Pay-to-play content gains acceptance

China's streaming websites convincing millions to outlay cash for exclusive, high-quality shows free of ads

In China, as pay-to-watch is becoming popular online, the days of free online entertainment supported by advertising may be numbered.

Chinese audiences are becoming accustomed to paying for a variety of membership packages offered by iQiyi, Youku Tudou Inc, Tencent Holdings Ltd and LeEco Holdings Ltd to watch popular dramas and other content online.

"The two barriers to paid online viewing - rampant piracy and lack of payment systems - no longer exist. The fee-based online viewing business has entered a phase of rapid development," says Yang Xianghua, senior vice-president of iQiyi.

In June 2015, iQiyi had 5 million paying users. By December, the number had doubled to 10 million, constituting 2 percent of total viewers.

It has grown since. By the end of March, iQiyi was targeting 60 million, or 10 percent of its current viewers, for pay services, according to Yang.

"So, we've made a large investment in technology and content. For example, we purchased a great number of high-quality films and TV dramas," Yang says.

According to a report by iResearch Consulting Group, the number of paying viewers last year soared 264 percent to 28.8 million, and it is expected to reach 54.4 million this year.

Revenue from online viewing memberships jumped from 1.39 billion yuan ($214.6 million; 188.7 million euros) in 2014 to 5.13 billion yuan in 2015, up 270 percent. The next couple of years will see continued rapid growth in revenues, which some predict will reach 18.79 billion yuan in 2018.

However, the penetration rate of paid users is still low, at 5.7 percent, suggesting the potential for development is huge.

It's huge because the quality and popularity of TV dramas, including foreign shows, have improved, bringing about a sharp rise in paying viewers in China. For instance, Descendants of the Sun, a South Korean TV drama, is attracting a huge number of Chinese eyeballs.

The 16-episode love drama between a United Nations peacekeeping troop captain and a volunteer doctor in a fictional war-torn country is now airing on iQiyi at 9 pm every Wednesday and Thursday, the same time it's on South Korea's KBS.

IQiyi claims there had been more than 1.2 billion views of the series by March 25. Its VIP membership is ad-free and two episodes ahead of free users. It is priced at 19.8 yuan per month, 58 yuan per quarter or 198 yuan per year.

South Korea's Yonhap News Agency reported the number of iQiyi's paying users rose by 50 percent to at least 15 million after the netcast began. This suggests the website's revenue may have received a boost of no less than 190 million yuan.

This is not the first time a hot TV drama increased online revenues. Last year, the series Grave Robbers' Chronicles, based on a best-selling series of novels, triggered a paid viewing craze.

It was viewed 160 million times and attracted 2.6 million new VIP member within five minutes of its premiered on July 3. According to iQiyi, its server crashed, unable to cope with the heavy online traffic.

Until October, iQiyi had a 56.4 percent share of the market, the largest share. It was followed by Youku Tudou and Tencent Video. IQiyi remains the market leader, according to a report by the China Netcasting Services Association and the China Internet Network Information Center.

The company says it will commit more than 50 percent of its investments this year to developing VIP memberships for online viewing. Income from membership is expected to surpass advertising revenue in the future, Yang says.

IQiyi also pulls in revenue from netcasts of films, self-produced drama series, live concerts, music video and documentaries.

Its digital library has more than 6,000 film titles, including domestic and overseas movies. In February, it formed a strategic cooperation agreement with international record company Universal Music. Its members can watch top live concerts and MTV shows from the United States, Europe and other parts of the world. They also can enjoy documentaries from the BBC and Discovery Channel.

"The 10 million VIP members help us to understand the change in the pay-to-watch market. This also means China's online culture and entertainment consumer market is at a turning point, where games, music, education, online reading and many other fields can seek an opportunity for development," Yang says.

Youku Tudou, another major online video site, has about 4 million members. It says it will invest 10 billion yuan to build its high-quality paid content, including offering more than 50 customized dramas to its VIP members.

Youku Tudou was acquired by Alibaba Group Holding Ltd in November.

"The post-1990 generation has a rising awareness of copyright and a strong willingness, ability and habit to pay for what they watch. The group has gradually become the mainstream of culture and entertainment consumers," says Wei Ming, co-president of Youku Tudou Business Group and general manager of Alibaba's digital entertainment business unit.

Netcast firms' VIP viewers will be given priority in watching overseas TV dramas, dozens of films produced by Alibaba Pictures, and sports events such as the National Football League and FIFA Club World Cup matches through cooperation with Alisports.

Wei says Youku Tudou will connect its VIP members with the diversified businesses of Alibaba. By compiling and analyzing data on online users' viewing behavior, the company plans to launch tailor-made services and products.

Feng Jun, a senior analyst at EntGroup Inc, a research center for the entertainment industry, says: "The market for paid users of streaming websites made a giant leap last year and will continue its rapid growth in the next two to three years.

"The online resources are limitless. We notice that some TV dramas that haven't been aired on TV channels were first played on video websites, which is a feast for viewers and a new commercial model for producers."

There is no doubt that high-quality content increases VIP membership, she says.

However, the market is still nascent. Its scale is relatively small compared with overseas video-streaming websites such as Netflix, from the United States, which boasts 74 million subscribers in 190 countries.

"Thankfully, the habit of paying for what they watch is now forming," Feng says. "We expect online content to be wide-ranging to satisfy different audience groups. There will be personalized, elaborate, value-added services as well."

fanfeifei@chinadaily.com.cn

(China Daily Africa Weekly 04/08/2016 page27)