Online Video in China: WeTube, Not YouTube?



6th Annual Chinese Internet Research Conference

Hong Kong University
June ...
BDA: Telecom, Media & Technology (TMT)
                        Consulting & Research for Asia

•   BDA provides strategic ...
BDA forecasts China will exceed 1 billion mobile subscriptions
                            and 0.5 billion Internet subscr...
Broadband has become the major access technology in China;
                   wireless access is also becoming a new growt...
Chinese Internet users are increasingly hooked on broadband
                 applications such as online games, music and ...
Inspired by several waves of IPOs, venture capital has played
a key role in stimulating innovation in China’s communicatio...
For tech companies, one of the biggest attractions of China is
                    its appeal to Venture Capital firms. Ch...
Shanghai and Beijing now receive more Silicon Valley VC than
                    any other foreign locales




8
    Sourc...
Rapidly growing broadband infrastructure, plentiful capital and
                inspiration from Google’s acquisition of Y...
Financings of Selected Online Video Sites: USD 245
                      million invested in 8 Sites alone

Financings of ...
Online video business models:
                Video Sharing vs. Online TV

• Video Sharing
   – Users upload and view vide...
China’s online video industry has quickly grown to become a
                  mass medium


Company          Established  ...
December 2007: The Empire Strikes Back




•   Dec 27th 2007: MII and SARFT issue a joint statement that effective end
   ...
Reactions to the Dec 2007 measures


• Majority state-ownership: Expropriation?
   – 8 sites at that point had USD 190 mil...
February 2008: Government climb-down? Or change in
                 strategy?




•   On February 3rd MII and SARFT conven...
Since February 2008: Licenses to smaller players but not to
                 larger players, some of whom experience “serv...
Future for online video in China?


• Regulatory uncertainties will not go away
    – Traditional media such as state-owne...
Contact Details




duncan.clark@bdaconnect.com


Tel: +86 10 8529 6164

www.bdaconnect.com
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Bda Presentation On Video Sharing Sites Hku June 14th 2008

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Bda Presentation On Video Sharing Sites Hku June 14th 2008

