The Economics of digital content
By Robert Andrews
Apr. 25, 2012
As China’s two online video leaders merge to improve their position in the fast-growing field, three of their rivals are also teaming up to fight back.
The Tencent and Sohu portals and Baidu’s iQiyi video service are collaborating to jointly license professional content. China Daily: “They will also share their existing content libraries and provide other mutual support.”
The leading Youku and Tudou have signed numerous licenses for western and domestic TV shows and movies for paid and ad-supported distribution over the last year, the latest being the announcement of CBS Studios’ Survivor and America’s Next Top Model for Youku this week.
That gives them a combined 35.5 percent market share (Q4 2011), according to Analysys’ EnfoDesk.
Neither Youku nor Tudou are profitable, as they bear the burden of improving China’s internet infrastructure to help deliver their video, as well as content costs.
China Daily: “The price of some popular TV shows surged to more than 1 million yuan ($158,560) per episode in 2011, from about 50,000 yuan to 80,000 yuan in 2009.
Tencent VP Liu Chunning (via China Daily): ”Irrational pricing and disorderly competition have made it hard for Chinese online video providers to make ends meet. Ad revenue hasn’t come close to covering the costs for the websites. (The alliance) offers economies of scale. It may bring order to the industry and push prices down.”
The market players have flirted with consolidation of various configurations in the psat.
Online video in China is growing fast. Revenue from the sector grew 48 percent in the Q3 2011 alone, to 1.48 billion RMB ($234 million), and was up 139 percent over the year, according to Analysys’ Enfodesk. Digital TV Research expects the Chinese online video market to grow from $50 million in 2010 to $1.38 billion in 2016.
But the future market opportunity is capped because web video is not licensed for distribution to television sets.