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China’s Live Video Streaming Market Is Thriving, Lucrative And Has Tremendous Growth Potential

China’s live video streaming market grew 180% last year, with the market valued at an estimated RMB 20.8 billion (around US$ 3 billion) according to data from iResearch.

The trend has been a boon not just for dedicated live streaming platforms such as YY (NASDAQ:YY), but also for Chinese tech giants who have swiftly jumped into the arena either by integrating live streaming functionality into their ecosystem of services (similar to Facebook’s (NASDAQ:FB) integration of its live streaming service Facebook Live), or by acquiring live streaming platforms (similar to Twitter’s (NYSE:TWTR) acquisition of Periscope); Chinese e-commerce behemoth Alibaba (NYSE:BABA) has integrated live streaming functionality into its Taobao platform (Taobao Live), Chinese social media goliath Tencent (HKG:0700) (OTCMKTS:TCEHY) has integrated live streaming functionality into its messaging app WeChat, Chinese e-commerce company JD.com (NASDAQ:JD) has integrated the functionality into its online shopping platform (JD Live) and other tech players such as Weibo (NASDAQ:WB), Momo (NASDAQ:MOMO) and Inke to name a few all offer live streaming services.

Bar and line graph showing China's live streaming video market total revenue (RMB billions) and growth rate (%) between 2014 - 2019 (E)

A report by Goldman Sachs says live streaming generated the highest revenue per hour in 2016 in China, at U$ 0.54 per hour, more than double that of PC games which generated US$ 0.21 per hour.

Bar graph showing the estimated revenue per hour generated in China from live streaming, PC games, mobile games, TV, online video and online music in 2016. Live streaming generated the highest revenue at US$ 0.54 per hour.

Live streaming in China offers a plethora of live content such as live concerts, live sports, and live streaming content generated by users etc. These different areas of live streaming have different revenue drivers. For instance, live sports streaming generates revenue from subscriptions, premium access and advertising while gameplay generates revenue from advertising, game publishing and virtual gifts. However, the majority of China’s live streaming revenues are derived from user-generated content where virtual items and virtual gifts are gifted to live streaming content creators from their viewers.

Needless to say, it is this area of China’s live streaming market that has got the most attention. User-generated live streaming has witnessed explosive growth in China over the past few years as broadcasters (who are usually ordinary people broadcasting themselves eating, chatting, singing, dancing or performing stunts, pranks etc), amass huge followings and receive virtual gifts from adoring fans propelling these ‘average Joes’ to internet stardom and money, with some earning thousands of dollars a month.

These virtual gifts (such as virtual flowers which could cost less than RMB 1 each, or virtual yachts and Lamborghini cars which may cost about RMB 100 or more each)  can be converted to hard cash. The more successful broadcasters have an additional gravy train; product endorsements from top brands. Maybelline for instance sold 10,000 lipsticks in two hours after a live streaming campaign last year with Chinese celebrity Angelababy on the streaming platform Meipai.

However, the industry’s rapid ascent may decelerate in the near future with the Chinese government clamping down on unsavory live streaming content such as provocative dancing and other suggestive movements, revealing clothing, obscene language and so on. Seductive eating of a banana for instance, is now banned. With over 60% of live streaming hosts being female and over 60% of viewers being male, a number of those hosts end up making use of their sex appeal to boost views and revenues as well. While such seductive teasers may have appealed to their male-dominated viewers, it certainly didn’t appeal to the Chinese government.

In July, China’s culture ministry announced that it had shut down 4,313 online show rooms, and fired or punished more than 18,000 anchors. 12 platforms, including major players such as Panda TV, 6.CN and Douyu, were punished and ordered to make changes after offering illicit content that “promotes obscenity, violence, abets crime and damages social morality”.

While the government’s moves may impede short term growth rates, predictions of doom and gloom may be exaggerated, and the crackdown may actually help promote a healthier and more sustainable expansion of the industry in the longer term.

 

Evolving and ample potential for growth

According to data from China Internet Network Information Center (CNNIC), by the end of 2016, 344 million people in China have used a live streaming service, a number greater than the entire population of the United States. Yet there’s still room for growth; at 344 million, just 47% of China’s internet population have used a live streaming service.

Furthermore, as the industry matures, other live streaming content types are increasingly gaining popularity. Virtual gifts from user-generated content was still the biggest money-generator for China’s live streaming market, however in terms of users, gameplay and live sports streaming had a greater share of users than user generated content in 2016. Gameplay enjoyed a notable increase in users which allowed it to surpass user generated content’s share of users. Live concerts also grew, closing the gap with user generated content.

Bar graph showing the percentage share of users by content type (namely concerts, user-generated content, gameplay, sports and others) in China's live streaming video market in 2016.

This in turn may be a contributing factor towards a gradual demographic alteration of live streaming viewers; according to a study by Tencent, last year the share of female viewers increased while the share of male viewers decreased.

Bar graph showing the gender ratio of China's live video streaming audience in January 2016 and December 2016. Male viewers made up 69.5% while female viewers made up 30.5% of China' live streaming audience in January 2016. In December 2016, male viewers were 63.4% while female viewers were 35.6% of China's live video streaming audience in December 2016.

Goldman Sachs forecasts China’s live streaming market to grow from US$ 2 billion in 2015 to US$ 15 billion by 2020.

The rapid rise of the industry (which barely existed three years ago), coupled with the ample potential for future growth has fueled a rush of investments.

Early this month, Chinese marketing agency Shunya International purchased a 50% stake in Chinese live streaming app Inke, in a deal worth just under RMB 3 billion (US$ 460 million).

Taking a broader view, China’s live streaming platforms raised more than RMB 10 billion (US$ 1.5 billion) in the first half of this year with the largest players capturing bulk of the funding according to a report by 21st Century Business Herald..

Live.me which is owned by China’s Cheetah Mobile (NYSE:CMCM) and Huya.com which is games-based broadcasting platform owned by YY Inc (NASDAQ:YY) raised US$ 60 million and US$ 75 million respectively in their Series A financing rounds.

Huajiao.com which is backed by Qihoo 360 Technology Co Ltd (NYSE:QIHU) raised RMB one billion in its Series B financing.

PandaTV which is owned by Wang Sicong (the son of Chinese property mogul Wang Jianlin who was China’s richest man a few months ago) also raised RMB one billion in its Series B funding round.

Competition in the industry is intense with over 200 apps in China catering to different markets and audiences such as gamers and fashion. However, with bulk of the funding being channeled towards the largest players, the number of live streaming platforms dropped by 60% year on year, as the weaker players were squeezed out of the market according to the report by 21st Century Business Herald. Moreover, a report by TrustData found that 97.5% of total user engagement was captured by the top 10 platforms.