For OTT video service providers in South East Asia struggling to monetize their platforms, China may serve as a beacon of hope. China has a vibrant online video industry dominated by services belonging to the big three internet players Baidu, Ali Baba and Tencent (BAT). As video piracy is rampant in China, historically the business model for online video platforms has been advertising video on demand (AVOD). However, in the last few years, platforms have been able to drive meaningful growth in their paying viewer base through subscription video on demand (SVOD) services. This is important from a financial perspective as PCA estimates SVOD viewers generate 3-4 times the revenue that AVOD viewers do. As none of the BAT platforms are profitable to date despite monthly active AVOD viewers numbering in the hundreds of millions, a growing SVOD base is seen by many analysts as the path to profitability.
So what is driving SVOD growth in China? China’s SVOD growth is being driven by a confluence of direct and indirect factors. Specifically, these factors are:
1 - Online users are increasingly getting used to making payments on their phones
mCommerce has overtaken ecommerce in China, driven in part by the adoption of mobile payment platforms like WeChat Pay and AliPay. The mobile payments market size was estimated at RMB 16 trillion (~USD2.5 trillion) in Q1 2016. As Chinese consumers become more accustomed and able to pay for services on their mobile, they will be more open to paying for video services on their mobiles as well.
2 - Rise of original content production by online players
With three well-funded online video platforms and hundreds of other players in the market, competition in the space is high. Taking a page from the Netflix playbook, BAT have all prioritized original productions as a differentiator. Already, a number of originals like iQiyi’s “Notes of Tomb Raiders” have proven successful in driving views and consumers to pay for subscriptions.
3 - Anti-piracy measures by the government
Driven by BAT and other large domestic players’ new-found desire to protect IP rights (now that they produce their own IP at considerable cost), the Chinese government has launched anti-piracy campaigns to educate consumers combined with policies aimed at shutting down and/or fining pirated sites.
4 - Privileges for paid subscribers
Online platforms are offering viewers additional benefits to encourage them to become paid subscribers which include:
Access to HD videos
Earlier access to new content (weeks in advance)
Cross promotions on other platforms (BAT continuously promote their ecommerce and gaming related services)
5 - Improved network performance
Online video viewing is now a fluid experience in China thanks to faster internet connections on mobile and fixed line as China has seen an extensive roll out of 4G networks and significant increases in fixed broadband speeds. The improved quality has also come at affordable rates thanks to the government’s push to keep data prices low. For further information please contact us on firstname.lastname@example.org