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China's online video firms post profits
Last Updated(Beijing Time):2011-08-29 15:47

By Zhao Jin

A new research carried out by McKinsey, a market research institute, indicates that there will be more than 700 million people times in China watching network videos in the coming four years. Although the market potential is immense, the conclusions given by the market consulting company is relatively conservative. The company has pointed out that the industry can make a profit indeed, but only companies with solid financial strength can survive in this industry and share the profit.


Coincidently or not, a number of domestic video websites had already begun to make a response with profits.

On 28th July,, a listed company on GEM (growth enterprise market) in China, released its financial report of the first half of this year. The sales revenue reached RMB 223 million yuan, with a year-on-year basis increase by 118.79 percent; the net profit reached RMB 58,395.1 thousand yuan, with a year-on-year basis increase by 87.24 percent. As the first and the only purely domestic-funded A-share listed network video company in China, is the first domestic company to make a profit in this industry.

It happens that there is a similar case., which was preparing for IPO in American stock markets not long before, became the second network video company following made a profit. According to Xunlei's prospectus, Xunlei's total revenue in 2008, 2009 and 2010 reached 16.8 million, 29.8 million and 42.8 million US dollars respectively, and the CAGR (Compound Annual Growth Rate) for the three years reached 59.7 percent. In 2010, the annual operating profit reached US$7.1 million dollars, and the net profit reached US$8.47 million dollars. Although delayed its IPO for the moment, it will take no longer to launch because it has been making a profit.

As and became the leading companies to make a profit in the industry, video websites are very close to the breakthrough point of making a profit. Not long before, released its financial report, which showed that its deficit had been narrowed. Victor Koo, CEO of predicted that was expected to make a profit in 2012.
 "Three carts" head for the profitable destination

At present, video websites can be divided into two groups in terms of profit model: one is characterized by "cost free & advertisements" represented by and, and its main revenue comes from advertisements; the other group, represented by, is characterized by chargeable high definition videos, and its main revenue comes from pays for video broadcast, copyright distribution, and advertisements.

Web portals such as Sohu and Tencent and search sites such as Baidu have begun to enter into video industry on a large scale, and they have swiftly taken over a large portion of advertisements, leaving video websites such as and, which regard advertisement revenue as their backbone, severely dashed. These video websites come to realize that they have to explore new profit channels based on the existing models if they want to make a profit.

Experts in the industry deem that taking video advertisements as the main profit model has its limitations, because when video advertisements reach a certain scale, it is hard to make a bigger breakthrough within a short time. However, and, the first profitable video websites, have explored a new path for video websites to make a profit.

Since the beginning of this year, video websites including,,, and have launched paid services besides advertisement revenue, with the purpose of making a profit as soon as possible. In addition, Youku, Xunlei, and PPTV have joined the "Movie Network Theatre Chain Distribution Alliance" initiated by to explore new paying models together.

Youku, Xunlei, PPTV, etc. have begun to purchase exclusive movies and teleplays and become members of the copyright distribution team., which has just been an entrant, has given up the arrogance of exclusive network copyright. After obtaining the network copyright of New Princess Pearl, a hot TV play that was being broadcast in Hunan Satellite TV, distributed it to,, and, which started business from paid services of high definition, has also achieved a biggish increase in advertising service. Its financial report shows that its brand advertising revenue in the first half of the year achieve RMB 45,456.2 thousand yuan, increased by 45.57 percent year on year.

COO (Chief Operating Officer) of Liu Hong pointed out that advertising revenue, paid broadcast service, and copyright distribution had become "three carts" by which video websites could achieve profits, and the "three carts" promoted main video websites to make a profit as soon as possible.

Copyright: the most substantial guarantee of profit

The latest data show that there are 485 million cyber citizens and 301 million video subscribers in China, and the penetration rate reaches 90 percent. Movies and TV plays are the content requirement, so for advertisers, professional movies and TV plays possess incomparable commercial value that short videos.

As the development of network video industry accelerates, supervision departments have strengthened their efforts in cracking down pirated videos. Main video websites have seen the era of purchasing legal movie and TV play copyright, ready to put up a desperate fight in the battlefield of movie and TV play market.

New Princess Pearl, a hot TV play that is being broadcast at the present time, fully demonstrates the trend. first obtained the premiere right of New Princess Pearl with RMB 30 million yuan, and announced with a high profile that it would invest RMB 50 million yuan on the marketing and promotion of New Princess Pearl Sohu videos.

Faced with the extremely high copyright fees, many domestic video websites are forced to give up the competition for the premiere right of New Princess Pearl. Only, one of the top enterprises in the industry with advantages in platform and ability in making a profit, and another several video websites such as and, which have been advocating linkage of TV stations and websites, firmly followed up and purchased the network premiere right.

Judging from network premiere rights and interests,, and are almost on a par. has not only integrated multiple terminals such as PC, mobile phones and TV to provide cyber citizens with overall high definition movies and TV plays with legal copyright, but also invested more than RMB 10 million yuan on metro, bus and building TV advertising to extensively advertise and promote the TV play.

According to Liu Hong, now people have come to realize that movie and TV play copyrights are the core resources which decide the development of video websites, and inevitably lead to the continuous raise of copyright price. Although the price has increased by dozens of times compared with that of several years ago, the price is still far from its peak.

He also pointed out that if a company wanted to make a profit in the continuous increase of copyright price, it had to, on the one hand, obtain first-class resources; on the other hand, it had to have excellent strategies to support the realization of copyright value. 
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