With the public listing of iQiyi on 28 March 2018, greater insights have been made available on the performance of video-on-demand (VOD) platforms in China. iQiyi and other market leading services’ quarterly earnings reports, which we are tracking via our Digital Media Index and Mobile Media Index, show considerable growth in digital video revenues (Exhibit 1).
Exhibit 1: Revenues for China's Top 3 VOD platforms, as reported (2018 is estimated)
Two indicators of such stellar growth of China’s online video market, as highlighted in Tencent’s Q1 2018 earnings report, include the number of paid subscriptions and mobile daily active users (DAUs) (Exhibit 2).
Exhibit 2: Mobile active usage and subscription metrics for key Chinese VOD platforms (2015-2017)
Subscription models for online video are quite new in China, with the first implementations emerging around 2015. They are however quickly representing an increasingly larger share of total video revenues, versus advertising. Subscription revenues stand at 42.95% of iQiyi’s video advertising and subscription revenues in Q1 2018, versus an average of 37.61% in 2017. Meanwhile, video accounts for the growing majority of growth in Tencent VAS subscriptions going from 8.5% of all subscriptions in 2015 to 42.6% as of Q1 2018 (62.6 Million). Lastly, CCNIC reports 42.9% of paying subscribers across the online video industry as of December 2017.
Strategy Analytics believes two main factors underpin this increasing growth in video consumption and willingness to pay of Chinese customers: i) the growth in availability of video-centric data plans removing users’ fear of running out of data and incurring expensive overage by streaming video, and ii) improvements in the quality and volume of original contents offered by the video platforms.
- Lifted barriers to video streaming over mobile networks: As per the CNNIC’s December 2017 report, China is predominantly a mobile-first market when it comes to video streaming, with 95% of online video being consumed on mobile (up 3 percentage points from December 2016). As such, initiatives taken by mobile operators, such as China Unicom with the “Tencent King Card Plan” zero-rating data over its cellular network as well as unlimited data plans introduced by the top 3 mobile operators from Q1 2017, have grown time spend, data consumption and ultimately consumer wallet spend. Strategy Analytics Service Providers service’s analysis showed that China Telecom and China Mobile’s unlimited data plans led to annual increases in data traffic of 123% in Q1 2017, 148% in Q2, and 166% in Q3, and China Unicom’s zero-rated King Card plan generated 20 Million subscriptions in 6 months. As mobile remains the main point of access and consumption, we expect telco partnerships with video services to become further drivers of growth in usage and subscriptions, as demonstrated in the case of India.
- Strength and depth of video content: Video service providers are seeing some return on the investments they have made in high-profile originals and acquired contents, with Chinese customers willing to pay a premium for quality, high-budget programming. For instance, iQiyi spent RMB549.4 Million ($88.4M) in original content production in Q1 2018, about 7.3% of its total content costs, which have increased by 104.1% between 2015 and 2017, up to RMB 7,541 Million ($1,185.7M). As a result, for instance, iQiyi’s blockbuster series “The Lost Tomb” released in 2015 generated over 100 Million views within 24 hours of release and 4 Billion views in total. The quality of such originals is also increasingly recognized by the industry, with foreign platforms and Chinese TV stations now broadcasting them – such as “With You” on Shenzhen Satellite TV and “Summer's Desire”, “My Huckleberry Friends”, and “The 200 Million Years Old Classmate” on CCTV. Such increasing success is reflected in iQiyi’s content distribution revenues which have grown 36% YoY as of Q1 2018, amounting to RMB 266.7 Million ($41.93M).
The success of Chinese VOD platforms in growing engagement and converting users into paying subscribers raises some critical questions which Strategy Analytics can help to address for companies targeting the digital video sector: