Maturing ad-based model drives search for new revenue
Leading video-streaming portal Youku Tudou Inc plans to plow 10 billion yuan ($1.61 billion) into Web-based content in the next three years, the company announced on Thursday, as it seeks to broaden its income sources beyond advertising.
Web-based content, which includes original content, professionally generated content and user-generated content, is already providing a stable stream of revenue from marketing, according to a press release e-mailed to the Global Times by the company on Thursday.
Within three years, income from content marketing and subscription-based services "will surely surpass that from advertising," the traditional business model adopted by most domestic video sites, said Youku Tudou.
Advertising remains the leading source of Youku Tudou's total revenue.
In the first quarter of 2015, the US-listed company's advertising revenue rose 43 percent year-on-year to the equivalent of $144 million, accounting for 78.3 percent of the total.
Online video sites need to diversify their means of making money, as the advertising business model offers little room for growth, Zhang Yi, CEO of consultancy iiMedia Research, told the Global Times on Thursday.
A report by market research company Analysys International in early May estimated that China's online video sites generated 4.1 billion yuan from advertising in the first quarter of 2015, down 21.9 percent from the previous quarter.
Youku Tudou led the segment with a 21.2 percent share, closely followed by its major rival iQiyi, backed by Internet mammoth Baidu Inc, with 19.6 percent. Tencent's video unit ranked third with 14.1 percent.
Zhang said Youku Tudou's leading position is likely to be challenged by Tencent's video unit, which is increasingly favored by advertisers that have an eye on Tencent's social networking service WeChat.
During a press conference in Beijing, the company also renamed itself He Yi (in Chinese, united as one), which Zhang said was intended to show the complete integration between Youku and Tudou, which merged in 2012.
Initially, the combined company "did not have a thorough integration, especially in terms of management, resulting in a slow strategic adjustment. Youku Tudou, a forerunner in self-generated content, did not invest enough in comparison with its rivals," he noted.
Youku Tudou is not the only Internet company that's exploring opportunities in Web-based content. For instance, in 2014, Sohu.com Inc streamed a self-produced 16-episode drama that reportedly cost 1 million yuan per episode.
"Unlike copyrighted content, Web-based content is more effective in helping video sites differentiate themselves and enhance user loyalty. And self-produced content can give companies more possibilities to develop new business models than copyrighted content," Liu Cuiping, research director with Beijing-based entertainment industry consultancy Entgroup International Consulting, told the Global Times Thursday.
Youku Tudou said that its online video site has been embedded with more than 70 percent of the products sold on Alibaba's online marketplaces, tmall.com and taobao.com, enabling users to shop while they watch online content.
But online video sites have yet to figure out how to persuade users to buy goods and services while they watch online videos, said Liu, noting that Youku Tudou may make some breakthroughs with the help of cross-industry cooperation.
Also on Thursday, Youku Tudou announced a strategic partnership with Ctrip.com International, China's largest online travel service provider, as well as investment in five companies in sectors including education and mobile gaming.
