Teaming up with TV Production to Get Quality Contents

Chinese Internet giant Tencent signed a strategic cooperation framework agreement with Chinese TV Production HBPictures on December 22, a move to ramp up its online video arm Tencent Video’s content reservoir. Tencent invested RMB 440 million (US$ 69 million) into HBPictures in this May.

Under the agreement, the two would take concerted efforts to invest into and promote new TV series, etc. Tencent would set up a special channel for the production company while HBPictures would offer Tencent more than 800 episodes of its TV drama, exclusively.

Sohu just partnered with Lionsgate to have access to the latter’s films and more. And back in this August, the Chinese portal announced its 7 Films Project to produce its own short films with RMB 10 million yuan (US$ 1.5 million) poured into it.

 

Contents Cost Ever Rising

As we mentioned earlier, copyrighted content cost has been rising in an unprecedented speed that in just five years cost of copyrighted content skyrocketed 1000 times, largely due to those big names such as Sohu, Qiyi, Xunlei and Tencent are all in scramble for quality contents. Youku’s content purchasing cost would rise up to US$ 41 million in FY11, a Goldman Sachs report said.

Everyone is buying anything they’re offered by the content providers. Everyone is competing with each other by bleeding money. Qiyi CEO Dr. Gong Yu once revealed that Qiyi’s #1 cost is bandwidth, with content (#2) and manpower cost (#3) following. The same applies to Youku and Tudou. As we can tell from Youku and Tudou’s Q3 2011 financial results, their contents cost is about to surpass bandwidth cost.

For Youku, its content cost in Q3 2011 reached RMB 67 million (US$ 10.5 million) while its content costs in 2010 in total was only RMB 82.7 million (US$ 12.5 million). Tudou’s content cost in Q3 2011 was US$ 6.7 million.

Youku CFO Liu Dele said that content costs would keep rising in next year.

 

Is Hulu Model the Right Path for its Chinese Clones?

Since the founding of Hulu that stole the thunder from Youtube and media reports raving about the profitability of Hulu model, Chinese video sites gradually swirled from their original track from UGC-centric to quality content-focused. At the end of the day, the latter is more appealing to advertisers – probably one of the few ways to pull in money. So from last year onwards, Chinese video sites got started splashing money to quality content suppliers both in and out of China,  by doing so they did gain traction among viewers and advertisers, but also drive up the cost enormously.

One of the reasons Hulu have access to a large content library, is because that the site was co-founded as a joint-venture by some of the largest TV Networks and media giants in the Sates like NBC Universal, Fox Entertainment Group and Disney-ABC Television Group. The site was born with a silver spoon in its mouth whereas its Chinese siblings are not so lucky.

According to former Yahoo! China chief Xie Wen, Hulu model isn’t the most feasible model in China due to “China video sites’ inability in in high quality content producing, pirating and local TV networks’ domination position.” Unless someone is willing to invest huge amount of capital into this to change the ecosystem, otherwise it’s not gonna work, he added.

Tudou CEO Wang Wei and Youku CEO Gu Yongqiang echoed Xie’s statement, citing different market environment as the main cause.

Maybe that’s why Sohu and Tencent wanna invest their way into the final stage, by partnering with TV Productions, they can have direct access to latest TV serials and films, oftentimes exclusively. This would give them competitive edge over other rivals in a time when content is so vital to their future picture.