Every Video Site Now Courts the Young, Yet Fewer Products Are Truly New | 2015 Youth-Market Series

In a noisy year for online video, deep-pocketed capital stood behind every power play, and the barrier to entry kept rising.

This year, when people talked about video sites, they reached for "big words" like closed loop, ecosystem and IP. Beyond those, the two things they mentioned most were livestreaming and danmaku (comments that scroll across the screen over the video).

The clearest example is Douyu TV. The site split off on its own only in January 2014; before that it was a livestreaming section of AcFun (known to fans as "A-site"). Douyu TV wants to be a gaming livestream platform for everyone. It brings in well-known gaming streamers to play and commentate live, while viewers watch online and talk to the streamers through comments and danmaku.

A site that sounds "niche" and "vertical" has, in under two years, reached more than 12 million daily active users and over 130 million monthly active users (we have our doubts about that figure). In November it drew an investment from Tencent said to be "in the tens of millions of US dollars," and media reports put its valuation at 2-3 billion yuan.

Douyu TV's former parent AcFun, and Bilibili, the site it is so often compared with, are turning danmaku from a "niche taste" into a standard feature of mainstream video sites. A "danmaku" button under the player has become video sites' new trick for drawing young people. Most of the time the danmaku on those sites is nowhere near as fun as on AcFun or Bilibili, but the trend is set.

For example, mocking the dubbing while watching a video

AcFun and Bilibili are the two sites most worth talking about in online video in 2015.

The heads of both sites have said in interviews that their user numbers took off only in the past year or two. As Chen Rui, executive director of Bilibili, put it in a speech at Fudan University in October: "As you become the mainstream, Bilibili will become mainstream too. That is inevitable."

In fact, it has already begun to speak for young people more and more openly. Over the past year, much-discussed anime, films and viral videos such as Monkey King: Hero Is Back, We Bare Bears, 5 to 9, and Lei Jun's "Are You OK" all took off on AcFun and Bilibili.

Lei Jun, "drowned" in danmaku in a video

We have written before about Bilibili's hesitation over making money. In looking back at the year in online video, it is worth starting with these once-niche sites, because they raise a central question: will they make the whole industry younger, or will big capital drag them into the usual rules of the game?

1. Youku Tudou did a lot for young people this year, but its biggest news was still the merger that created Heyi Pictures

The low-budget web comedy Never Expected (《万万没想到》) began airing on Youku in 2013, and its first two seasons drew more than 2 billion views. The film based on the series, Never Expected: Journey to the West (《万万没想到：西游篇》), opens this week; in two days of previews last weekend it had already taken more than 100 million yuan at the box office.

The web series Never Expected is already on its third season

Another move that looked small but mattered was the investment in AcFun. In March, Youku Tudou sued AcFun for copyright infringement. Half a year later, in August, Youku Tudou announced it was investing US$50 million in AcFun, yes, the same "defendant" that had pirated shows Youku had paid heavily for. The episode has a touch of black comedy, and it shows that Youku cared less about a token damages payment than about what AcFun could bring it: young people.

Tudou, China's earliest video site, once drew a large following with its artsy, avant-garde image. After buying it, Youku hoped to use that old brand identity to hold on to younger users, but Tudou has been stuck halfway between old and young ever since.

Open Tudou's drama page today and the featured slots still carry old-style taglines such as "Guns for country and people in turbulent times," "Poor country boy turns the tables and wins a rich beauty," and "Bickering sweethearts collide." For Youku Tudou, investing in AcFun may ease the awkwardness of "clamoring for young people while still having to look after everyone else."

Tudou's featured TV drama banner, December 14

In fact, Youku Tudou planned a great deal to attract young people. In web series, besides comedies such as Never Expected and Detective Dee (《名侦探狄仁杰》), it made many late-night shows: the exclusively licensed Midnight Diner, plus its own Chinese version of Solitary Gourmet, Midnight Taxi (《午夜计程车》) and Little Beast Flower Shop (《小野兽花店》). All run late at night, but each aims at a slightly different audience.

