Video websites have entered the era of competition among fathers, but profitability is still the top problem

With Xiaomi's entry into iQiyi and Youku Tudou, the video industry has completed a new round of subtle capital transfusion in the past six months.

On November 19, Xiaomi Vice President Chen Tong announced that Xiaomi and Shunwei Capital invested $300 million in iQiyi, becoming the second largest shareholder of iQiyi. Prior to this, Xiaomi had just joined hands with Youku Tudou and spent tens of millions of dollars to purchase Youku Tudou shares from the secondary market. For the video (Baidu, Alibaba, Tencent) industry, this is a particularly meaningful node. The formation behind video websites has suddenly expanded from BAT to "BAT3M" (Baidu, Alibaba, Tencent, 360, Xiaomi). In the absence of real profitability, video websites will undoubtedly enter an era of competition for fathers.

"The video industry has gone from being highly fragmented to becoming increasingly concentrated," said Bao Ran, a member of the Expert Committee of the China Interactive Media Industry Alliance and CEO of Yimuwei Culture Communication. On the other hand, due to the tightening supervision of the State Administration of Radio, Film and Television, capital investment is still centered on the word "qualification" to develop Internet TV layout. Now Youku Tudou is backed by Alibaba, iQiyi is backed by Baidu and Xiaomi, Tencent continues to invest heavily in video, and Suning has basically completed the blood transfusion after acquiring PPTV. The next question is how each company can graft with the "godfather" and develop new monetization channels and profit models.

Blood transfusion formula

At the open class of the Global Entrepreneurship Week China Station that just ended in Shanghai, Li Shanyou, the founder and former CEO of Ku6, appeared as an entrepreneurial mentor and talked about the topic of "life and death": the product cycle in the mobile Internet era is approaching zero, and the professor of China Europe International Business School is his new identity after leaving Ku6. In April 2014, Shanda sold 41% of Ku6.com's shares to Sky Profit. Before that, Li Shanyou had already left Ku6 due to rumors that he was burning money too fast and had differences with the management on the company's development direction. Coincidentally, Sohu has just acquired 56. Zhang Chaoyang, chairman and CEO of Sohu and acting CEO of Sohu Video, announced that he would merge with 56, "to achieve transcendence in PGC (professional content output) and build China's largest PGC platform." "It is difficult for second-tier video websites to have independent development space, so they all took action," Bao Ran said. The current situation in the video industry is that "every website has a godfather behind it."

The more subtle thing is Xiaomi's entry. On the surface, it seems to be playing two games. First, it formed an alliance with Youku Tudou. Youku Chairman and CEO Gu Yongqiang said that Youku is not short of money, but is more interested in the cooperation between the two parties. "First, it is to invest in content, including related technology and application research and development; Xiaomi's fan economy and fan system will be fully integrated with Youku's self-produced programs."

As for iQiyi, Xiaomi's move is obviously bigger, with a strategic investment of US$300 million in iQiyi. Gong Yu, CEO of iQiyi, believes that "the amount of investment shows how much Xiaomi values ​​iQiyi." Gong Yu pointed out that Xiaomi's investment in iQiyi is much higher than that of Youku Tudou. The two parties will carry out in-depth cooperation in content, technology, products, especially in the field of mobile Internet, and Xiaomi's layout in hardware can help it increase its market share.

According to industry insiders, Xiaomi's frequent and frantic purchases are fundamentally aimed at solving its imminent content gap. Xiaomi Chairman Lei Jun also admitted that content is vital to Xiaomi TVs, boxes, mobile phones, and even Xiaomi tablets, and solving the content problem is urgent.

Luo Lan, an analyst at Analysys International, believes that "Youku Tudou and iQiyi belong to the first camp of video, and the content of the two is not completely overlapping. Xiaomi can choose the content it needs according to its own positioning direction." However, industry insiders pointed out that the deep meaning of Xiaomi's investment is also to solve the "qualification weakness" and "mainly to see which one is closer to the license holder." Prior to this, the State Administration of Radio, Film and Television continued to strengthen supervision of Internet TV businesses such as boxes, prompting video websites to quickly stand with the license holder. Youku Tudou invested in China Media Group and iQiyi jointly established Galaxy Internet TV Co., Ltd. with China National Radio and Jiangsu Television. It is reported that iQiyi's Internet TV division will also be "incorporated" by Galaxy.

Even if they compete with others everywhere, video websites still have to face the problem of long-term unprofitability.

Profit Confusion

As the world's largest streaming media operator, Netflix has already started to make profits. The third quarter financial report for the 2014 fiscal year showed that Netflix's third quarter revenue was US$1.409 billion, a 27% increase from US$1.106 billion in the same period last year; net profit was US$59 million, an 84% increase from US$32 million in the same period last year. For domestic video websites, they are still stuck in the cycle of competing for copyrights and selling advertisements. Take Youku Tudou as an example. Except for a short quarterly profit, it has not achieved annual profits since its listing in 2010. When Gu Yongqiang was interviewed a year ago, he might have told you that profitability was imminent and it was not that difficult for Youku Tudou. But when talking about profitability, he said in an interview a few days ago, "The industry as a whole is at an important critical point. It is more important to expand new businesses, including new product investments, and profitability is an issue that should be considered when the pace slows down."

In fact, judging from the layout of various video websites in 2014, betting big on self-production and researching differentiated formulas may be the focus of breaking through.

Gu Yongqiang announced that Youku Tudou has entered the era of "big self-made". It will work with world-class production agencies Endemol and TALPA Media to launch the Chinese version of "BIG BROTHER" and "The Voice of China Youth Edition", and will also have a series of large self-made content. In Gong Yu's view, self-made has become an offensive with active defense nature. The differences in user experience on various video websites will become less and less, and the main competition will focus on the competition of self-made content. Self-made video websites are also looking for new breakthrough points and finding new connections with online games, movies and even e-commerce.

iQIYI previously announced that the unit cost of its self-produced dramas will exceed that of TV dramas, and that of self-produced variety shows will exceed that of TV stations in 2015. The self-produced strategy will focus on two directions: "super web dramas" and "self-produced variety shows". The "Grave Robbers' Chronicles", a collaboration with Nanpai Sanshu, has an investment of up to 5 million yuan per episode.

Backed by Tencent, Tencent Video's strategy for 2015 is to hit and self-produced "home runs". Han Zhijie, general manager of the marketing department and video copyright cooperation department of Tencent's online media business group, revealed that in terms of movies and TV series, Tencent's strategy is "full coverage, big dramas at the same time". In terms of American TV series, it has become HBO's exclusive official authorized broadcasting platform for Internet videos in mainland China, exclusively broadcasting 900 episodes of high-quality film and television content, including classic American TV series such as "Band of Brothers", "The Newsroom" and "Game of Thrones". As an exclusive formula of Tencent Video, it will further expand the "Live Music" plan and launch 50 online concerts at a high density throughout the year.

"Self-production will be the focus of a new round of competition. The cost-effectiveness of self-production is obviously higher than competing for copyrights, and it has also become a weight for companies to enhance their brand influence," Roland analyzed.

In Bao Ran's view, it is normal that video websites have not yet achieved profitability. After being acquired by Google, YouTube has played a value-added role, "increasing user stickiness and making up for Google's shortcomings in video search." Domestic video websites are moving towards centralization, which is a sign of maturity. "The key lies in how each company innovates its business model and achieves more effective transfer payments."

"Although many innovations are still in the experimental stage, games and e-commerce are likely to become new monetization directions for video websites," Bao Ran pointed out.

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.