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Business trends

Chinese streaming services struggle to turn viewers into payers

Despite booming business, Alibaba's Youku Tudou and others are stuck in the red

A Lawson store which collaborated with Bilibili
A convenience store jointly operated by Bilibili and Japanese retailer Lawson is popular with the streaming service's customers. (Photo by Naoki Matsuda)

SHANGHAI -- Video streaming services in China are fighting for eyeballs as more Chinese have the money and leisure to spend on entertainment.

But despite booming demand, fierce competition and viewers who expect free content mean providers struggle to turn a profit. In addition to streaming from such household names as Alibaba Group Holding, Tencent Holdings, and Baidu, newcomers are joining the fray, drawn by the rising incomes of China's middle class.

A 26-year-old woman from Shanghai illustrates the trend. Video streaming is part of her evening routine after she comes home from work. "I rarely watch TV shows," she said. "Instead, I watch at least one drama or movie a day on Youku Tudou or other services." It is common to see people in the city watching videos on their smartphones.

Youku, which Alibaba bought in 2015, is expanding its library. It used Alibaba's deep pockets to buy the domestic broadcast rights for the 2018 World Cup in Russia, for example. It also announced a partnership with Japan's Fuji Television Network in July, seeing an opportunity to cash in on the popularity of Japanese TV programming in China. Youku will deliver the Fuji TV shows through its smartphone app.

Tencent Video, operated by Tencent, and Baidu's iQiyi have business models similar to U.S.-based Netflix, which makes its money streaming movies and TV dramas.

Video-sharing website Bilibili has gained a following with viewers born in the 1990s and afterward by offering a service similar to YouTube. Although the site pays for some content, including Japanese anime titles, 90% of its offerings are videos and livestreams posted by users. A 19-year-old university student in Shanghai said he checks Bilibili every day for livestreams of people playing his favorite smartphone games.

Bilibili operates a convenience store in Shanghai, together with Japanese retailer Lawson, which is packed with Bilibili viewers from across China. A university student dressed in costume was among the visitors to the store, located near Bilibili's headquarters. "I have been keen to come here, even once," the 18-year-old said.

Another popular Chinese video streaming platform is Douyin, known overseas as Tik Tok. Douyin specializes in 15-second videos created by amateurs. It is managed by Beijing Bytedance Technology, the owner of news aggregator Jinri Toutiao. Douyin has had an enormous impact on the restaurant industry. Videos on its platform have helped drive up sales at some restaurants.

But having a lot of viewers has not, thus far, translated into big profits. Alibaba's media business, including Youku Tudou, had sales of 19.5 billion yuan ($2.83 billion) in 2017, but it remains in the red. Bilibili also continues to lose money, posting a net loss of 120 million yuan for the January to March quarter of 2018, slightly worse than the previous quarter's loss of 119 million yuan.

For many years, people in China have had free access to pirated content posted by users, making it hard to persuade people to pay. The monthly subscription model is still rare; the idea that video should be available free of charge remains deeply entrenched. Bilibili was forced to remove advertising from streamed videos after complaints from users poured in.

The common challenge for streaming services is how to make the transition from a business model that prioritizes investment to one focused on profit.

Another headache is regulatory. Chinese authorities have warned Bilibili about "inappropriate" content, according to local media reports. The company has said it is "investigating and deleting videos" suspected of violating the law.

 

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