Live streaming is the broadcasting of real-time, unedited video to an audience over the internet. The practice first gained popularity on personal computers, but in recent years, it has transitioned to smartphones and other mobile devices. Users can now access live streaming content from anywhere with a good internet connection. While the concept of live streaming is simple, it has a multitude of potential applications and a large appeal to content consumers. This is because live streaming offers a level of interactivity and spontaneity that is not present in traditional static internet media. Viewers can often send real-time text or video messages to content creators and may receive live responses. It is also common for content creators to improvise dialogue or action in response to user comments. Live streaming is a medium that fits content consumption into the rhythms and routines of everyday life. Live streams are often long in duration with no strict beginning or end, so viewers can watch for an indefinite length of time between other activities and may leave and return to the stream as they please.
The last five years have seen a dramatic increase in live streaming services in China. This represents a dynamic new form of media distribution and consumption and has already had a profound effect on the Chinese internet. The rapid rise of this industry and its uncertain legal status makes it an important area for study and one that is of interest to a wide variety of stakeholders, including content providers, consumers, and policymakers. In this report, we provide an overview of the live streaming industry in China, examining its historical development, its current market structure, the business models of the major players, and the industry’s relationship to traditional media. This report also explores the regulatory environment surrounding live streaming, which is still in a state of flux. Since we are writing for a diverse audience, we start with a brief description of what live streaming actually is and why it has become so popular in China.
Market Analysis
Analysis on the growth trends of the current market is very significant due to the large amount of varying data. According to the iResearch data released by Yeyou, a report on the 2016 annual game live streaming industry showed that the number of people watching live game streams was more than 166 million and the market size had already exceeded 11 billion yuan. It is expected that there will be a 20% increase in viewers next year. The game live streaming industry has higher popularity than general entertainment streaming and thus is more lucrative, with popular streamers making hundreds of thousands to millions of yuan a month between ads, donations, and paid subscriptions. An article by Technode also states that the influx of urbanites into rural parts of China will cause a 150% increase in viewers that reside in rural areas. This means that companies will need to shift their marketing strategies and cater to different target audiences. With the internet speed increasing across the entire nation, high-quality streams will be accessible to almost everyone, even those from the lower income brackets. This will mean the era of mobile streaming will become more prevalent and people will be watching streams at any time of the day during various activities.
With the success of live streaming platforms such as Twitch and Periscope, China has followed suit and the industry has been growing rapidly with the number of users and revenue increasing dramatically over the last few years. In 2015, two research agencies offered slightly different numbers for the total estimated market size. iResearch believes that the market size was around 7.88 billion yuan and expects it to reach 16.5 billion yuan by 2017. On the other hand, Dataotuan states that in 2015 more than 200 million people watched live streaming and that the market size was over 9 billion yuan. It is important to understand that Chinese people have gained a habit of watching live streams on gaming platforms and this was the initial push that began the massive growth of the industry. Due to the rapid increase of internet speeds in China, people are able to watch HD streams with little to no buffering, which has boosted the number of users and streamers. Social platforms such as Weibo and WeChat have also integrated live streaming technology into their services, taking a share of the market. According to commentary made by Tencent CEO Ma Huateng, the newsfeed forms 10% of mobile traffic volume and 20% of it is spent watching videos.
Current Landscape
The popular mobile game promotion and easy money attract waves of streamers who hope to achieve overnight success through streaming. Many may find that the competition is too fierce and return to traditional employment. Currently, there are an estimated 3 million or more full-time and part-time streamers in China. The oversupply of streamers, plus unclear regulation on tax declaration on unstable underground income, may lead to further regulation from the government and harder tax inspection.
While many Chinese live streaming platform companies struggle to lure users and monetize the services, the overwhelming popularity and easy money due to the gifting mechanism keep popping up more live streaming platforms. It seems the competition for market share will become more brutal before reaching the consolidation phase. Both YY Live and Panda TV announced RMB 1 billion investment into content to attract more users. Rising operating costs may lead to further rationalization in the near future. Recently, Panda TV has had to downsize its overseas operation and fire all non-Chinese employees in an attempt to conserve resources.
Growth Trends
Growth is driven by a number of factors. In the beginning, growth was mainly driven by the explosion of competition between service platforms. Viewing DouYu and Panda TV realizing further market exploration with huge cash injections was the prime example. Another key factor was in games themselves where mobile games have started eclipsing PC games due to ease of access. This is a big contrast to 2 years ago when LoL and DOTA were the staple games for streaming. This was first realized by King of Glory knocking League of Legends off the top of revenue generation for PC and mobile. Now the defining factor in game category is premium vs non-premium PC or Mobile. Viewership for non-premium PC games such as PUBG and tournaments for other non-premium games has also seen significant growth outside of a decline in overall PC game popularity in China. Assembly of content created or sponsored by the platforms themselves is also noteworthy as industry platform spending on content creation/marketing aims to draw in more creators and within this past year even acquiring popular creators from opposing platforms to take the jump ship.
