Bilibili's Nasdaq Listing Is Days Away, and Nothing in Its Prospectus Has Met With Good News

"A vigorous advocate for traditional Chinese culture"?

On March 22, the State Administration of Press, Publication, Radio, Film and Television sent out an urgent directive demanding a "resolute ban on the illegal scraping, cutting, splicing and adapting of video programs". Among the practices it named: re-editing, re-dubbing, replacing subtitles, distorting original meaning, and twisting, parodying or defacing classic works of literature and art.

Everyone gasped on Bilibili's behalf.

Unlike video sites such as Youku, iQiyi and Tencent Video, which run mostly licensed programming, Bilibili takes pride in its PUGC — Professional User Generated Content, videos made and uploaded by its own creators, known as uploaders. Many of the site's signature genres, including guichu ("ghost-possession" remix videos), MADs and the "understand a movie in three minutes" series, are built by re-cutting and re-dubbing other people's programs. Enforce the directive strictly and most of what sits in Bilibili's MAD·AMV, guichu, entertainment and film-and-TV sections would disappear.

The directive landed six days before Bilibili's Nasdaq listing, set for March 28 local time. Step back and the pattern is clear: since filing its prospectus on March 2, Bilibili has not had a single piece of good news.

Elizabeth Rat, a guichu uploader, wrote on Weibo: "If this thing is really enforced as written, the guichu section is finished." The post has since been deleted.

Elizabeth Rat is no ordinary uploader. In the prospectus, Bilibili gave its uploaders two full pages, calling them "a key source of our user traffic and a key driver of our user base and community growth." Elizabeth Rat is one of five uploaders named there: "One of his most popular guichu videos, 《黑喂狗》 ('Kill Him, Feed the Dogs'), has been viewed more than 12 million times. As of December 31, 2017, he had approximately 2.2 million followers on our platform."

Part of the footage in 《黑喂狗》 — the very screenshot the prospectus reproduces — comes from the old television adaptation of Romance of the Three Kingdoms. The clip became one of guichu's favorite raw materials because of the scene in which Zhuge Liang and Wang Lang face each other across their armies: Zhuge Liang delivers the famous line "I have never seen anyone so utterly shameless," and Wang Lang coughs up blood and falls off his horse. That looks like exactly the "classic works of literature and art" the directive has in mind.

Uploaders like Elizabeth Rat are the most important part of Bilibili. By the prospectus's own numbers, Bilibili had an average of 204,000 active uploaders a month in 2017, twice as many as a year earlier. They posted 835,000 videos a month, close to 70% of all new videos on the site, and those videos drew 85.5% of all views.

Fate/Grand Order, the Mobile Game That Brought Bilibili 1.5 Billion Yuan

For years, everything people wanted to know about Bilibili came down to one thing: how it would make money. Wherever Bilibili's chairman went, that was the question he was asked most. Otaku culture — the "two-dimensional" world of anime, comics and games — had swept through young Chinese, and nobody had found a good way to cash in on it. As the benchmark company of the whole industry, Bilibili carried the hopes of the whole industry.

Bilibili had always been treated as a video site, and no video site in China had ever made a profit. In 2016 its operating loss reached 894 million yuan, which seemed to settle the argument.

It tried plenty of things: a program to sponsor new anime series in 2014; a travel business in early 2015; Bilibili Pictures in November of that year; paid memberships in 2016; the "Oasis Plan" in 2017 to help brands and uploaders run ads. None of it worked well enough to call a success. At BML, Bilibili's offline event in mid-2017, chairman Chen Rui told the dozens of Chinese and foreign reporters in the room: "I think Bilibili's monetization is still at a very early stage."

Then a mobile game called Fate/Grand Order (FGO) exploded in 2017. It is a spinoff of the Fate series, the text-adventure franchise published by the Japanese game company TYPE-MOON. The anime Fate/Zero had been a hit on Bilibili, and it dropped plenty of viewers straight down the FGO hole; the game's gacha-style in-app purchases then squeezed their wallets for everything they were worth. Across 2017, FGO brought Bilibili nearly 1.5 billion yuan — close to three times the company's entire revenue in 2016.

In the roadshow deck it showed American investors, Bilibili listed mobile games as one of its core business models. "The majority of our mobile game players are converted from our community." By reading what its users want, Bilibili believes it can tailor game recommendations to them — and that, in its own telling, is its core advantage in the game business.

Livestreaming and advertising were described as having "tremendous monetization potential." Together they made up 13.6% of Bilibili's 2017 revenue, down from 27.8% in 2016.

