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China’s Internet Content Kings Struggle to Keep Users Paying

December 17, 2023
in Entertainment
China’s Internet Content Kings Struggle to Keep Users Paying
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Tencent Music Entertainment Group, the music streaming unit of social media and gaming giant Tencent Holdings Ltd., claimed more than 100 million paying subscribers in June following a 7-year campaign by China’s largest music streaming platform. For video streaming platform iQiyi, hitting the 100 million mark took four years and more than 60 billion yuan ($8.5 billion) of investment in content production.

Tencent’s 12-year-old video streaming unit and Alibaba’s 17-year-old rival Youku turned profitable for the first time at the end of 2022, both by raising subscriber fees and cutting content production costs.

Maintaining momentum, however, will be a tall order. The user base in China is already saturated as hundreds of millions of people already use streaming services every month. Most of them still rely on ad-supported free content, and those who subscribe generally do so only a month at a time, making retention a huge challenge. And now providers of long-video content face a significant challenge from cheaper-to-produce and cheaper-to-buy mini programs lasting just a few minutes.

Nearly saturated user base

“As the overall user base has reached the limit, it’s hard to find new users,” said a person close to NetEase Cloud Music, the music streaming unit of NetEase Inc. “The industry has shifted its focus from user acquisition to user retention.”

In China, long-video streaming platforms such as iQiyi, Tencent Video, and Youku have a combined 800 million monthly active users, according to a May report by Quest Mobile, a data intelligence services provider. The average Chinese user regularly taps into just two video streaming apps. Subscribers also commonly use several platforms for music, audio, and online fiction content. This makes adding more subscribers hard.

In the first half of 2023, several internet operations reported that revenue from subscription fees topped income from livestreaming and advertising and became their largest source of revenue. Average revenue per user is much lower than income generated by paying subscribers, taking into account users who don’t subscribe, an executive at a video platform told Caixin.

Industrywide, advertising-funded free access is still the industry’s basic business model. In the first half, Chinese internet ads generated 305.6 billion yuan of revenue, compared with 28 billion yuan from subscriptions. iQiyi accounted for 36% of subscription revenue with nearly 10 billion yuan of such fees.

Keeping users paying

The market is not confident that the number of paying users will continue to grow. Few Chinese content platforms dare to benchmark against overseas subscription models, such as those of Spotify and Netflix. Both of those platforms have more than 50% subscriber penetration in North America. In China, iQiyi and Tencent Video have member penetration rates of about 25%, meaning only a quarter of their total users are paying subscribers.

Many subscribers in China are monthly rather than annual members, meaning they are not obligated to renew their subscriptions each month.

Long-video platforms such as iQiyi, Tencent Video, and Youku have long relied on original content production to obtain new subscribers, but keeping subscribers paying after the end of a hot exclusive show is always an issue.

When iQiyi released the crime drama “The Knockout” in January, it quickly became one of the most talked-about shows online. The 39-episode series brought in 7.68 million new subscribers to iQiyi during the two weeks it was streaming. But after that, the platform lost 10.8 million subscribers in the second quarter.

To encourage subscribers to stay, iQiyi has offered discounts and perks to long-term members, according to an executive at the company. The platform is trying to convince users that “the sooner you buy, the better; the longer you buy, the better,” the executive said.

How to keep releasing hot shows is even more of a challenge. A platform needs to have at least one hot show streaming for two months each quarter to support subscription renewals.

Tencent significantly reduced spending on producing shows in-house this year. Instead, by offering a larger revenue share to outside producers and asking them to pay for production expenses in advance, Tencent Video can maintain content output while cutting costs, Caixin learned from executives.

Tencent Video CEO Sun Zhonghuai said in October that the number of paid subscribers reached 115 million in the second quarter. The platform adds an average of 100 new dramas each year.

Short-video platforms

With the increasing popularity of short-video apps, platforms such as Kuaishou and Douyin — TikTok’s Chinese version — are offering mini dramas that pose a challenge to long-video platforms as they divert users’ attention. The short-video platforms are also exploring paid content models.

“We had thought our rivals were movie and TV studios,” an executive at a long-video platform said. “But we never thought our real rival is Kuaishou.” Episodes of mini dramas are three to five minutes long. The first few episodes are usually free to attract viewers. As the storyline unfolds, later episodes usually adopt a pay-per-view model, charging 1–3 yuan for each installment.

As long-video platforms have cultivated users’ mindset to pay for watching shows, mini dramas are much cheaper, making it easier for apps to promote a subscription model, an executive at a short-video platform told Caixin.

The gross merchandise value from mini dramas on Chinese short-video platforms grew more than 670% in 2022. It is expected to further expand by more than 160% this year to reach 10 billion yuan, according to Kuaishou’s estimates.

As mini dramas don’t require the big-name casts and expensive productions of longer shows, traditional movie and TV studios are also investing in the sector. At Hengdian, the world’s largest film and TV production base known as “China’s Hollywood,” the number of mini dramas being shot every day could exceed the number of regular TV series at some times.

The popularity of mini dramas and lack of regulation also breed issues such as vulgar or violent content. Since the start of 2023, major short-video platforms like Douyin, Kuaishou, and WeChat announced concrete measures to crack down on noncompliant and low-quality mini dramas. Douyin said it has taken down 119 noncompliant mini dramas and penalized 1,188 accounts involved in improper promotion of such videos.

This piece was originally published by Caixin Global. It is republished here with permission.

Reporters: Guan Cong and Denise Jia.

(Header image: IC)

>>> Read full article>>>
Copyright for syndicated content belongs to the linked Source : SixthTone – https://www.sixthtone.com/news/1014278/China%E2%80%99s%20Internet%20Content%20Kings%20Struggle%20to%20Keep%20Users%20Paying

Tags: China’sentertainmentInternet
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