Mango TV Wants to Be a Real Video Site. How Far Off Is It?

Not an online version of Hunan TV but a real internet company — and that may have to start with moving its headquarters out of Changsha.

"Should someone else dig our grave, or should we dig it ourselves? Better that we dig our own hole!"

Two years ago, Hunan TV revamped its two platforms, Golden Eagle Online and Mango TV, and merged them into a single online video platform called Mango TV. Zhang Yong, then general manager of Mango Media, said Hunan TV was digging its own hole with its own hands.

This was Hunan TV trying to save itself from the shock of the internet.

More and more young viewers had already become users of video platforms like LeTV, Tencent Video, iQiyi, and Youku. Even those who hadn't given up television entirely no longer watched the TV screen alone — a phone or an iPad was almost always in hand at the same time. Hunan TV, long the channel best at pulling in young viewers, probably felt that shift more sharply than anyone.

This rescue attempt has, for now at least, won over investors. On June 23, Mango TV announced it had closed a Series B round, raising nearly 1.5 billion yuan at a post-money valuation of 13.5 billion yuan. Against the 7-billion-yuan post-money valuation of June last year, Mango TV's valuation has nearly doubled.

In a sense, Mango TV is widely taken to be the future of Hunan TV. Lü Huanbin, director of Hunan Broadcasting System, once said he hoped Mango TV could reach the level of a first-tier video site within two or three years. So how far from that level is it now?

Mango TV's valuation isn't low, but the gap with other video sites is still wide

After this round, Mango TV carries a decent price tag. But 13.5 billion yuan still trails the other video platforms by a good margin — even iQiyi, the closest, is 5 billion yuan ahead.

Active users show the distance from the first tier even more starkly

Figures through this March put Mango TV's mobile monthly active users in the tens of millions, while iQiyi, Youku, and Tencent Video each have more than 100 million. Mango TV has kept growing fast — monthly active users are up 100% year on year, and it recently passed Sohu Video to lead the second tier — but the first tier is still a long way off.

The first-tier video sites have Baidu, Alibaba, and Tencent behind them. Mango TV's big boss is still Hunan Broadcasting

Mango TV gave up only 11% of its equity in this round. Alongside existing shareholders, the new investors include the Shenzhen Everbright New Entertainment Industry Fund, Guangzhou Yuexiu Lichuang No. 3 Industrial Investment, the Mango Culture and Creativity Investment Fund, Jianyin Huawen Media Investment, Shanghai Junyong Investment, and Beijing Zhonghe Dingyuan. Two Series A shareholders — the Hunan Culture and Tourism Investment Fund and Xiamen C&D Emerging Industry Investment — also joined the capital increase. Alibaba, rumored earlier to be investing, did not. In other words, this round changes nothing about who controls the company: Hunan Broadcasting still holds 82.48% of the equity, an absolute majority.

That isn't necessarily good news. It means Mango TV remains "inside the system" — and we all understand what those words do to innovation.

The other mainstream video sites, meanwhile, have internet giants behind them. The three first-tier sites now belong to Baidu, Alibaba, and Tencent respectively. Those parents bring deep experience in the internet business, and they are capital giants in their own right, able to back their video arms with far more — in distribution and in money. Jia Yueting, a skilled operator in the capital markets, has likewise kept control of LeTV.com: after fundraising and an IPO he still holds 36.79% of the equity, making him its largest shareholder.

Mango TV's executive lineup also makes it hard for the company to compete as an internet business

Mango TV's executives came up almost uniformly through Hunan TV, which leaves little room for newcomers to rise. That follows from Hunan Broadcasting's determination to keep a tight grip on the company.

So talent has been flowing to internet companies instead. Xie Dikui, who drove the hit variety show Where Are We Going, Dad?, left Hunan TV last December and went on to work with Tencent Video on the self-produced online variety show Star Date.

Xie's departure was not an isolated case. Soon after, Liao Ke, director of Divas Hit the Road, also announced his resignation, and there were even rumors that the channel's star host, Wang Han, might go. In fact, from late 2015 on, every major satellite channel saw a wave of exits.

Cen Junyi, former chief director of Zhejiang TV's Hurry Up, Brother; Yi Hua, former chief director of Shenzhen TV's The Amazing Race China; Yuan Chunjie, former deputy head of Dragon TV's business center and its advertising director; Zhao Jun, former deputy channel director and head of programming at Jiangsu TV; Wang Ping, former deputy director of Hunan Broadcasting. They either set up their own content studios or joined video sites, carrying the production experience they had built at traditional broadcasters into the fight over the online video market.

The content advantage Mango TV counted on is being caught up

In June 2015, when Mango TV closed its 7-billion-yuan Series A round, Nie Mei, chairwoman of Happy Sunshine, said 4 billion yuan of that "was recognition of internet TV" — that is, of the production strength Hunan TV had accumulated.

Hunan TV had won young viewers with one variety show after another — Happy Camp, Super Girl, Day Day Up — plus a run of youth-oriented exclusive drama slots, and came to be seen as the most inventive and most entertaining channel on television.

Its audience skews young, and young viewers happen to be heavy internet users. So Mango TV borrowed the fan base Hunan TV had already gathered to assemble its first core group of users.

According to Zhang Ruobo, Mango TV's CEO at the time, traffic to the site jumped dozens of times over after just two exclusive episodes of Divas Hit the Road — "more than 3 million daily active users on average." Against the big video sites, he said, "we're at least in the same order of magnitude." By July 2014, Mango TV had more than 10 million PC users, more than 3 million internet-TV users, more than 10 million mobile-TV users, and 1.5 million IPTV users, which put it in the video sites' second tier.

But that content advantage is now being caught up.