But the game business is not steady. It leans almost entirely on one title, and mobile games have short lives, so whether Bilibili can hold its game revenue through 2018 is an open question. Games, moreover, are an internet entertainment product, which means they run into regulators too.

In January 2018, the Ministry of Culture cracked down on vulgar content in online games, and FGO, which Bilibili operates, was on the list — the stated reason being that "multiple female characters are dressed revealingly, with large areas of exposed skin, containing content that violates public morals." Bilibili then asked the game's Japanese developer to change the offending material.

Censorship and "Self-Censorship"

Bilibili lists government regulation as a risk factor.

"The Chinese government and regulatory authorities periodically tighten controls over internet content… Failure to comply with these requirements could lead to the revocation of internet content licenses or other permits, the shutdown of the relevant websites, and damage to reputation. Website operators may also be held responsible for censored information on their sites."

In fact, as Bilibili's game revenue shot up over the past year, regulation quietly replaced monetization as the thing outsiders worried about most. At the very event where Chen Rui said monetization was still early, one of the first questions from the floor was how Bilibili would answer for the mass takedown of videos a few weeks before.

On the evening of July 12, 2017, film and TV content vanished from Bilibili in waves; Japanese and Western films were wiped out almost entirely. Chinese dramas went too, among them 《我的团长我的团》 (My Chief and My Regiment) and Li Shaohong's adaptation of Dream of the Red Chamber. The next day Bilibili put out a statement: "In order to maintain the standards of content on our site, we will be reviewing the film and television content on the platform."

Asked about it again, Chen Rui said: "The review we announced was our own self-review. In fact, this round of content review and the removal of some film and TV titles was purely a strategic adjustment we made ourselves to our content operations." He did not say what the adjustment was.

Set against the past year of relations between the entertainment business and the government, Bilibili is one of many entertainment companies and social networks adjusting themselves, willingly or otherwise. In 2018 alone there has already been a blanket ban on hip-hop, the banning of the livestreamer MC Tianyou, a week without Weibo's trending-search and hot-topic lists, and a week with the Zhihu app pulled from stores. On March 23, Weibo published a list of accounts — "Movie Hoarding Maniac" and "Mystery Movies" among them — shut down permanently or silenced for a month for posting pornographic films and links to unlicensed programming. For a while everyone on Weibo was jumpy, and the big film-and-TV accounts announced they would go quiet until it blew over.

In the prospectus, Bilibili explains at length the review system it built to handle government regulation. It works in two stages. The first gate is an artificial-intelligence system that matches newly uploaded videos against Bilibili's own blacklist database to catch anything that may infringe copyright or carry illegal or inappropriate content. Whatever passes goes to human reviewers, who work in shifts so that videos can be checked promptly 24 hours a day, seven days a week. Bilibili trains these staff regularly to keep up with shifting rules and policy. There are more than 200 of them, over 10% of everyone the company employs.

Even that does not make it safe. "The relevant authorities have final authority to interpret Chinese laws and regulations. It may be impossible for us, as a platform operator, to identify in every case the content for which we could be held responsible."

"Generation Z"

Bilibili may have missed something: the pressure to police content comes not only from the state but from users — and lately that is the pressure Bilibili has struggled most to handle.

On the afternoon of March 10, a user who said she was a single mother posted on NGA, a forum built mainly around the online game World of Warcraft, furiously accusing a 15-year-old middle-school boy of drawing her 10-year-old daughter into "wenai" — sex by text — and egging her on to run away from home, even to kill herself. What put Bilibili in the middle of the storm was the mother's claim that the boy was a Bilibili uploader who went by Kelisi.

Criticism of Bilibili grew until it became an accusation that the site tolerated child pornography. A Zhihu user, Xuexiezuo de Sangshi, wrote that some videos on Bilibili appeared to sexualize young girls, and posted screenshots of the danmu comments and reviews under them as evidence. One piece of internet slang that kept coming up — "three years in prison is a steal, even the death penalty is worth it" — is a reference to the rape provisions of China's Criminal Law.

The affair ended with an apology. After permanently banning Kelisi's account, Bilibili wrote: "Bilibili firmly opposes any speech or behavior that harms the physical and mental health of young people… We will do everything we can to put the education and protection of young people first."

Bilibili is proud of how many young users it has. Facing American investors, it played down its otaku and ACG labels and told a story about Generation Z instead. Of Bilibili's 76 million monthly active users, it stressed, 82% belong to Generation Z — those born between 1990 and 2009. In 2018 that generation runs from 9 to 28 years old.

Picking the Generation Z label was, of course, partly a way to please American investors. In the United States, Generation Z also goes by "post-Millennials" or "iGen." Forbes puts Generation Z at about 25% of the U.S. population, more than the Baby Boomers or the Millennials. On numbers alone, it is the generation businesses court hardest.