The Chinese version of Solitary Gourmet, aimed mainly at midnight viewers

In November, Painful Seventeen (《会痛的 17 岁》), a web series adapted from a Rao Xueman novel, went online on Youku. At its launch event, Youku president Wei Ming described his doubts when deciding to fund it. Young people today like comedy and xianxia fantasy, while Painful Seventeen is about so-called "problem girls," a fairly serious show that viewers might not like. In the end they backed it with the same audience in mind: they believed young viewers need to see series about social issues, a need that audience has without knowing it.

Despite its social themes, Painful Seventeen still looks like an idol drama

To win young viewers, Youku launched its first five-year "Young Director Support Program" in 2009, aiming to help 58 directors make 30 web series and nearly 80 short films. When it ended in 2014, Youku upgraded it into the "Youku Young Director Film Fund," which will put 150 million yuan over three years into developing 10 film projects.

In the race for licensed content, Youku Tudou was not the biggest spender, but it bought every one of the past year's TV dramas young viewers liked best, such as The Journey of Flower, Nirvana in Fire and The Disguiser. It also won broadcast rights to several titles with built-in fan bases: Ice Fantasy, adapted from a Guo Jingming novel; Chinese Paladin 5; the TV version of Finding Mr. Right, with the film's original cast; and the big costume drama Qin's Moon.

A still from Chinese Paladin 5

All of this looks good. But next to Youku Tudou's "big event" this year, it looks rather small.

In August, Youku Tudou announced it was renaming itself Heyi Group, from a phrase meaning "cooperation first." It wanted to become a platform for startups, so that young content entrepreneurs would think of Youku Tudou, and of making entertainment and cultural products with it.

Two months after the rename, a long-rumored deal finally happened: Alibaba announced it would buy Youku Tudou for about US$4.5 billion. Video sites were burning money to outbid one another for licensed content, and Youku Tudou was finding it ever harder to keep up with iQiyi and Tencent Video. The deal changed the picture.

In fact, every video company spent this year talking big about strategy.

2. Behind the merger, the same old rules of the video-site game

Baidu's iQiyi, Alibaba's Youku Tudou (Heyi Pictures) and Tencent's Tencent Video: once again, it has become a fight among the BAT trio.

iQiyi has probably spent the most on variety shows for young people, and it is willing to invest in making them. It bought exclusive rights to the third season of Running Man (the Chinese version) and to Kangxi Coming, and Ma Dong brought in Cai Kangyong, Jin Xing, Gao Xiaosong and others to make I Can I BB, a variety show that sets the agenda for online debate. iQiyi also produced its own shows: Top Model Love (《爱上超模》), featuring supermodels such as Miranda Kerr; Forward, College Students! (《前进吧！大学生》), made by Zhan Renxiong, the producer of Are You a College Student? (《大学生了没》); and S Gang (《S 帮》), co-hosted by S.H.E.

Cai Kangyong choking up while speaking on I Can I BB

Tencent Video started later and has Tencent behind it, and its way of courting young people is more direct: buy lots of quality content.

In TV drama, Tencent Video won broadcast rights to dozens of series, including Zhu Xian, Ice Fantasy, The Legend of Mi Yue and Mr. Good. In film, it signed strategic partnerships with HBO and Paramount, and its 2016 library will top 7,000 titles. Its much-anticipated variety show The 15 of Us (《我们 15 个》) cost a lot and made a lot of noise, but its novel premise, 15 people living on a mountaintop for a year, won only brief attention. Once viewers had finished mocking it, they quickly forgot it.

The 15 of Us, which Tencent Video spent heavily to produce

Now that Alibaba has joined, the buying spree has changed shape. Sun Zhonghuai, vice president of Tencent Video, said Alibaba's arrival leaves them with mixed feelings; the most immediate effect is fiercer competition for licenses. Tencent Video's licensing department has already announced that it has set aside 5 billion yuan for content licensing in 2016.

Running a video site means burning money, starting with bandwidth. A large video site's download traffic can now reach about 10T at peak. Stable data transmission, meaning enough bandwidth, costs a great deal: bandwidth makes up 20%-30% of video sites' total costs.