Key Players
In the domestic live streaming landscape, the author points out two platforms that rule the industry today: YY Live and AcFun. Both operate on different business models. YY Live’s primary business model is online music and games and has expanded to live streaming under those categories. High revenue is generated whenever their viewers buy virtual gifts and/or reward their favorite hosts during their live shows, which has led to less actual cash exchanging hands between viewers and the hosts. High virtual gifting revenues have also attracted some hosts from other platforms who have the platform hop. AcFun has been popular for its barrage feature where viewers can post comments on the video in real-time scrolling upwards from the bottom. It also has a feature that allows viewers to take over the hosting of the stream by requesting to the host, which has led to its recent introduction of live streaming.
According to the article, the key players in live streaming in China can be categorized into three types of platforms: domestic, international, and emerging competitors. The domestic platforms refer to those that are based in China and are solely involved in live streaming services within the country. The international platforms are the global giants that are providing live streaming in China on top of their usual services through platforms like Facebook Live and Periscope. Finally, the emerging competitors are those who are smaller today but have the potential to be bigger than domestic and international platforms and are likely to create a long-lasting impact on the industry and change its shape.
Domestic Platforms
Since Tencent’s acquisitions, the two have seemingly merged into one entity, and while both platforms remain active, the two have become near indistinguishable from one another. At times, they even share the same live-stream and chatroom content. This has led to many of the content creators and streamers, employees of these companies, earning their income through wages and incentives from the platform itself, rather than through viewer donations or endorsement deals. The motivation for this restructuring is that it allows Tencent to divide the market share between the two brands, but more importantly, dodge an antitrust crackdown. This is because both platforms were beginning to become monopolized by Tencent, with little room for other viable competition.
Tencent began its foray into the streaming industry cooperation with the NBA to stream its games. Following this, their path to dominance can be traced across numerous investments and outright purchases of many of the domestic platforms, including a controlling stake in Huya and issuing shares to acquire an equity stake in Douyu. Both of these platforms originally began as an extension of third-party streaming services for video games and e-sports but have expanded to host a variety of content.
Tencent is dominating the market but facing criticism and censorship from the CCP. Douyu vs Huya in a battle of restructuring: Heroes of the past waning in relevance.
International Platforms
The most notable international platform is YouTube, in spite of Google’s absence in China, earning China a special version of the website with restrictions. Despite earlier restrictions of partnerships with Chinese MCNs, YouTube has made recent advancements in forming such partnerships with the Chinese MCNs of Xingmei and Yoola with the hopes of gaining an audience. It is also rumored that YouTube has plans to take on the Chinese MCN business directly in the future. Twitch has also made notable gains in China due to its already advanced gaming culture and market, partnered with its own Chinese gaming streaming platform Douyu to collaborate in overseas content and establish their platform in the Chinese market. Facebook has completed deals with Chinese companies to test waters with their live streaming technology and establish strategic partnerships. The data is not clear if Western live streaming platforms are taking revenues away from Chinese streaming, but their intentions to enter and establish themselves in China show a potential shift in the live streaming culture to one more influenced by Western standards and business models.
Emerging Competitors
For international companies, entering the Chinese market presents an attractive long-term goal of potentially finding immense success if they can eliminate the numerous barriers to entry. However, there is no solid evidence proving that these companies will be able to access the same tools provided by the government to achieve success. The most notable recent attempt is by Bigo Live, a Singapore-based app that has established itself as a major competitor to industry leaders in Southeast Asia and other regions. After securing $8 million in funding, they launched a partially localized app under a new brand name in attempts to avoid being associated as a foreign company. While they have managed to acquire a decent number of users, it is doubtful that they will be able to outpace the new industry regulations and find long-term success.
Emerging competitors include smaller domestic platforms and international platforms attempting to enter the Chinese market. Currently, there is little information on the major moves of smaller domestic platforms competing with the industry leaders. These companies possess the knowledge that it is highly unprofitable to challenge the leaders head-on in the same types of services, and thus seek to innovate in other ways to find success. Taiwan company M17 has realized the high costs of hosting live music events and is now helping new musicians produce live content in hopes of creating new market demands. Other competitors such as camera social network Mei Pai and new upstart Short Video are aiming to use live video as another way to create more content on their existing platforms.
