The market is projected to double in just a few years but there’s no sure bet on how to capture it. Internet consultancy IResearch forecasts that online video on the mainland will probably be worth 17.8 billion yuan (US$2.86 billion) this year and reach 36.6 billion yuan in 2017.
It’s a tempting business but video providers are still struggling to make it all sustainable; they’re grappling with how to attract and keep users who increasingly go online for movies, music and TV shows.
To that end, some internet firms have responded in one of two ways: by producing more inhouse content or by selling dedicated hardware.
Those venturing into original content are offering everything from micro-movies to web drama series and feature films. One of the major issues is learning to appeal to a changing audience. Time was that the main viewers of online video were white-collar workers and students who watched content on their computers. Today, more people are using smartphones to catch up on shows, thanks to the government’s aggressive 3G and 4G mobile network rollout as well as cheap mobile service fees.
Video site Youku Tudou (YOKU.US) is one of the companies taking this tack. It’s developing programs to target the growing number of consumers in second- and third-tier cities and migrant workers from the interior, who use smartphones to watch videos. It’s leveraging big data analysis to observe audience behaviour and then decide their content investment strategy.
The company is also adding series from South Korea, Hong Kong and Hollywood to maintain its content offerings for existing urban users.
By offering more inhouse content, Youku should be able to boost its revenue from content licensing revenue as well as advertising. Youku’s hit On The Road travel show was sold to China Central Television, opening up a new revenue stream for the video site.
Youku does seem to be on the right track to profitability. In the years since it started making inhouse content, it narrowed its net losses in overall operations by 78 percent to US$4 million in the fourth quarter of last year. But it will still take time for the company to break even.
Le Vision Pictures, a unit of online video platform LeTV (300104.CN), is also pushing into content production. The company hired former Enlight Pictures chief Zhang Zhao last year to head up a new feature film division and Zhang Yimou, one of China’s best-known film makers, as artistic director. The company wants to get deeper into the film business and expand its international connections.
LeTV is also leading the internet video player in launching its own hardware to distribute its content. The company unveiled its LeTV Box and LeTV SuperTV last year to positive consumer response. According to a LeTV earnings release, the company sold 1.2 million units last year, of which, 300,000 were LeTV SuperTVs and 900,000 were LeTV Boxes. It also said advertising revenue doubled to 839 million yuan, thanks to its 26 million average daily unique visitors.
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