China’s films & TV distribtuion and sales market maintains rapid growth in 2013. The copyright royalties are estimated to exceed 3 billion yuan ($480 million) and reach a record 3.2 billion ($516 million), 3.6 times higher than 2009.
2012 has witnessed an explosive 213% growth in the distribution and sales market. With the mergers and acquisitions among video sites, as well as enhanced efforts in original self-produced programs, the market is moving towards a more rational stage. Blind competitions in purchasing contents are winding down and the copyright royalties growth rate reduces back to 28%.
New media distribution and sales is becoming a new source of revenue for China’s films and TV production companies. Presales through new media platforms enable the companies to recoup capitals in advance and infuse them back to production. Data from Beijing Hualu Baina Entertainment illustrates that the proportion of new media earnings in the company’s total revenue jumps rapidly from 0.5% in 2007 to 6.0% in 2012, increased by 12 times in mere 5 years. Public companies as Huayi Brothers, Zhejiang Huace Media, and Shanghai New Cultures have also benefited from this trend.
2012 was the in the middle of storm, when domestic new media platforms as video sites rushed for expansion and acquiring market dominance. Video sites had to compete for online streaming rights with high prices to appeal viewership, increase traffic, and attract advertisements. The fierce competition drove the prices all the way up to a record high of 50 million yuan for a single play at the beginning of this year, while the highest number in 2006 was only 0.1 million according to EntGroup’s database. This year, Le Vision’s 50 million yuan deal to acquire an exclusive online streaming right of a TV drama THE NEW EDITOR STORY set an new record in the new media sales history.
The fast growth of new media sales revenue relates closely to the explosive development of video sites in the recent years. Take Youku Tudou Inc. as an example, its expenditures on acquiring content rights reached 750 million yuan in 2012, an eye-catching 120% year-on-year growth. In the past five years this cost has increased nearly 40 times, which partly reflects the trend of intellectual property standardization and protection in Chinese video sites.
In terms of the ratio between content cost and overall revenue, the number of Youku Tudou Inc. declined from 29% in 2008 and bounced back again to 36% in 2012, the highest point in the previous five years. However, with the increase of revenue from advertisements, this ratio is expected to drop gradually in the coming years.
Studies of EntGroup show that Youku Tudou Inc., with a content expenditure of 750 million yuan and a market share of 30%, was the biggest buyer in 2012. Tencent and Sohu rank the second and third, with the market shares of 16% and 15% respectively. The top 6 video sites’ purchase accounted for over 80% of the sales revenue, the concentration of the market is likely to increase.
The rapid development of new media captures the attention of films and TV production companies. Aside from simply selling copyrights, more companies are now carving out new media marketing channels for their own products by investing into video sites, in which way the companies can also gain greater returns from the growing online advertising market. Last year Enlight Media spent 75 million yuan investing in Guagua.cn, an online programming community. During the same year, Huayi Brothers reached strategic cooperation agreements with BesTV and TV189 (a streaming and downloading service provider under China Telecom) respectively.
At the same time, video sites are seeking changes as well. Recently IQiYi (a leading online streaming site) announced the first “Internet-based Cinema” film distribution model—a revenue-sharing plan that launches a pay-per-view window period of 7 months per film. During this window period, the revenue per film will be shared based on the demand of the users, instead of following the traditional way of one-time buyout of the streaming right. Traditional entertainment companies and video sites are actively looking for diverse cooperation models, maximizing their own value by entering into each other’s market and obtaining a dynamic balance between contents and distribution channels.
To better confront the rapid growing new media landscape as Internet and mobile devices, EntGroup suggests that films and TV production companies should proactively develop new models, such as leveraging contents advantage to participate in advertisement revenue sharing, launching subsidiary brands and labels, involving in the production of original self-produced programs of video sites, etc. Only by diverting from the single copyrights selling model can companies maximize benefits in the new media era.