Variety shows are the same story. Their main audience is young people to begin with, so they too have become something video sites fight over. iQiyi also announced it had won exclusive 2014 broadcast rights to five variety shows, Dad, Where Are We Going?, Kangxi Coming, Happy Camp, Day Day Up and Chameleon Celebrity Show (《百变大咖秀》), for more than 200 million yuan. Youku Tudou spent over US$100 million on content in every quarter of the past year, at its peak equal to 59% of quarterly net revenue.

3. At bottom, the video market is a war for young people's attention

Until recently, almost the only income that could offset a video site's huge costs was advertising. Starting this year, and especially after iQiyi's The Lost Tomb drew an unexpected flood of new paying members, many video sites began to pin their hopes on paid membership.

Sadly, the experimenting stops there, and what is left is mostly more news about spending money. You may wonder why we split this into two parts: the part above was about buying licenses, and the part below is about creating resources, that is, IP, the term everyone loves to use and that anything can be stretched to fit.

The web series The Lost Tomb features many popular actors

What we heard most this year was who had bought which novel from which famous novelist, and how that novel would be adapted into a TV series, a film, a variety show and a radio drama. Beyond that, video sites themselves are swapping resources and investments with traditional TV businesses and with all kinds of new-business companies.

Two players in this contest are worth mentioning. One is Xiaomi. At the end of 2014 it invested tens of millions of US dollars in Youku Tudou, and paid US$1.8 billion for a stake in iQiyi.

In June this year, Lei Jun showed off what his half year of investing in video content had produced: 10 of the 12 companies with the most traffic in China are Xiaomi partners, and 85% of the video content available in China can be watched on Xiaomi TVs and set-top boxes. Following the same path, Xiaomi next wants to add video news, live sports, concert livestreams and more, all content meant for young people.

In June, Lei Jun presented the results of Xiaomi's video-site investments at a launch event

The other is the disruptor LeEco. LeEco started as a video site, but it no longer runs like an ordinary one. In its own words, it will stay out of the brutal license wars and compete against other video sites "from a lower dimension."

Put simply, LeEco wants a piece of every hot area: content, devices, apps and platforms. Its approach to content follows from how it sees audiences, which is household by household. So when it picks content, it favors what families enjoy: sports events, children's cartoons, and TV dramas of every kind, so long as they are TV dramas.

LeEco's main offering is TV dramas, and it also stresses parent-child programming

In an earlier article we argued that one of the biggest changes in the TV drama market this year is that more and more dramas are being made for young viewers. Video sites are a major force behind this shift. They need young viewers, so they need dramas aimed at the young, and naturally they pay heavily for them. That money ends up giving producers the incentive to develop new dramas.

Online rights to hit dramas have soared in recent years. In 2012, LeEco paid 20 million yuan for exclusive rights to Empresses in the Palace. By 2015, LeEco spent 78 million yuan on exclusive online rights to The Empress of China. Rumor has it that this year's Nirvana in Fire sold its online rights for 80 million yuan. The online broadcast rights to a hit series are now worth nearly 100 million yuan.

Xiaomi and LeEco both trade on concepts. They are also, of course, the companies most fluent at telling strategy stories. In a noisy year for online video, deep-pocketed capital stood behind every power play, and the barrier to entry kept rising.

4. So where does real innovation happen?

Over the past year, the small companies that chose video sites as their startup business all came to a bleak end. Any startup video site that had not reached some scale by 2015 has a very slim chance of surviving. Services that were around a year ago, such as Baomihua Video, Viki and Jinerkan, have mostly gone silent this year.

In short, big capital started playing with video this year, and everyone is talking strategy again. The video-site market has been hyped into a bubble that grows stranger the more it is hyped. Bilibili's head once said that the world, in the end, is "ours, only with the BAT standing behind us."

Yes, from the BAT at the top down to every player in this ecosystem, it seems everyone is doing all they can to serve young people. But content that is truly young and full of life comes from the margins, places capital never used to notice. The reason is simple: to keep costs down and stand out, those sites care about one core group, and that attitude of "I only care about the people I want to care about" is where cool comes from.

Yet the noise keeps growing, and so does the cost for a small company to break through. Under the big-capital model, if another site like the Bilibili or AcFun of old were to appear, how would it grow, and once grown, how would it keep its character? Perhaps no one can answer that with confidence.