Note: From the B station to iQiyi, why can't China's video site become Netflix? There are three reasons for the conclusion: unable to pay membership fees as the full source of income; unable to form an industry monopoly; unable to make a global streaming media The platform makes the number of subscribers in overseas markets exceed the number of local users. The author believes that China’s video sites will eventually completely abandon the traditional advertising payment model and transition to a member payment model. In this process, a new round of industry consolidation is inevitable.
This article is reproduced from the public micro-channel number & ldquo; pick up point investment & rdquo; (ID: deepinsightapp), Author: Zhu Ang.
Recently, there are two heavyweight media companies in the video industry to complete US stock market listings: Station B and Iqiyi. Although both companies are video sites, they have different business models and ultimate value. Before I wrote a number of articles about Nei Fei, many people also recently asked about the views of station B and iQiyi, and made some superficial personal reflections today.
Bilibili: A secondary meta video site targeting the community
First of all, we define from the essence of content. There are often two distinctly different approaches to content, either large or complete, one-stop content entry, or enough verticality. Bilibili is obviously the latter. Before AC Fun fell, Bilibili was already the largest secondary vertical video site in China and also created a barrage. According to the prospectus, B stood at 71.8 million monthly active users at the end of 2017, of whom 81.7% were 90. This group of people will become the most important group in the future of Chinese culture and content consumption.
Due to its focus on vertical content fields such as quadratic yuan and animation, PUGC became the mainstream in the video mode of station B, accounting for 85% of the total content. Based on the PUGC model, it is possible to continuously provide a rich source of content for the vertical source of secondary content of the B station. We have seen that Bilibili is the first thing that everyone thinks of when looking for a second element or anime content. Station B has been equated with this special culture, and users have stayed longer than 76 minutes. Because the content is vertical enough, the user retention rate is also high. According to the prospectus of station B, the retention rate of the regular members reached 79% after 12 months.
Of course, many people know after listing at the B station that the chairman of the company is not after 90, nor at all. Chen Rui, Chairman of B Station, looks more like a teacher and was once the vice president of Kingsoft Networks. Of course, he is also a comic fan. Our childhood after 75, 80 was the happiest time. Many of them were children waiting to watch Japanese cartoons in front of the TV. Of course, the founder of the company, Xu Yi, is a typical otaku. From the very beginning, he wanted to build the B station into an anime enthusiast community.
Discussing a company is definitely more about his future. With regard to the value of station B, we need to answer a few questions:
1. Anime culture can be sustained for a long time, or something of an age-specific nature. The core of this problem lies in whether or not the fans can continue to invest in Station B after the 90-year-old income growth in the future.
2. In the long term, what is the sustainable realization method of the cartoon vertical video website? As a company, the long-term cash flow of station B comes from.
Will animation culture be discarded because of the age of users? We see from the example of Japan that it should not be. In Japan, when a large number of adults do subways, they read comic books. Many cartoon audiences on TV are also some of the "great-aged men in middle age". In fact, we have grown up watching anime since the 1980s, and this degree of cultural recognition is still very high. Even like myself, I often have to look at cartoons as a way of leisure. Slowly, we discovered that reading comics is not a good way of life but another form of content consumption. Therefore, today's post-90 users will gradually settle in the future. Just like Facebook was first circled by a group of university students in their 20s. Today, these college students are in their thirties, their ability to pay has become stronger, and the value of Facebook’s commercialization is also increasing.
Then let's look at how the B station is commercialized. When it comes to commercialization, we have to mention the largest animation IP in Japan in the past few years: the Fate series. I am also a deep fan of Fate. I have seen the old and new version of the Stay Night series, and I have been chasing Encore recently. Then Fate Zero I have seen it many times. I have seen Fate know that there is a very grand world view, a large number of different historical figures and various skills.