Challenges and Opportunities
More often than not, western companies and consumers alike take for granted the fact that live streaming platforms can provide an entertainment experience at a significantly lower cost than traditional media channels. In the United States, pirating or using VPNs to access foreign content is not a crucial issue as it is in China. Due to the regulatory environment surrounding foreign media and entertainment content, one of the most important determining factors of the live streaming industry’s success is contingent upon the government’s attitude towards regulating this online content. In the past, the government has closed down many popular live streaming platforms through strict regulation and enforcement of new policies. One recent example would be the forced shut down of gaming live streaming services on Douyu.com and Panda.tv, where the SAPPRFT deemed that it was to “protect the youth from indulging in unhealthy gaming culture.” Such actions and policies are influencing a more recent trend of private companies using the technology as a means to market targeted audiences through virtual reality. While the near monopolization of this industry by these large Chinese tech firms can deter smaller domestic and foreign companies from entering, there is still plenty of room for competition and increasing profit. Because many of these top companies are focused on integrating their live streaming services as an extension of their current social media and chat applications, more specialized and independent platforms have the opportunity to offer a higher quality service and user experience. This is particularly evident in the gaming scene, where despite a popular Chinese PC and mobile game doubled increase in revenue from 15 billion RMB to 30 billion in both client and micro transaction markets, still lacks a stable and reliable game live streaming service. It’s an opportunity to capitalize on one of the most popular game markets in the world, as done with great success in the West by platforms such as twitch.tv.
Regulatory Environment
On September 4th, the State Administration of Press, Publication, Radio, Film, and Television of the People’s Republic of China (SAPPRFT) released five provisions that are without question a result of growing concerns over the content streamed online. This is the first time that a regulatory body has explicitly targeted online streaming, and these laws will have a significant impact on the future of streaming in China. Measures include the approval of foreign content inclusion and the restriction of content that is deemed to go against the socialist core values and Chinese traditional culture. An official rating system will be implemented and all content providers will be required to self-monitor and adhere to these provisions. This is the most direct evidence of the government treating streaming as an important media platform, and the clarity of these laws will save both time and future enforcement costs. The full document and supporting explanations suggest that Chinese streaming laws could converge with global media laws in the coming years. An argument could also be made that China is simply setting the standard for regulation of an emerging media platform.
Live streaming services in China are viewed by the government as a form of unfolding media. Unlike the US market, which has had years of content to mold regulations around, China’s strict regulations on media and distribution have been a challenge for new streaming services. The law currently states that streaming companies must fill out an application that details what will be streamed, for how long, and at what time. Once this has been done, the company then must wait for an invitation from administrative authorities to start the stream.
Monetization Strategies
Just like the model we’ve seen with video games, there are paid features on these online streaming platforms. Paid features can include access to certain content, quality of life changes with the platform, and even interaction with hosts. This model is similar to the freemium model, which allows for this method to be highly effective if the free-to-use content is of quality. An example of effective use of paid content was with the platform Yi Zhibo, which had a 70% increase in active users and a 23 percent increase in revenue due to a redesign and adding new features to the mobile application.
By analyzing the popular live streaming platforms in China, we are able to gain an understanding of the most commonly used strategies to monetize this type of service. Previously, we mentioned that users are able to access and use this service for free, and in some cases, purchases are used to enhance the experience. The purchases are used to buy virtual goods that are given as gifts to a designated host. These purchases are made using the virtual currency on the platform and can range from $0.10 to $15. The virtual goods are purchased from the platform and can be given to a host through a very simple process with a click of a button. Gifts can be traded for cash at a later point in time. According to the statistics provided by Panda TV, the conversion rate from virtual goods to cash is about 14 percent. The virtual goods and gifting system is rather similar between the different platforms, which makes it a widely used method of monetization due to the success of this model.
User Engagement
According to the concept of online user engagement and the means to capture it, there reside several challenges. The nature of live streaming services means that the attention of the user is constantly divided between the player and the live stream. Therefore, it is difficult to entice users to interact with features surrounding the live stream and not a product outside of it. Other challenges include methods to best gauge the satisfaction of a user as opposed to other mediums. It is simple to ask a user to complete a survey after watching a video; however, live streaming services allow for a seamless exit and therefore an avoidance of any feedback. If users are not satisfied with the stream, they will exit the site without providing any feedback, as it requires too much effort for too little gain. This too is another challenge: the method to capture feedback that will be useful and worth the users’ time. An opportunity that serves as both a method to capture useful feedback and engage the user lies in tailored video content. If a site can provide video content based on user-specific interests, it will keep the user coming back and provide a greater incentive to interact with any feedback methods given. An ultimate goal will always be keeping a user satisfied and ensuring they will return.
