China's Online Video Site Study

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


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

3

The Users


Chinese online video users will reach483 million account for around 69.3% of its total internet users

4

32

11

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


1 Background

Number of Buyers and Sellers

Barriers to Entry for New Firms

Vertical Integration


Number of Buyers and Sellers

Key Buyers and SellersContent sellers

Key video websites players

Users

TV stations

Content Production Firms

Program distributors

7


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

8

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



Barriers to Entry for New Firms 1. Capital Barriers

Minimum registered capital: 20 million

Capital intensive industry Concentrated market --> C4&C8 analysis

10


Barriers to Entry for New Firms 2. Technological Barriers

Technology-

Intensive

Industry

11


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》

12


Vertical Integration 1. Internal Integration

The Merger of Youku & Tudou in March 2012

An alliance between two giants

Competition absolutely NO.1

13


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”

14


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.

15

Conduct


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

17


Product Strategy Phases 1: Platform Provider (UGC) since 2005

Definition User Generated Content

<iResearch-China model UGC White book> 2013

18



Current Situation Tudou: first, 35%, 2005

Youku: 30-33%

Ku6: 2011.9

56net: Renren, 2011.9

Sohu, Sina, Tencent……

19



Strength a. Less cost pressure from legal drama

b. Avoid homogenization

20



Weakness a. Permanent advertiser problem b. Users’behavior problem c. Copyright problem

21


Product Strategy Phases 2: Buy Copyright (Exclusive Show) since 2009

Definition Online video companies

v.s.

TV stationFilmmaking companyContent company ……

22



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

23



Content focus of some online video corporation

24



Weakness

a. Cost > revenue

b. Gamble

c. Periodic issue

d. Homogenization

25



Weakness

d. Homogenization

group buying, 2012

Why do you choose these websites?

26


Product Strategy Phases 3: Original Program (transformative UGC) since 2009

Definition

27



Current Situation

a. Customers’habit

b. Revenue

28



Current Situation

Top 10 LeTV: 5Sohu TV: 3Youku: 1Tencent TV:1

29



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

”

30



Weakness a. Evaluation risk

b. Profitability?

c. Transformation of buying model?

31


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

32


Investment

Research

Vertical merger

New technology

Technology

Main Aspects

33


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?

34


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

35



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

36



Weakness a. Relation with length of ads

b. Three-party software

c. Online retailers: tangible flow

37



Opportunities

Current model:CPM (cost per thousand)

New model:Charging by effect

Small to medium-

sized corp.+

Online retailers

Location+

Time (golden period)

38


Pricing Conduct 2. Copyright Distribution Model

Definition

Video website

Copyright owners

Other video websites

39



Current Situation

Diluting cost

Reducing risk45.63%

36.54%

10.04%

7.74% 0.10%

LeTV 2013 Semi-Annual Revenue

AdvertisingCopyright DistributionViewer PaymentHardwareOthers

40



Weakness

Homogenization

41



Opportunities Exclusive strategy

Reducing

中國好聲音 3250million

爸爸去哪兒 2200million

我是歌手 2100million

42


Pricing Conduct 3. Viewer Payment Model

Definition User experience:

No-advertising

HD quality

……

43



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

44



Weakness Behavior habit

Copyright environment

Profit sharing model

45



Opportunities Stable revenue

Diversified business

Development risk

46


Pricing Conduct 4. Others

Hardware

Games

Others

47

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


49

Status Quo Main Performance Indicators

Performance Market Size

User Behavior

Advertising

Behavior

Main Performance Indicators of Online Video Companies


50

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

)


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)


52

Status Quo

Top three advertising sections almost occupied 50% of advertisement volume.

Main Performance Indicators 3. Adverting Behavior


53

Economic Efficiency Definition


Economic efficiency = Allocative Efficiency of Resources

54

Economic Efficiency Profit vs. Market Share?


“I’m not saying

that online video is not profitable. Our companies want market share better than profit at this point of time.

”

55

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


Youku Tudou Inc., became the first company achieved profitability in the whole online video industry.

Income diversification and cost control

56

Profit The Turning Point

It may be a turning point of gaining profit.


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


New Revenue Model 59


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.


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.


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


Imports and Exports Imports

Strictly censorship (even the TV series)

Localprotectionism

64


Imports and Exports Exports

Website itself hard to practice (even South Korea)

Easy for the content or the facility

65

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China's Online Video Site Study

Social Media

prediction2 structure

conduct1 background

online video sharing

sellers barriers

sellers buyers

internet video website

online video firm iqiyi

buy copyright