreign online video websites to enter Chinese market? Or maybe the mainland’s to go globally?
Exports? Import? China
Imports and Exports 63
5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Imports and Exports Imports
Strictly censorship (even the TV series)
Localprotectionism
64
5 Prediction2 Structure 3 Conduct 4 Performance1 Background
Imports and Exports Exports
Website itself hard to practice (even South Korea)
Easy for the content or the facility
65
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