  1. 1. Online Video in China: WeTube, Not YouTube? 6th Annual Chinese Internet Research Conference Hong Kong University June 14th 2008 Duncan Clark Chairman BDA China www.bdaconnect.com
  2. 2. BDA: Telecom, Media & Technology (TMT) Consulting & Research for Asia • BDA provides strategic consulting and research to leading TMT firms and financial institutions with a focus on emerging markets and new technologies in Asia. • The first independent TMT consultancy in China, established 1994. Team of over 50 in Beijing. • Active in India since 2004, office opened in 2006. Team of 10 in New Delhi. • BDA also tracks emerging markets in South East Asia, especially Vietnam. • BDA has dedicated analysts organized around three sector groups: Telecommunications Handsets/Devices Internet/New Media Equipment & Services www • BDA provides three types of services: – Strategy & market entry consulting projects – Investment advisory services – Ongoing research through retainer
  3. 3. BDA forecasts China will exceed 1 billion mobile subscriptions and 0.5 billion Internet subscriptions by 2013 Mobile, Fixed, Internet and Broadband Subscribers 5-year Million 2007 2012F CAGR 1000 900 547 965 12% 800 700 210 490 18% 600 500 400 281 264 -1% 300 200 70 150 16% 100 0 2007 2008F 2009F 2010F 2011F 2012F Mobile Internet PSTN Broadband Note: 1) The mobile subscriber figure is the number of active SIM cards; BDA estimates that unique users represent around 70% of this number. 2) Internet users are defined as unique, individual users accessing the internet via wireline and/or wireless networks. 3) Broadband subscribers refers to broadband service accounts, mostly held by households or enterprises, rather than individuals. Source: MII, CNNIC, BDA 3
  4. 4. Broadband has become the major access technology in China; wireless access is also becoming a new growth driver Internet Users By Different Types of Access (Million) 59 Wireless 17 Broadband 43 64 91 163 17 Dedicated Line 7 31 27 29 20 27 Dial up 12 54 59 45 51 27 39 23 2001 2002 2003 2004 2005 2006 2007 • Broadband has become the major type of internet access technology for users in China, taking over from dial-up. • Falling prices for broadband access coupled with the growing popularity of value added internet applications have been the key drivers of broadband adoption in China. Note: 1) Broadband refers to xDSL and cable modem, including dedicated line from 2007. 2) Wireless including handset and other technologies. Of the 55.8 million wireless access users, 50.4 million are using handset. 3) Respondents gave multiple answers Source: CNNIC
  5. 5. Chinese Internet users are increasingly hooked on broadband applications such as online games, music and video Survey of Most Frequently Used Internet Services Email 86% 57% Search Engine 65% 72% News Reading 62% 74% IM/Online Chat 43% 81% Online Gaming 16% Dec-04 59% Dec-07 Listen/Download Music 8% 87% Watch/Download 5% Video 77% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Source: BDA, CNNIC 5
  6. 6. Inspired by several waves of IPOs, venture capital has played a key role in stimulating innovation in China’s communications sector VC Internet Businesses MEDIA Media TELECOM Telecom
  7. 7. For tech companies, one of the biggest attractions of China is its appeal to Venture Capital firms. China is now the biggest recipient of Silicon Valley VC 7 Source: Joint Venture “Index of Silicon Valley 2007”
  8. 8. Shanghai and Beijing now receive more Silicon Valley VC than any other foreign locales 8 Source: Joint Venture “Index of Silicon Valley 2007”
  9. 9. Rapidly growing broadband infrastructure, plentiful capital and inspiration from Google’s acquisition of YouTube is driving China’s MeToo’s… • October 2006: USD 1.65 bn • Proliferation of Chinese YouTube acquisition by Google look-alikes
  10. 10. Financings of Selected Online Video Sites: USD 245 million invested in 8 Sites alone Financings of Selected Chinese Online Video Websites Name Year Value (USD MM) Investors 2006 10 Sequoia/Steamboat Ventures/SIG 56.com 2007 20 HIKARI Private Equity/SIG/Adobe Systems Incorporated/ CID/Sequoia/Steamboat Ventures 2006 0.5 Ceyuan Venture 2006 6.5 Ceyuan Venture/Transcosmos 2007 10 Draper Fisher Jurvetson (DFJ)/DT Capital 2005 0.8 Softbank China 2006 5 Softbank China/Bluerun 2007 21 DFJ 2005 1 Ceyuan Venture 2007 10 Ceyuan Venture/Ignition 2005 0.8 IDG 2006 8.5 IDG/Granite Global Ventures (GGV)/JAFCO 2007 20 Capital Today/General Catalyst Partners (GCP)/KTB 2008 57 IDG/GGV/GCP 2005 10 Sequoia/SIG 2007 23.5 DFJ/Highland Capital/Steamboat Ventures/Sequoia/SIG 2006 3 Farallon Capital/Chengwei Ventures 2006 12 Sutter Hill Ventures/Farallon Capital/Chengwei Ventures 2007 25 Sutter Hill Ventures/Farallon Capital/Chengwei Ventures/ Brookside Capital (an affiliate of Bain Capital)