For station B, 83% of its revenue in 2017 came from the mobile game “Fate/Grand order”, which contributed nearly RMB 1.5 billion in revenue. This is Japan's best-selling mobile game in 2017. Therefore, in commercialization, B station currently hopes to use vertical content to introduce animation games to mobile games, and then turns itself into a vertical mobile game channel.
"Fate/Grand Order" is actually a serious mobile game. We didn't see WeChat's channel as a recommendation before. This kind of heavy animation game is very suitable for B station to distribute. Users can complete content viewing directly on the website and go to the game download process. Of course, the biggest problem with mobile gaming is uncertainty. After all, Fate has a great world view and is the most successful IP in Japan in the past few years. Therefore, B station will still find a stable source of commercialized revenue in the future. The advantage is based on its growing user base. If the stickiness is strong enough, it will certainly be able to tap out the user value.
iQiyi: Want to be China's Neifei
Iqiyi’s business model is simpler and it is to make China’s Netflix. Based on the large number of users of video websites, at the same time, industry concentration has increased rapidly in the past few years. At present, basically the Youku potatoes, iQiyi, and Tencent under the BAT are represented. These video sites are increasingly characterized by strong channels and can distribute good content.
When we look at the Internet, every revolution in the mobile Internet basically revolves around some basic commonalities. The essence of many business models is the same. For example, a large traffic portal platform has secondary distribution capabilities for applications. Today we see that the operating rate of traditional TVs is getting lower and lower, and more people go to video sites to watch various programs and videos.
On the other side, we also saw TV manufacturers starting to access a lot of Internet content in order to avoid the fate of pipelines. This is similar to the rise of the initial Internet applications and mobile Internet applications. The new channel will definitely complete the revolution in the old channels. We saw this trend from social, shopping, and search. As a kind of media, video is also completing the revolution of new channels for traditional channels. No matter how the article is made, e-commerce cannot get rid of the fate of the hardware pipeline.
In the world, no TV maker can become a big platform or a big channel. Because the user does not have any stickiness with the hardware, it sticks in the software. In a similar case, we can see from Apple's mobile phone's exclusive use of global profitability that content pricing software must be content software.
Similarly, we have seen a growing awareness of content payments under the leadership of the new economy. In the past, everyone watched a movie and also liked to buy pirated CDs. Now they are paid for by members directly on iQIYI or other video sites. The benefits of direct member payments are undoubtedly the greatest savings in search costs, and the picture quality is very good. In many cases, free content downloads can also be searched online, but search costs are high and it takes a lot of time. In the era of mobile Internet, users have become more and more lazy and want to see it as the biggest pain point for demand.
And after the new generation of 90, they began to understand the content payment, thinking that paying for good content is appropriate. So on the Chinese Internet, we see that not only video content is paid, but also audio content is paid. There are not only music and movie dramas, but also knowledge content. The payment process has become more convenient and has accelerated the rise of the entire content payment industry.
The following figure is the source of income for iQiyi. We see that advertising is still the largest, but the proportion is decreasing. Advertising revenue has been reduced to less than 50% from past domestic video websites. It has now dropped to less than 50%, and membership service fee revenue has reached 37%.
Why can't China still fly Netflix?
For video websites, its ultimate goal is of course to become China’s Netflix, a company with a market value of US$120 billion that shows that video content payment is a huge market. Netflix has more than 110 million global paid subscribers, of which overseas paid subscribers have surpassed North American subscribers and have grown faster in the past year. From the previous company's financial report, Netflix added 8.33 million paid subscribers in the fourth quarter, setting a new quarterly record high. Among them, 1.98 million subscribers were added to the United States, and 6.36 million subscribers were added to overseas markets. The company’s single-quarter revenue reached US$3.29 billion.
