Number of Paid Memberships on Chinese Online Video Platforms May Exceed 300 Million in 2019
In a market that was previously dominated by rampant piracy, the new generation of Chinese customers are finally embracing a change - paying to watch movies and TV series online.
According to the latest research report conducted by Entgroup, the number of paid members subscribing to China's online video platforms was 230 million members at the end of 2018, a number which has increased at a compound growth rate of 119 percent over the past three years.
With more than 800 million internet users in China at present, the report indicates that there is vast room for growth in the China's paying member model video market. Analysts in the report predict that the number of paid subscribers will surpass 300 million this year, while a single online platform could reach more than 100 million subscribing members.
"Our report clearly shows that paid content has already become a driving force in China's online entertainment market in 2018," said Liu Cuiping, vice president at Entgroup. "This was most clearly demonstrated by the listing of market leader iQIYI on NASDAQ last spring, showing that capital is beginning to realize the huge potential of this market if companies have a clear business development strategy and a focus on attaining new members and the creation of strong original content."
IQiyi has a current market capitalization of $12.3 billion, the third-largest among China's digital entertainment companies after Tencent (HKEX: 0700) and gaming giant NetEase Inc. (Nasdaq: NTES).
The online entertainment service, dubbed the Netflix of China, said it enjoyed record growth in new users in the third quarter this year, reaching 80.7 million subscribers in September, more than 98 percent of whom were paying members. That number has nearly doubled from a year ago when the company had 50.8 million users.
In order to boost the subscription number, companies like iQiyi are partnering with different internet companies.
For example, last May, iQiyi and JD (Nasdaq: JD) announced an exclusive strategic partnership to link their membership programs. Members who purchase one-year memberships for either iQiyi or JD.com will be able to enjoy the service and benefits of both platforms. Within one week of the launch of its joint membership program, more than 1 million users from both sides signed up.
In addition, companies like Tencent Video and iQiyi are spending billions developing their own original content.
"We call our business model 'Netflix Plus' or 'Online Disney.' The main objective is to produce original content, and earn income through different monetization methods. Right now, the main income for iQiyi is from advertisement and membership services. A small part of the revenue comes from content distribution and IP-related monetization methods," Yu Gong, CEO of iQiyi, told CapitalWatch in an interview the day of the company's IPO.
"We hope, in the future, we could have more sources of income to cover the cost of making original content, like Disney," Gong said.
Over the past year, the rapidly growing number of iQiyi's viewers confirmed Gong's vision. IQiyi's "Story of Yanxi Palace," a successful drama in 2018, contributed greatly to the growth of the company's paid membership, and "The Rap of China," a variety show, led the field in attracting new paid members by offering exclusive premium content and IP-related benefits to members, according to the report.
Compared with Netflix, Chinese video-streaming companies still have huge room for growth in a country with a population exceeding 1.4 billion and 800 million internet users. By comparison, as of January, Netflix had more than 139 million streaming subscribers worldwide of which less than 60 million were in the U.S.
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