Less free stuff
China's Internet users have long been able to watch television shows and movies for free, so online video subscription services have had trouble gaining traction. Earlier this summer, however, there was a sign that the situation might be changing after the online video site iqiyi.com premiered its original series The Lost Tomb. In less than a day, the first episode received more than 100 million hits. More importantly, viewers rushed to sign up for the site's paid subscription service to watch the rest of the series immediately. As the online video industry struggles to make ends meet, subscription services - driven by original productions - offer a tantalizing source of revenue. Still, industry analysts said these sites must maintain the quality of their content to keep subscribers paying.
It took less than 24 hours for iQiyi to realize it had a hit on its hands. On June 12, the Beijing-based video streaming company released the first season of its original series The Lost Tomb on its website iqiyi.com. The first episode got more than 100 million hits in the first 22 hours after it was released - a record for a domestic video site.
Although the website has made a new episode of the show available to viewers for free each week since the premiere, it has also offered access to the entire 12-episode season to its subscribers, who pay a 19.8 yuan ($3.10) monthly membership fee.
The series finale will be available to non-subscribers on Friday.
Eager to watch the entire season, many fans of the show subscribed to the site. In June, iQiyi CEO Gong Yu said that its number of monthly subscribers had skyrocketed 765 percent year-on-year to more than 5 million as of June 15.
Online video sites in China have been offering paid subscriptions as far back as 2008. But it wasn't until The Lost Tomb came out that the model got any traction. Part of the problem is that Chinese viewers have grown accustomed to watching whatever they want online for free.
iQiyi's experience with The Lost Tomb indicates that some viewers are willing to pay for premium content, which could provide online video sites with a much-needed source of new revenue.
Other streaming video sites have taken note. In July, Youku Tudou Inc, which runs the well-known sites youku.com and tudou.com, adopted a similar model for the TV series Hyde Jekyll, Me from South Korea.
It used to be easy for viewers to find pirated movies or TV show online. Several years ago, major video websites such as youku.com and tudou.com started increasing their budgets to buy the rights to show authorized content. Now, nearly all of the content on the sites is legitimate.
But TV and movie rights are expensive, and so far advertising revenue hasn't been high enough to cover the cost. Advertising is the largest source of revenue for video websites.
It accounted for 49.3 percent of total revenue in the sector in 2014, according to a report that Beijing-based iResearch Consulting Group released on August 10.
It has also been growing fast. The advertising revenue of video websites jumped 54.9 percent year-on-year in 2014 to 15.19 billion yuan.
Despite the rapid growth in advertising revenue, most video sites are still struggling to turn a profit.
Youku Tudou reported a net loss of 517.4 million yuan in the first quarter of this year, after taking a loss of 888.6 million yuan in 2014.
Analysts have said the online video sites need to diversify the sources of income to develop sustainably. If viewers are willing to pay for content, as The Lost Tomb case shows, paid subscriptions could become a major source of revenue for video sites.
Encouraged by the prospects of a paid online video service, Internet giant Alibaba Group announced in June that it is planning to launch a video platform called TBO. The company said that it will require a subscription for 90 percent of the site's content.
One way to convince viewers to pay for subscriptions is to offer them content they can't get anywhere else. iQiyi didn't just release The Lost Tomb on its website; it produced the series.
The company isn't the only one to create its own content, and the content isn't limited to TV dramas. Tencent has produced several reality shows and talk shows for v.qq.com.
On Thursday, Youku Tudou announced that it would invest 10 billion yuan in its own productions over the next three years. Original productions now account for 50 percent of its online content, media reports said.
It remains unclear whether these original shows will convince a large number of viewers to subscribe to online video services. Analysts have said it will depend on the quality of the content. And the quality will have to be consistent.
Although the first season of The Lost Tomb has received a lot of public attention, many viewers have said that they may cancel their subscriptions after the first season because the show was not as good as expected.
The prevalence of piracy
Although there has been growing interest in subscriptions to online video services, the majority of the country's Internet users remain reluctant to pay for them, analysts said.
According to a survey in March by Beijing-based consultancy Analysys International, about 40 percent of respondents said they would not pay to watch a movie online.
Only 26 percent said they would be willing to pay, but only if it was priced from 1 yuan to 3 yuan.
Analysts also noted that too much paid content could easily push users to video platforms that still offer plenty of free content.
Piracy remains a challenge. Although the major video sites have eliminated unauthorized content, users can still find plenty of pirated movies and television shows on smaller websites.
Cloud storage technology has also emerged as a threat to intellectual property rights, analysts said. Internet companies like Baidu Inc and Qihu 360 Software Co have developed cloud storage platforms where users can share their files.
These services have become a new place for some people to spread pirated content.
"I was planning to subscribe to iqiyi.com to watch the first season of The Lost Tomb, but later I found it was also available for free on cloud storage platforms," Chen Fang, a Beijing-based white-collar worker, told the Global Times on Friday.