Lao Duan talks about OTT: How does Internet TV make money?

2013 was the concept year of Internet TV in China. LeTV, Xiaomi, Alibaba and iQiyi launched different Internet TV models and products, which set off a huge butterfly effect in the market, media and capital fields. 2014 will be a key year for the implementation of these concepts. The key to which business model and product will win in the end is scale.

The essence of the Internet is backward operation. Whether all business models with operations as the core can ultimately obtain benefits other than products through operations is determined by scale. Although both are related to the Internet, Apple is essentially a product company, and GOOGLE was a service company from the beginning. Product companies are committed to making profits on products and therefore hope that the unit price of products is high or the gross profit is high, while service companies hope that the unit price of the hardware they rely on is as low as possible, and it is best to use service subsidies to give away. In the process of Internetization of the television industry, scale is the key to whether home TV equipment can evolve into home Internet terminals. In addition, the value growth of operations is not linear, and there is an inflection point that explodes upward. Only after the inflection point will there be economic value, otherwise it will all be sunk costs.

TCL iQIYI TV+ has focused on scale since the beginning. From the launch on September 3 to the end of 2013, in more than three months, the shipment of single-model, single-size TVs exceeded 100,000 units, setting an industry record. On February 14, 2014, Valentine's Day, Hao Yi and Gong Yu jointly announced that TCL iQIYI TV will add 9 new models and sizes in 2014, with shipments exceeding 1 million units. But does 1 million have operational value? How much is the value of the unit product and user of the operation?

Let's do a simple calculation. Assuming that the daily active user rate (DAU) is 20%, the average VV per person is 10, the average patch advertisement is 1 minute, and a single patch is 15 seconds (each video has 4 patch advertisements per minute, which is far lower than the 12-minute advertisement requirement of the General Administration for TV channels), the operating advertising revenue of each user or terminal is:

20%*10*4*365*P/1000=2.92P, P is the unit price of 1000CPM advertising

Assuming that the unit price of a CPM advertisement is 100 yuan, the advertising value created by a user in a year is 292 yuan; after deducting the costs of advertising agency, channel, tax, advertising success rate and advertising inventory rate, the disposable income of a user is: 87.6 yuan. This is the income that can be shared by the four parties of content, CDN, license, terminal and operation. If a further 50% discount is given, the annual disposable income of each user is 43.8 yuan.

Since advertising is an operating income, its comprehensive cost includes fixed costs and variable costs. According to the reference data of PC advertising, mobile advertising and TV channel advertising, a comprehensive calculation shows that the break-even of the entire value chain can be achieved only when more than 50 million users are activated, and the daily DAU will reach 10 million. In 2014, there will be 25 million Android TVs with real regular operational value (excluding low-end Android and LINUX TVs. From the perspective of operation, these terminals are like kites with broken strings. They look valuable but are actually just burdens and gimmicks. Some low-end TVs covered by licenses and video platforms before 2013 were eventually proven to be difficult to upgrade, with poor system performance, no advertising monitoring system, and almost no operational value). Each mainstream TV manufacturer has 3-5 million units, and retail set-top box manufacturers have 25 million units, totaling 50 million units. According to the above calculation, 2014 will be the first year in which China's new OTT users have theoretical operational value. In the next three years, the number of new terminals and existing Android terminals that will be upgraded through software is conservatively estimated to be 200 million (there are 500 million TV sets in the Chinese market, and 40% of TV sets including set-top boxes that can watch OTT videos will account for 3 years), and the number of daily active users will exceed 50 million. The annual advertising revenue will be at least 58.4 billion (considering the increase in the market, the daily DAU will definitely increase, and the forecast is 25%. If we are more conservative and give a 50% discount, it will be 29.2 billion). In other words, by the end of 2016, OTT TV advertising revenue will be nearly half of the current 130 billion TV channel. By then, OTT will completely share the world with cable digital TV and IPTV.

In addition to the free plus advertising model of the above-mentioned media, OTT also has a paid operating model, TV games, and video e-commerce, which are the four major business models currently recognized by the OTT industry (excluding various other forms of advertising such as startup, mid-insert, post-insert, and pictures). However, compared with the former, the latter three require a certain percentage of penetration, which will not be 100%. Therefore, under the current circumstances, the evaluation and stability are worse, but when OTT becomes the mainstream video screen, the income of these three will surely give the industry and the outside world a bigger surprise, just like today's mobile Internet and WeChat.

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.