The money-burning model of video websites "joining hands" with film and television companies is unsustainable

Recently, as Huace Film & TV suspended trading due to planning a private placement of shares, the market has been speculating about who will acquire shares in Huace Film & TV.

An iQiyi insider told the reporter of China Business News that iQiyi may cooperate with Huace, but it is not yet determined whether iQiyi or its parent company Baidu will invest in this transaction. The insider said that after investing in Huace in the future, the two companies may establish a joint venture. The relevant person in charge of Huace Film and Television said that they are currently in talks with the three major Internet giants Baidu, Alibaba , and Tencent , but it is not yet clear who will be the specific one. The person in charge also told the reporter that this cooperation is still based on high-quality content and cooperation between content and video websites, but the depth of cooperation is greater than before.

One party holds a large number of film and television drama copyrights, but suffers from a lack of channels to release them; the other party owns the mainstream domestic video broadcasting channels, but lacks a good profit model. The entire industry has been losing money for ten years. Under such circumstances, whether the vertical industry chain integration of the film and television industry can change the dilemma faced by both parties may become the most concerned issue in the industry.

There were early signs

Although it has not yet been decided who will acquire a stake in Huace Film & TV, there are already signs of the integration of Huace Film & TV with downstream video websites. On July 17, the day after Huace was suspended, iQiyi announced the establishment of iQiyi Pictures, attempting to integrate the Internet video and film industries. In the next year, it will join hands with domestic and foreign film companies to jointly produce 7 domestic films and 1 Hollywood film.

Zhao Yifang attended the film industry establishment ceremony. Previously, "Love Apartment" released by Huace has received more than 10 billion hits on the iQiyi platform. Zhao Yifang admitted that platforms like iQiyi are of great significance to practitioners in the traditional content industry. "The Internet is indispensable to each of us and every company in the future. All future movies will have greater development space with the collaborative cooperation of the Internet." Ma Dong, Chief Content Officer of iQiyi, took over Zhao Yifang's words and said, "iQiyi uses its own network power to help Huace's dramas achieve better dissemination effects in the market. Relying on "Love Apartment 4", iQiyi surpassed its competitors and became the video website with the highest traffic on the entire network. iQiyi itself also benefited from this process." At the press conference, Zhao Yifang also admitted: "Recently, there are more and more collaborations with iQiyi. iQiyi seems to have fewer language barriers with content creators."

The "warm conversation" between the two parties hinted at the close relationship between them, and also made iQiyi considered as the first choice for investing in Huace Film & TV.

In fact, in addition to this undisclosed cooperation, the content industry and the Internet industry have long been "married", and the three Internet giants BAT (Baidu, Alibaba, Tencent) are the protagonists. Previously, Tencent announced that it would invest in the domestic film leader Huayi Brothers (300027.SZ), and Alibaba invested a huge amount of 6.244 billion yuan in Hong Kong-listed film and television company China Culture (01060.HK).

However, Wang Ran, a cultural industry researcher and CEO of China Renaissance Capital , believes that the previous two collaborations between the Internet and film and television companies have not really combined video websites with film and television content companies. Alibaba's holding of China Culture Media is more about using this shell to set up its own film and television production team. Tencent's investment in Huayi Brothers is more about capital. At present, the deep integration of video websites and film and television content companies has just begun.

The calculations of both sides

The cooperation that has not been made public is the inevitable result of the development of the entire film and television industry upstream and downstream to a certain stage. In Wang Ran's view, the integration of film and television companies and video websites is an inevitable trend.

On the content production side, as domestic film and television companies grow and develop, they are eager to get involved in broadcasting channels. Hou Tao, vice president of Enlight Consulting Research, told reporters that for content production companies like Huace Film and Television, which hold a large number of content copyrights and have a strong production team, what they lack at present is the control of downstream broadcasting channels. In terms of channels, it is almost impossible for private capital of TV stations to enter; in terms of film channels, Huace has begun to build its own theaters; in terms of video websites, with the decline of traditional TV media, the importance of video websites has become more prominent, and film and television companies are also eager to enter the video website channels. Although Huace is also trying to do it, it is not easy to get a share of the pie when video website giants currently dominate. The best way is to integrate with them, so choosing to let video websites or the Internet giants behind them invest is a more reliable way.

As for video websites, the industry has been losing money for a decade, which has almost declared the business model of video websites "bankrupt". For a long time, domestic video websites have been operating on a business model of spending huge sums of money to buy copyrights and then selling advertisements. Unlike foreign countries, domestic mainstream video websites are backed by the three Internet giants with a market value of hundreds of billions. Therefore, although several major video websites have been losing money for many years, they can still survive. Integration between video websites has also been difficult to promote. Wang Ran told reporters: "In a country with a large content industry like the United States, there are only two mainstream video websites, while in China there are four or five. Because they are backed by Internet giants, it is difficult for them to integrate with each other."

In this case, video websites can only vertically integrate with the upstream content industry. There are three advantages to doing so. First, by investing in film and television companies, copyright fees can be reduced. Second, by intervening in content production, more monetization channels can be sought, such as brand placement in film and television content, development of derivatives, etc. Finally, the content payment model can be promoted.

However, as film and television companies and downstream video websites each have their own advantages, and content and channels are evenly matched, it is not clear who will integrate whom. Wang Ran said that it is foreseeable that in the future, as long as the content party and the channel party form a strong and weak contrast, one party will accelerate the integration of the other, and the process of equity investment or mergers and acquisitions will accelerate.

"The reason why Huace chose to allow downstream video websites to invest in it this time is also to gain first-mover advantage. The deep integration of video websites and film and television companies is an inevitable trend in the industry. Although many models of further cooperation between content and channels are still being explored, Huace does not want to fall behind in this wave of integration, so it hopes to gain the upper hand through first-mover advantage." Hou Tao said.

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.