With regard to the business model of NeiFei, we have done a lot of detailed analysis and we will not elaborate on it here. At present, China does not have a video site business model that can move closer to Netflix, although everyone wants to do Netflix China. I think the difference is mainly in several ways:
1. Membership fees are the full source of income. We see Nei Fei, there is no advertising revenue, there will be no game or other derivatives business income. Netflix’s entire revenue comes from one place: the user’s subscription payment. And this type of content subscription payment is long-term sustainable, not cancelled after users subscribed for months. From the Internet business model, this is a very big stickiness. So how to keep this user sticky? Netflix needs to continuously invest in the content end to gain exclusive content for premium content. This kind of content investment has become bigger and bigger with the increase of the company's scale, which has greatly improved the industry entry barrier in a certain sense. The following figure shows the acquisition costs of NetEase’s new users in the past few years. We see that the single-user access cost in North America has increased to US$100.
2. The monopoly position of the industry. Although the concentration of the video industry in the country has increased in recent years, it has not really achieved monopoly. In fact, as early as DVD rental, Netflix had eliminated all competitors in the industry. Through its decentralized DVD content distribution model, Netflix was the first video content distribution platform using the Internet model, and the biggest competitor of the year, BlockBuster, completely relied on offline. Its operating efficiency is different from that of Netflix. So when Netflix began to transition to the streaming media model in 2011, it was already the largest video content distribution platform on the market at the time. In the past few years, the entire streaming media market has only been made bigger through the Internet.
3. Netflix is a global streaming media platform. We see that the number of subscribers in overseas markets has exceeded the North American market. Netflix will also dig out some overseas high-quality IPs and expand its overseas market territory by cooperating with famous local stars and purchasing copyright models. For example, many of our young mates are looking forward to the "Saint Seiya" produced by Nei Fei.
More importantly, in the past, the global market had different competitors. Although these competitors still exist today, the entire video content payment habit has been cultivated. Netflix relies on its strong cash flow to support the purchase and production of its premium content. In other words, in a sense, the barriers to entry in the video-TV industry are increasing. Nai Fei is a big production of 100 million US dollars, and then distributed through global channels. Some of the local small-scale inputs are not competitive.
Therefore, from the differences between these points, the current difference between domestic video sites and Netflix is still very large. Although the industry's threshold is higher and higher, the market has not yet reached a monopoly position and cannot monopolize quality and exclusive content. We sometimes find that there is some good content on iQiyi, and then Tencent video also has some good content, Youku potatoes also have some other high quality content. Good content is scattered across the platforms, resulting in users who may register as paid members on multiple platforms. The continuation of this membership fee is also very uncertain.
If, like the United States, the best Internet video content can be completely contracted on one platform, the pricing power can be greatly improved. Compared to the U.S. $12/month membership fee, membership fees for domestic video websites are still very cheap. Some people may say that the United States does not have high-quality content platforms such as HBO (represented by games of power) and Showtime (represented by Billions), but these platforms are not Internet streaming media but traditional cable television. Therefore, from the business model, and Netflix is a different battlefield. Although Amazon's Prime content is also good, the difference between quality and Netflix is still relatively large.
Over the past few years, Netflix has taken content monopoly to an even greater degree, producing a source of content that is completely monopolized through the self-produced play model. From the perspective of the number of TV dramas and movies, in fact, the number of Netflix has dropped sharply over the past few years, but the overall production cost has increased. That is to say, the production cost of a single American drama and film is increasing. Because of the content's own "exclusivity" becomes more important. Only the exclusive content, the value of the channel can be reflected. So now whether it is a movie or a TV show, it is impossible to spend billions of dollars on investment, which was unthinkable a few years ago.
China Video Website: Expect More Integration
China’s video sites will eventually completely abandon the traditional advertising payment model and transform to a member payment model. In this process, a new round of industry consolidation is inevitable.
When Youku merged with the potato, it thought that it could integrate the video website industry. It did not happen that competition did not slow down. An important reason is the lack of "content exclusivity" when the threshold for industry entry is too low. Today, people are increasingly aware of the importance of quality content resources. The platform adopts a buyout model for good content, which significantly increases the barriers to entry. With the improvement of the industry's barriers, three video sites with BAT backing can survive.