Generation Z has traits of its own. They are called digital natives, and they spend readily on virtual goods. Borrowing the concept wholesale plainly made Bilibili, an internet company, easier for Americans to understand. The first page of its roadshow deck reads: "Our vision: to enrich the everyday life of young generations in China."

Around Generation Z, Bilibili has drawn a business model that looks airtight. They grew up online, so they are more willing to pay for virtual goods; they want more entertainment and want to make it themselves, so they became both the producers and the consumers of Bilibili's PUGC videos; and along the way they built a culture of their own, which keeps them stuck to Bilibili.

Bilibili calls itself a Generation Z community; earlier it billed itself as "the cultural playground of the next generation." What it does not mention is that its relationship with Generation Z has not always been an easy one.

In its early years, when Bilibili was still seen as an otaku community, users disliked the site for its commercialization and for what commerce did to the community's culture. In 2015, QDaily approached both AcFun and Bilibili; both refused interviews. One employee explained: "To our users, commerce is an evil thing."

As Bilibili pushed step by step toward making money, users got used to commerce arriving a little at a time. In January 2018, Bilibili for the first time put new anime episodes behind a paywall on a large scale, exclusive to paying members or available to them early. The move caused some argument, but the noise was nothing like it once would have been.

What users now demand of Bilibili has more to do with morality. They want the site to set a moral standard for Generation Z, not feed Generation Z harmful things. And Generation Z has appointed itself the vanguard of that morality.

In February 2018, Darling in the Franxx, an anime iQiyi had licensed, was taken down. Users were already unhappy that the show flirted with soft-core sex. What lit the fuse was a video by LexBurner, a Bilibili uploader who makes his name roasting anime, in which he roasted this one. He is, as it happens, another of the five uploaders named in Bilibili's prospectus.

In the comments under that video, some users took his roast and ran with it. One of them, Ni Tiaozhe Dan, reported the show to the relevant national authorities and posted the report's confirmation code in the comments. Not long after, iQiyi announced that Darling in the Franxx was coming down. LexBurner then wrote on Weibo: "All of this started with the video, which I've deleted. The chain reaction started with an ill-considered rant of mine at the time — that's on me. Whoever you are, reporting an anime is a really stupid thing to do. Please, please don't. It does nobody any good at all."

The Kelisi affair did not end when Bilibili banned the account. Worry about child pornography pushed some users to report every video on the site that seemed to push the line: MMD videos of little girls in swimsuits, an anime about a same-sex teacher-student romance.

Never before have the personal tastes of Generation Z shaped how a website is run this forcefully. They are good at using the internet to build up influence, and the government's tightening grip on "harmful" content has made platforms more timid — the consequences of regulatory attention are not something they care to carry.

"A Vigorous Advocate for Traditional Chinese Culture"

After the Kelisi affair, Bilibili volunteered that it would set up a youth rights-protection station under the guidance of the Communist Youth League Central Committee, to "provide psychological counseling, self-protection education and legal services for minors."

Last November, at an internet audiovisual conference in Chengdu, Chen Rui spoke on the theme "Young Momentum" and explained Bilibili's relationship with traditional culture.

"Why is traditional culture so popular on Bilibili? Is it because our operations team did something specific to make that happen? Of course our team recommends and promotes good content. But the real reason has to do with who Bilibili's users are."

"Lately I keep hearing people talk about how Chinese traditional culture can be revived, how to reinvigorate our own culture. What do I think the key is? I think the real key is young people. If young people don't like or accept Chinese traditional culture, if only middle-aged and older people like it, then it certainly won't be passed down. So getting young people to like it, and to spread Chinese traditional culture of their own accord — that is the key to reviving it."

"On Bilibili at least, I can see that this generation of young Chinese genuinely likes Chinese traditional culture, and I find that very reassuring."

In the prospectus, Bilibili also wrote: "We are a vigorous advocate for traditional Chinese culture, and we consciously use our content to help our users discover and understand China's rich and profound history and cultural heritage."

About its relationship with the two-dimensional world, Bilibili said little, only this: "Bilibili started as an ACG content community and has grown into an all-round online entertainment world, covering a wide range of categories and media formats, including videos, live broadcasting and mobile games."

Since the March 22 news, some people have already started adjusting on their own. Blind After Reading, a self-publishing account that makes film commentary, announced: "In order to comply with the relevant policies and regulations, we have decided to take down all of Blind After Reading's film commentary videos for the time being, to conduct a self-review, a clean-up and improvements."

Cover image from Bilibili.