Tragedy repeats itself: Why do video content service providers always lose money instead of making any profit?

After the domestic video website company Youku Tudou Group officially announced its fourth quarter 2014 financial report, the American video streaming service provider Netflix also released the company's first quarter financial report for the 2015 fiscal year.

The report shows that Netflix's revenue in the first quarter was $1.57 billion, up 24% from $1.27 billion in the same period last year, and its net profit was $23.7 million, down 55% from $53.1 million in the same period last year. Youku's revenue in the fourth quarter was 1.26 billion yuan, up 40% from the same period last year, and its net loss was 318.1 million yuan, a significant increase from the net loss of 24.6 million yuan in the same period of 2013.

Although Netflix achieved profitability in terms of net profit, like Youku, both video content service providers experienced a sharp decline in profits.

The problem is that the content copyright is the cause

Like domestic video website companies, streaming service provider Netflix has long had the problem of spending money on content copyrights.

Data shows that Netflix spent $9.5 billion on streaming video content in 2014, up 30% from 2013, but its revenue only increased by 7%. In addition to the content copyright fees that must be paid, Netflix also paid corresponding license fees.

In the domestic video website industry, since the copyright war broke out in 2012, major video website companies have never relaxed their competition for video content copyrights. As the most effective weapon for video websites to attract users and increase traffic, the long-term rise in copyright prices has caused the entire video website industry to continue to remain irrational; and the huge losses of Youku are also the most direct consequences of this industry phenomenon.

In the interpretation of Youku Tudou's Q4 financial report, Youku Tudou Group President Liu Delu said that in terms of the return on investment in video content, the market competition has reached a "red ocean" state for popular domestic dramas and hot variety shows, and the soaring copyright prices have reached a state where video websites cannot make a profit.

Netflix, a US video streaming service provider, has been forced to accelerate its investment in content resources due to the substantial increase in the number of paid subscribers. Especially with the continuous expansion of its international market business, Netflix's spending on content will only snowball.

More importantly, in the US streaming video service market, Netflix's user subscription fees have always been the lowest in the industry, and once this fee standard is established, it is difficult to change without affecting user acceptance. At the same time, the increasing competition in the industry has also forced Netflix to make less significant adjustments to its payment standards.

Therefore, the content copyright issue based on user retention has become a common problem faced by the vast majority of video content service providers, including domestic video website companies and Netflix in the United States.

Self-reliance, original content becomes an outlet

In addition to the consistent decline in corporate net profits, domestic video website companies and US Netflix also showed surprisingly consistent investment in original content.

In the first quarter of 2015, Netflix's new registered users reached a record 4.9 million, far exceeding the previous estimate of 4.1 million. Behind the substantial growth in users, there is also the passive expansion of the company's business content. In order to attract new users and retain old users, in addition to the introduction and purchase of content copyrights, investment in original content may be the most effective option.

Netflix CEO Reed Hastings and CFO David Wells also said: "Our original content strategy is working as we expected. It not only greatly increases click-through rates in a very economical way for Netflix, but also enhances users' positive impression of our brand and services around the world."

Regarding the original intention of investing in original content, domestic video website companies and Netflix once again expressed a consistent attitude, that is, to reduce content investment and enhance brand effect.

However, unlike Netflix's payment model, the mainstream business model of domestic video websites is the advertising model. The creation of original content can not only reduce the investment in content copyright, but also enhance its efforts in introducing advertising.

Gu Yongqiang, Chairman and CEO of Youku Tudou Group, said that original content has great potential in terms of revenue growth and differentiation. In terms of purchased content, the revenue source is generally only advertising, while original content can obtain revenue from users and revenue from built-in advertising or other marketing solutions, and the revenue source is more diversified.

Whether it is Youku, which has suffered huge losses, or Netflix, which has seen a sharp decline in net profit, video content service providers are currently generally facing the dilemma of increasing content expenditures and an inability to reduce corporate costs. How to achieve a new round of counterattack by increasing revenue may be the most important issue.

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.