China's Netflix Wannabes Spend Billions to Win New Viewers.
That's the headline on a Bloomberg News story Tuesday about the country's crazily competitive market for online streaming. The reporters outline the "no limit" spending strategies being undertaken by those three familar names: Baidu, Alibaba, Tencent.
The competition is not dissimilar to the taxi wars that ended in a victory for Alibaba and Tencent (Didi) and a profitable defeat for Baidu (Uber). It's perhaps more akin, though, to the online-to-offline -- or O2O -- battle in which the three are engaged to lure consumers to their platforms to buy movie tickets, order food and book restaurants.
There's a key difference that makes online video extremely important, and one that has the potential to burn more money and resources than either taxis or O2O. Whereas the previous two were about securing a share of transactions, streaming is really a fight not just for viewers, but for viewers' time.
In the old physical paradigm there's the adage: buy land, God's not making any more of it. In the online realm, companies are aware that time is the finite resource. Users have 24 hours in a day, and myriad ways to spend it.
For those outside China unaware of how the maker of a mere chat app grew to be the country's most valuable company, I have reproduced a chart first published by Bloomberg Intelligence a few weeks ago:
What's amazing is that even if you took WeChat (35%) and QQ (10%) out of the picture, Tencent would still have 7 percent of users' time, against 9 percent and 10 percent for Baidu and Alibaba. And the "other" category accounts for 29 percent -- a fat market ripe for the taking.
While it's common to compare services like Baidu's iQiyi and Alibaba's Youku Tudou to Netflix or even Youtube, a better comparison would be Amazon's Prime video service. That's because Netflix is a standalone business, born out of a physical video rental service, and it now lives and dies on the ability of shows like "Narcos" to attract more paying monthly subscribers.
Baidu, Alibaba and Tencent, on the other hand, are using video to supplement their existing business and grab consumers' attention, as does Jeff Bezos and The Everything Store. While video does garner a nominal subscription fee, the price-sensitive Chinese market and competition from licensed and pirate video offerings means that this won't be enough to cover costs.
Being mildly unprofitable is fine. In addition to capturing user time and keeping customers in their orbit, these services collate valuable demographic information to sell ads not just for that specific offering, but across a company's ecosystem -- or to be sold to third parties. And since user attention is a zero-sum game, time spent with one service means time that user is not spending watching ads or delivering usage data to a rival.
I've already argued that Tencent has Baidu on the back foot in the ad space, and Baidu's search business model is in trouble. Yet Baidu and Alibaba can claw their way back into advertising relevance with attention-heavy offerings like video because, ultimately, every minute they can steal from a user's WeChat time is a victory.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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Tim Culpan in Taipei at email@example.com
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