Government restrictions in China have stymied attempts by Netflix and Amazon to launch subscription streaming video service in the erstwhile Communist country with nearly 1.4 billion people.
As a result, new data from Ampere Analytics found that three domestic Chinese SVOD platforms iQIYI (backed by Baidu), Youku-Tudou (backed by Alibaba), and Tencent Video (backed by Tencent) now represent three of the top-five SVOD services globally by subscribers.
Historically, Chinese SVOD services were different to Netflix by focusing on ad-revenue. In recent years there has been a shift toward ad-free SVOD. By the end of 2018, the three leading Chinese streamers generated $8 billion of revenue — compared to Netflix’ $18 billion.
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By investing heavily in content, the three SVOD services have optimized their revenue composition. Between 2011-2018, iQIYI’s content costs grew by 140%, according to Ampere.
Subscription income was just 4% of total revenue back in 2011; by 2018, it had ballooned to more than 50% of its total revenue. Paid subscribers have privileged access to more exclusive content than the free-tier subscribers.
Investments in content have enabled the Chinese SVOD services to build large content catalogs. Youku-Tudou leads with 13,000 titles, followed by iQIYI at 10,000, and Tencent Video at 7000.
Catalog size is the main point of differentiation as the platforms offer a similar wide-range of content across TV series, movies and reality shows aimed at a mass-market audience.
Service stacking is common, as a result of the original and exclusive content on offer. iQIYI offers 250 original and 1000 exclusive titles, while Tencent Video has 330 original and 1400 exclusive titles.
Ampere says 44% of Chinese Internet users subscribe to two or three services, and 16% to all three. So, while the demographic targeting by the three giants may be consistent, the differentiation happens at the point of delivery through the content offered.
The report expects the continued growth of Chinese SVOD by the big three players as they continue to be buoyed by significant financial backing.
This has enabled iQIYI, Youku-Tudou and Tencent Video to expand rapidly, in addition to exclude smaller local players from entering the marketplace. The domination is further secured by the strict regulatory environment in China, which prevents international players such as Google operating there.
“We expect the big three SVOD players in China to continue growing and reach 340 million subscriptions and $12.6 billion in total revenue by the end of 2024,” analyst Orina Zhao said in a statement. “Investing heavily in content will continue as the main strategy to drive subscriptions and increase user retention.”