Can the popular paid membership model of online dramas break the curse of loss-making video websites?

After popular online dramas such as "Descendants of the Sun" and "Grave Robbers' Chronicles" were broadcast, video websites not only reaped huge amounts of advertising revenue, but also gained a large number of paying members. As many video websites announced that the number of paying members had reached tens of millions, everyone was convinced that the pay trend had arrived. However, profitability seemed to be still a long way off.

On June 15, Gong Yu , founder and CEO of iQiyi, told a reporter from China Business News that the number of iQiyi's effective VIP members (paying users) has exceeded 20 million. As one of the three largest video websites in China and the largest paid video website in China, iQiyi has achieved a four-fold increase in the number of paid members in one year. Gong Yu believes that the membership scale has exceeded 20 million, proving that high-quality, differentiated video membership services have become a rigid demand of Chinese netizens, and the market has exploded.

For many years, video websites have been in a loss-making state due to high copyright fees. Can the paid model break the deadlock?

Explosion of paying users

According to iResearch's 2015 China Online Video User Payment Market Research Report, the scale of China's online video market exceeded 40 billion in 2015, and the number of paying users achieved explosive growth, reaching 28.841 million. At present, the penetration rate of paying users among the overall online video users is still low, and the user payment market has great development potential. However, in just half a year, the number of users of iQiyi alone increased by more than 10 million.

The number of paying users of several top-ranked video websites, such as Tencent Video, Youku Tudou, and LeTV, has grown rapidly. When the reporter of China Business News asked the publicity personnel of the above video websites for specific data, they all said that there was no official user data. An unnamed person in charge of LeTV revealed that, except for iQiyi, the number of paying users of Tencent Video, Youku Tudou, and LeTV all exceeded 10 million, and the growth of paying users far exceeded expectations.

iResearch's report pointed out that, in general, video websites have three major characteristics: First, the video user payment market has achieved substantial growth driven by various video companies, and the number of paying users has increased significantly; second, video advertising has begun to be productized, and various video companies have launched different types of innovative marketing products, targeting the different needs of advertisers and targeting different user groups, and achieving the accuracy and innovation of video advertising based on big data, which has led to new growth in video advertising; third, the food industry's pursuit of excellence in content, IP strategy and content operation, as well as the promotion of self-production of content, have given video content more room for profit imagination.

Gong Yu revealed to reporters: "Five years ago, I told my friends that I didn't believe the payment model for video content was feasible. I didn't expect that in recent years I would become the most determined promoter of the payment model for video." So, how do video sites like iQiyi drive the rapid growth of paying users?

iQIYI has been experimenting with and exploring video membership services since 2011. Over the past five years, iQIYI has seized the expansion of membership content demands from movies, documentaries to dramas, live concerts, and the overlap of cross-domain membership service demands from video viewing to movie tickets, reading, social networking, e-commerce, and other fields, and has rapidly developed membership content types, innovated broadcasting models, and expanded service areas.

Profits won’t be too far away?

Although the number of paying users of video websites has grown rapidly, the losses of video websites are still staggering.

The seemingly prosperous video website industry is actually always in a state of losing money. Recently, Baidu ’s 2015 annual report revealed that iQiyi lost 2.38 billion yuan in 2015. Youku Tudou, Tencent Video, etc. have also been in a state of loss.

In fact, video websites have been losing money for more than a decade. The main reason for the loss is that copyright costs are too high, and advertising-based revenue is not enough to offset the high copyright costs. Take iQiyi as an example. Baidu's financial report shows that iQiyi's costs and expenses increased significantly in 2015 compared with 2014 because its content costs increased by 136%, broadband costs increased by 80.5%, and marketing and promotion costs increased by 79.8%. iQiyi's losses are mostly due to copyright expenses.

In order to reduce cost pressure, in recent years, paid streaming has become a model that video websites have been pushing hard. However, at present, the income generated by the paid streaming model is approaching the high cost expenditure. Take iQiyi as an example. Even if there are currently 20 million paid members, according to a rough estimate of 180 yuan per member per year, iQiyi's annual membership income can reach 3.6 billion yuan. iQiyi's costs and expenses in 2015 reached 7.67 billion yuan, an increase of 92.8% from 3.983 billion yuan in 2014. The paid streaming model has gradually become popular.

In addition, video websites are also trying to reduce copyright costs through methods such as self-made content, advertising profit-sharing models, and derivative product sales. So, can we say that video websites are close to profitability?

Chen Shaofeng, deputy director of the Peking University Cultural Industry Research Institute, believes that "as long as video websites have good content and do not become portal websites (portal video websites), they will soon be profitable. I think there is definitely a lot of room for paying users (they can overlap), and the key lies in the content; payment is estimated to be one of the main profit points in the future (accounting for about half of the revenue), including membership payment and single payment. Portal video websites buy too much and too diverse content, and consume too much purchase and click traffic."

Chen Shaofeng said that if good content can drive payment, the user base will grow steadily. Currently, major video websites are gradually giving up on being video portals, so the proportion of self-produced dramas and online movies is growing rapidly. It has been proven that portals do not have a good business model, so "video platform + some self-produced content + commissioned production or purchase of some content" is the basic trend and the magic weapon for video websites to make profits in the future.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.