CASBAA and CMM-I successfully held Online Video in China Forum in Beijing!
Please click on headline to read a summary of the event's findings!
“A projected 300 million Chinese viewers watching video online by the end of 2011 means that it is vitally important to identify the opportunities and hurdles that will affect business development in the future”, said Marcel Fenez, Chairman of CASBAA, in his speech at the CASBAA Online Video in China Forum held in Beijing on March 2, 2011.
With over 100 Chinese and foreign delegates and speakers in attendance, the forum, co-organized by CASBAA and CMM-I, provided a platform for industry leaders to discuss in depth the issues associated with the growing popularity of consuming online video in China.
If one is to draw one conclusion from the CASBAA Online Video in China Forum, it may be that foreign content owners need China’s online video market to succeed. Why? Because there exists only limited space for foreign programming on Chinese free TV. Because there exists no real pay TV market. And because there exists no real DVD market.
Forum attendants might now have gone on to lament on how regulation and piracy make access to the Chinese market difficult for foreign content owners. But rather than focus on the problems, forum speakers focused on the opportunity here: online video provides foreign content owners with a unique path to access Chinese audiences, a path that is often difficult to find in traditional media.
“Chinese online video sites are becoming increasingly sophisticated in terms of how they acquire both international and domestic licensed programs,” said CMM-I Managing Director Anke Redl. A variety of recent deals between online video sites and content owners underscores the veracity of this statement.
Today, an estimated 90 to 95 percent of Chinese online video sites’ revenues come from advertising. However, any ad-driven industry requires reliable customer data to be able to promise advertisers a return on their investment and sell ads. Due to the fact that such data is largely unavailable in China’s online video industry, and the resulting resistance among many Chinese marketers and their agencies to online video, even the most optimistic estimates claim that online video only managed to attract a tiny percentage of total media ad spend in China in 2010.
While Nielsen says it will tackle the lack-of-data-problem by establishing a panel of initially 50,000 Chinese households to measure online video consumer data, the sites themselves have tried to circumvent the problem of limited ad income by launching pay-to-view services as an alternative model to generate revenues. Youku, Tudou, LeTV, Sohu and others already launched premium services, where HD content as well as extremely popular and up-to-date fare is offered to users against subscription or pay-per-view fees.
Thus far however, this approach has proven to be only moderately successful due to two reasons: first, as Johannes Larcher, SVP International of Hulu, pointed out in his keynote speech at the CASBAA Online Video in China Forum, “it is difficult to make up for losses on the UGC side with yields on the premium side, both from a user experience and economic perspective”; second, as Sarah Zhang from Chinese Hulu-clone Baidu Qiyi explained, “it will take time and effort to educate especially younger Chinese generations to pay for content.”
Until more paying subscribers and advertisers jump aboard, China’s online video sites must find alternative ways to finance necessary investments into content acquisition, expansion onto mobile platforms, as well as broadband telecommunications expenses. The result has been a true IPO fever that currently embraces large parts of China’s online video industry and excites international investors’ imagination.
After Ku6 had become China’s first video site to list on NASDAQ in June 2009, Youku’s listing on the New York Stock Exchange followed on December 8, 2010, when the company raised US$203 million and the company’s 161 percent rise became the biggest first-day gain for a US IPO in five years. Tudou’s IPO in the US is expected to take place in 2011. On August 12, 2010, LeTV had become the first video site to list on China’s domestic stock market.
But how thoroughly did investors assess the risk of their investment into China’s online video sites? If one takes a moderately close look at the content online video sites are offering, it is certain that most if not all of the sites would be found in violation of regulations requiring that sites show only films and programs that China’s State Administration for Radio, Film and Television has approved for domestic distribution and broadcast. In practice these regulations have been ignored, and sites continue to host content that has not secured prior permission to be carried on broadcast or any other networks in China. Regulators might also find, or simply declare, that because a growing number of Chinese online video sites are serving the function of – and acting as a substitute for – broadcast television, online video sites have become de facto online television stations, which would then be subject to all of the laws pertaining to television broadcast. If online video were ultimately to be regulated like television, this might, at least to a certain extent, diminish online video sites’ popularity, threaten private online video sites’ very existence, and put investors at risk.
However, as one speaker at the CASBAA Online Video in China Forum stated, if regulations are too clear in an emerging economy and industry, they may hamstring development. Analysts therefore expect new regulation to not kick in for a while to come, although they do advise online video sites to commit to a certain amount of self-regulation in order to not provoke official regulatory action.
International copyright owners are advised to capitalize on the opportunities today’s market holds. In this process, they may even help China’s online video industry to overcome some of the challenges it faces. For example, domestic online video sites with pay-to-view services hope for a larger amount of foreign copyright holders to sell day-to-date webcast rights for the Mainland Chinese market, something many international distributors are still reluctant to do.
This creates a dilemma for both sides: Chinese audiences want to see the content, but turn to pirated versions due to a lack of legitimate alternatives. When the international party finally sells the webcast rights into China, it is often too late to generate significant traffic as Chinese audiences have already watched the pirated version for free. This skepticism in trading webcast rights to Chinese online video sites may have its historical reasons, but also straps both content owners and online video sites from the chances to generate revenues and provide Chinese consumers with a legitimate alternative to piracy.
For comprehensive information about China's Online Video Industry, please refer to our report on China's Online Video Sites.
For information on how CMM-I helps international content owners distribute their content into China, please visit our Reference Consulting Projects page or contact our Research Director Kristian Kender at kristian(at)cmmintelligence(dot)com.