  11. 11. Online video business models: Video Sharing vs. Online TV • Video Sharing – Users upload and view video clips, which are predominantly (although not exclusively) ‘home-made’ or User Generated Content (UGC), through an online platform. – These video sharing sites use streaming technology (users are not required to download an application before viewing videos) and with their short-format videos most closely mimic YouTube. • Online TV – These sites typically operate using Peer To Peer (“P2P”) technology (users are required to download a small application to their computer before viewing or sharing files) and feature mainly TV programs from terrestrial broadcasters. These programs include both live TV broadcasts carried online or video on demand (previously broadcast TV programs). Examples include PPLive, PPStream and UUsee. – While Chinese content is the dominant category featured by online TV websites, these sites also carry a significant amount of overseas programs, including popular shows from South Korea or hit TV shows from the US and UK. TV programs or films often features Chinese subtitles, broadening the appeal to the mass market. Sports events are also featured. The NBA has cooperated with UUSee for example in offering live games.
  12. 12. China’s online video industry has quickly grown to become a mass medium Company Established Registered Daily Video Daily Video Online Advertising Names Dates Users Views Uploads Revenues Tudou April, 2005 17 million 77 million 40,000 per day N/A Youku Dec, 2006 N/A 100 million N/A N/A 100,000 RMB 1 million 56.com April, 2005 25 Million 100 million per day per month • China’s online video market has grown within just two years from a niche user base of early enthusiasts into a mass-medium viewed by tens of millions of Internet users every day. • Tudou, Youku and 56.com are leading Chinese online video sharing sites. • Online video sharing sites are almost exclusively dependent on online advertising, but for most of them revenue is very limited. • Meanwhile the bandwidth costs are high for providing video services. Therefore capital support is critical to the online video companies. Source: BDA analysis, company information Note: data as of year-end 2007
  13. 13. December 2007: The Empire Strikes Back • Dec 27th 2007: MII and SARFT issue a joint statement that effective end January 2008 all online video/audio operators be majority state-owned. • The regulation pertains to the production, editing, and aggregation of audio and video content and dissemination to consumers over both the Internet and mobile networks. • In addition to majority state-ownership, sites must carry out a comprehensive censorship system and being funded by approved (“legal”) sources. • Video sites which transmit news content are required to obtain an additional “Internet News Information Service License” and sites broadcasting entertainment content such as talk shows, interviews or independently- produced online dramas or films would need a “Radio/TV Broadcasting Production License”.
  14. 14. Reactions to the Dec 2007 measures • Majority state-ownership: Expropriation? – 8 sites at that point had USD 190 million in foreign VC, valuing sites at several USD billion – would the State come up with the cash to own 51%? • Domestic media reaction – The Oriental Morning Post in Shanghai: “clearly an act of establishing administrative licensing” which constitutes a violation of Article 15 of China’s Administrative License Law – supposedly restricted in scope to areas as national security, public safety and the public interest. – An editorial in Southern Metropolis Daily: an “icy wind is cutting across the Internet as we enter the New Year”. • Industry reaction: – Predictably executives in the online video companies interviewed were more sanguine. Attempting to put a brave face on the regulations, a theme of “the move will be good for the industry” was common, and that this would help “clean up” the sector and “separate the large players” from the rest.
  15. 15. February 2008: Government climb-down? Or change in strategy? • On February 3rd MII and SARFT convened a joint press conference to address industry concerns including those expressed by the operators of the online video sites. • SARFT and MII effectively grandfathered the hundreds of existing players already in operation and instead stated that the new rules would apply only to new market entrants.
  16. 16. Since February 2008: Licenses to smaller players but not to larger players, some of whom experience “server outages” • Licenses issued to selected sites: April 2008 (23 licenses) and June 2008 • Sites apparently punished – for varying durations - by government - Offline for one day in March 2008 - Offline since June 3rd 2008 - May 2008: Sarft shuts down 8 smaller sites permanently for pornography, violence or content quot;harmful to social stability.quot;
  17. 17. Future for online video in China? • Regulatory uncertainties will not go away – Traditional media such as state-owned television broadcasters will use regulatory interventions to protect their position • Larger issue remains the lack of profitability – Server costs – Bandwidth costs – Advertising revenues are growing but not sufficient to cover costs – Will wireless revenues emerge? – Piracy remains a key driver for online video content
  18. 18. Contact Details duncan.clark@bdaconnect.com Tel: +86 10 8529 6164 www.bdaconnect.com

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