The latest report from Ampere Analysis focuses on China, where three major SVOD services have emerged since 2012 amidst fierce competition: iQIYI (backed by Baidu), Youku-Tudou (backed by Alibaba), and Tencent Video (backed by Tencent). These streaming players are well-funded by their cash rich tech-giant parent groups – collectively known as ‘BAT’. As a result, aggressive content investment and subsequent rapid subscription growth means that by the end of 2018, three of the top five subscription OTT services in the world – in terms of subscribers – were Chinese.

Historically, the Chinese streamers were significantly different to Netflix – initially relying heavily on advertising revenues, supporting free streaming services.  More recently, there has been shift towards ad-free paid subscriptions – similar to the Netflix business model.  By the end of 2018, the three leading Chinese streamers generated $8bn (USD) of revenue – compared to Netflix’ $18bn.

By investing heavily in content, the three SVOD services have optimised their revenue composition.  Between 2011-2018, iQIYI’s content costs grew by a CAGR of 140%. Subscription income was just 4% of total revenue back in 2011; by 2018, it had leapt to over 50% of its total revenue.  Paid subscribers have privileged access to more exclusive content than the free-tier subscribers. 

Close-up on subscribers
Investments in content have enabled the big three SVOD services to build large content catalogues. Youku-Tudou leads with 13,000 titles, followed by iQIYI at 10,000, and Tencent Video at 7000. Catalogue size is where the differences end – the three BAT-supported platforms offer a similarly wide-range of content across TV series, movies and reality shows – aimed at a mass-market audience. 

Service stacking is common, as a result of the original and exclusive content on offer. iQIYI offers 250 original and 1,000 exclusive titles, while Tencent Video has 330 original and 1,400 exclusive titles. According to Ampere’s Consumer Q1 2019 data, 44% of Chinese internet users subscribe to two or three SVOD services, and 16% to all three. So, while the demographic targeting by the three giants may be consistent, the differentiation happens at the point of delivery through the unique content offered.

What next for SVOD in China?
Ampere Analysis expects the continued growth of Chinese SVOD by the big three players as they continue to be buoyed by financial backing from BAT. Not only has this enabled iQIYI, Youku-Tudou and Tencent Video to expand rapidly, but it has excluded the smaller local players from the marketplace. The tripartite domination is further secured by the strict regulatory environment in China which prevents international players such as the FAANGs (Facebook, Amazon, Apple, Netflix, Google) operating here.

Orina Zhao, Analyst at Ampere Analysis says: “We expect the big three SVOD players in China to continue growing and reach 340 million subscriptions and USD 12.6 billion in total a year by the end of 2024. Investing heavily in content will continue as the main strategy to drive subscriptions and increase user retention, in which process the strong financial backing from BAT is key.”