The Chinese online video market and its peculiarity – or not
China is considered one of the most exciting and challenging media markets in the world – think about the country’s size, the number and urbanization of its population, the diversity and the complexity itself. The Internet is an essential part of Chinese life. The Web in China is a tool of entertainment and information; according to China Wireless News, 570 million of Chinese netizens consume an average of 5 hours per week on the net.
42% of the Chinese population is connected – Chinese are addicted to social networks and spend more than 780 million hours on Sina Weibo, one of the biggest Chinese social networks (the local version of Twitter). Chinese consumers love to interact online and to participate in forums.
According to Ken Research Private Ltd, the rising number of tech savvy population and the introduction of new technologies made online shopping safer and more user-friendly: this led to an increase in the demand of online advertising in the country. Digital media has a very important role because it allows brands to acquire customers and captivate potential ones. Both local Chinese and foreign companies are increasing their efforts in developing online marketing strength in China: 60% of the companies have updated their web marketing budget in 2012, over 50% at average; besides, 36% of the companies take online marketing as the major marketing strategy. As a result of this, a natural migration of TV advertising to online video happened, following the consumer to where the consumer actually is: in front of the computer screen. And tablets and smartphones as well, which is the rising trend in China (research shows that 70% of the total netizen population use mobiles to access the web.)
“You’ve come a long way, baby” – how Chinese Advertising shifted online
However, this migration was not a smooth process at first: cooperation and alliance among enterprises gradually lowered licensing fees on videos. According to iResearch, the surge of licensing fees for online videos in China in 2011 became a great restriction for online video industry to generate profits. Taking also in consideration the Chinese culture regarding marketing as a whole: the well-known western concepts of segmentation, data management, after sales and distribution were developed in China when the demand of online advertising equally grew. Therefore, not only there is the local resistance of culture for foreign companies to deal with, but also the need of broaden the gap between enterprises with strong financial support and other local based companies. In the end, small and medium-sized video companies were forced to transform their operations under the pressure of huge amount of licensing fees. After the fierce competition in 2011, enterprises chose win-win cooperation and advantages complementation to reduce the cost of online video copyright licensing, and enlarge profit margins for publishers. After this alliance was accomplished, the related fees had reduced by nearly a half.
That makes sense in a country where traditional online advertising seems not to perform as effectively as video advertising, according to researches. The 164.7% growth of online video marketing is the biggest move in online advertising in China. Another factor that blew up online advertising in China was the heavy regulation imposed on TV programs. A study shows that before the regulation only 28.3% enterprises have used online video as a part of their marketing efforts. This shows that the regulation for TV advertisement was a big mishandled strategy for the Chinese advertising market.
The penetration of online video audiences outstripped search in May 2012 and online video became the most popular internet service. The hottest teleplays and TV shows brought high traffic for the online video industry. Consequently, advertisers’ demand for cooperation between TV channels and websites became stronger and the value of online video advertising increased. Under the trend of multi-channel advertising, more and more advertisers started to budget more for online video advertising. Therefore, by revenue, share of video websites in internet service increased by 0.6% to 7.7% in 2012 and is expected to boost more and more.
In the middle of this boom, it was easy to establish a link with advertisement: the spaces before delegated on TV now are available online. The costs of a digital campaign are nothing compared to a traditional media campaign. Low investment, measurable ROI, ability to better target customers are few of the many reasons that make online video advertising become so far the best way to communicate now in China.
In this scenario comprehensive video websites increased their market share in advertising revenue steadily. Advertising incomes of video websites in Q3 2011 jumped to over 70% of the total. In 2012, comprehensive video sites continue the momentum by flying to 73.1 % in Q1. The cooperation between Youku and Tudou in 2012 leads the trends of win-win cooperation in the video industry. After the merger, the media value of comprehensive websites will rise greatly. Video websites can gain more profits in the future by raising unit price for ads. iResearch predicts that the advertising revenue of comprehensive video websites will grow steadily.
iResearch predicts that by 2016 advertising revenue for search and e-commerce will represent 30% of total online advertising revenue, with other media channels keeping a stable rate of increase. China has the second largest population of e-shoppers in the world (145 million people according to a BCG study): with a growth of 30% per year, e-commerce is very promising. Both B2C and B2B platforms such as Alibaba, Made in China, Taobao or Ttmall are leaders.
More than 700 million people in China will be watching online video content in four years, a new McKinsey research shows (exhibit). The successful stock market debut of Youku (and later Tudou) China’s leading online video site, reflects what many feel is the industry’s dazzling future.
The average Chinese user spends four hours a week watching online video content, such as movies, TV, and live sports—double the time spent by US users. That high figure partly results from taste: the user-generated content so popular on sites such as YouTube has proved less appealing to the Chinese, who prefer professionally made offerings. Yet the difference is also a question of supply: the online video sites often have a much wider choice of content than do China’s paid-TV channels, which find themselves caught in a bind. Although more than 40% of Chinese households (close to 200 million) have paid-TV subscriptions, the charge of just 15 to 20 RMB (about $2.32 to $3.09) a month is so low that paid-TV operators have been unable to invest in either their networks or content. That explains why only 80 million viewers have switched to digital, despite government efforts, as it offers little more content for twice the money.
The numbers that show the Chinese preference for professionally made content on online video easily point to a wider direction: the general preference of Chinese consumer and how it differs from the western consumer. Chinese do not care much for “crafted” things and prefer everything that is large scale produced, especially if it’s European or American made. At the same time, the Chinese appetite for luxury brings a paradox to marketing guidance, since luxury implicitly brings the idea of exclusivity. Chinese consumers are not satisfied with randomness and ordinary. If the whole world is watching pre-roll video ads and the metrics are performing well, Chinese consumers will soon ask for something different before advertisers notice a slight drop in performance. That’s why online video advertisements need to be innovative, creative and always in search of new technologies to feed consumers that know exactly what to aim for. After all, only 42% of Chinese are using the internet now. That’s not even half of the most populated country in the world. Can you visualize the full potential of China’s Online Video Advertisement Market?
Artimedia has been operating in China since 2008 and through Advision, an advanced video advertising platform, offers exclusive ad formats that synchronize advertisements with video content.