In early May this year, Tencent Video's variety department announced the Hi Fund, which will put 1 billion yuan a year into work with eight production teams — Ma Dong's among them — to incubate strong variety projects.

U Can U Bibi, produced by Ma Dong's studio, averages nearly 20 million views an episode. That is not a huge number, but the argument the show sets off on Weibo and Zhihu is a match for any variety program going.

First-quarter ratings for provincial satellite channels, from CSM52-city data, show Hunan TV down 34.2% year on year, falling from first place to third. Its old entertainment warhorses pull fewer eyeballs, and newer shows such as Run For Time and Amazing Friends have landed flat, making it harder and harder for Hunan TV to hold its place as the country's top variety channel.

Which has weakened Mango TV's exclusivity advantage too

When Mango TV launched, Hunan TV announced that it would hold exclusive online rights, across the whole internet, to the channel's recent hits and upcoming shows — Sing Battle, Divas Hit the Road, X-Change Season 8 — "to reinforce our exclusive advantage and set our own rules." All of them went to Mango TV free of charge; at the prices of the day, the licensing alone was worth at least 400 million to 500 million yuan a year.

In Mango TV's early days the exclusivity strategy did bring it real traffic. But once the content advantage weakened, exclusivity lost its value along with it.

As the two charts above show, every video site now has exclusive shows of its own. And on licensed content and self-produced content alike, the video sites do better than Mango TV at matching what users want.

Exclusive shows have also become a powerful tool for signing up paying subscribers. iQiyi took in nearly 200 million yuan in membership fees off Descendants of the Sun, and after Yu Zui became a hit it announced loudly that it had added 10 million paying members in six months. LeTV.com gained 2.2 million members and 41 million yuan in revenue from last year's hit drama Go Princess Go.

Mango TV sees the problem, yet still can't break its dependence on the Hunan TV system

Mango TV knows what leaning entirely on the Hunan TV system could cost it. From 2016, its own productions became the centerpiece of its publicity.

At Mango TV's summer-autumn product launch, CEO Ding Cheng said: "All of Hunan TV's dramas and variety shows together account for 38% of what's on Mango TV; the rest is mainly self-produced dramas and self-produced variety shows." Mango TV is trying to turn itself from a distribution channel into a platform for original content.

Its plan splits original content in two: reworking classic intellectual property for the internet (hard, but with plenty of room), and pure originals (web dramas, shows, web movies and the like).

Still, it cannot shake the Hunan TV system. Take Super Girl 2016, regarded as Mango TV's marquee show this year, which airs online only. It is still led by Hunan Broadcasting, still sponsored by Mengniu, still produced by Tianyu Media, and still run the old way: open auditions worldwide, elimination round after elimination round.

The one difference is a reality-show element: the production team plans to show the making of an "idol" in full, through 24-hour, 360-degree livestreamed reality footage.

But this piece of intellectual property, which belonged to Hunan TV ten years ago, has not pulled much of a crowd this time. The Super Girl 2016 finale has passed 20 million views, yet the show never became the phenomenon it once was, and the talk it generates falls far short of a decade ago.

Mango TV's Liu Chenliang reads it differently: "Idols today are segmented. It's not like before. Now we call it a 'private idol' — it's no longer a matter of me liking someone and you having to like them too. It's that I have the people I like and you have yours."

Mango TV is also seen as a safe harbor for Hunan TV's content under the "entertainment restriction orders"

Hunan TV does treat Mango TV as a key piece of its internet strategy. But it is also seen as a refuge for a good deal of the channel's content. In recent years the broadcast regulator has issued a string of "entertainment restriction orders," limiting airtime, formats, and subject matter.

So a batch of TV variety shows moved online. This April the regulator formally issued a notice restricting parenting-themed variety shows, which meant Where Are We Going, Dad? could no longer air on television. Super Mom, already planned, was caught by the same rule; it moved to Mango TV instead, became a breakout hit there, and neatly avoided the losses a suspension would have caused.

The hidden risk is that Mango TV may end up carrying the job of absorbing risk on Hunan TV's behalf — especially when a show isn't very good. That pull in two directions could also keep Mango TV from ever becoming a genuine first-tier video platform.

The gap in advertising revenue makes the point more bluntly

Hulu, the American video platform, may offer Mango TV something to learn from

Next to Netflix, Hulu looks more like the product of the TV networks reinventing themselves. It has money from traditional companies such as Universal and Disney and first call on their content libraries; for a long stretch, like Mango TV, it lived off the dividend of first-rate network programming.

But Netflix, the challenger to the traditional networks, came from behind and passed it. Netflix grew fast from an online rental site into a giant of the film and television business, and its main revenue still comes from selling something — only now that something is first-rate original content.

The two businesses overlap more and more. Netflix has paid heavily for first streaming rights to Disney films, and Hulu's original series have picked up Golden Globe nominations.

But Netflix, which never carried a traditional network's baggage, now runs far ahead of Hulu in both revenue and subscribers.

From the beginning, Mango TV prepared for three years without profit, and for losses of nearly 1 billion yuan. Its strategy of original programming, exclusivity, and even livestreaming fits where the market is going. Even the measured pace at which it releases fundraising plans and investment news looks like the work of a company that came prepared.

Its goal is clear: no longer the online version of Hunan TV, but a real internet company.

Yet look at Mango TV's reviews in the App Store and most of them praise Hunan TV's programming. For most users, Mango TV is still just Hunan TV online.

Mango TV probably needs a more open equity structure, a more open management structure, and more people with internet backgrounds. The internet's talent, capital, and competitive climate are not in Changsha.

To become a real internet company, Mango TV may have to start by leaving Changsha.

Charts: Wu Lingwei

Cover image: Visual China Group