The first wave of Chinese live video streaming websites emerged in the second half of the 2000’s, later spawning into ‘virtual gift’ businesses, a model that has become as lucrative as gaming.

These platforms enable viewers to reward content contributors with virtual gifts that can be purchased with real money. Platforms in turn take a cut of each virtual item. The highly profitable sector has unsurprisingly attracted third-party companies who retail virtual gifts or market content for contributors or platforms.

Nasdaq-listed YY is considered a typical example and one of the most successful companies in the field. Originally creating an online games portal and a voice messaging service for game players, YY discovered their first inroads to virtual gifts in live-streaming amateur singers. They have since expanded to add gameplay, e-course, dating and even a channel for personal finance experts.

Virtual gifts pulled in about 1.5 billion RMB ($230 million USD) for YY in the fourth quarter of 2015. In the same period the company paid out more than 1.1 billion RMB ($170 million USD) to content contributors and channel operators.

Source: YY

Source: YY

Encouraged by the success of early entrants like YY, a large number of Chinese internet companies, with a wide range of core businesses, now operate live video streaming platforms with a slew of popular interactive functions or features including virtual gift. Live video streaming has also been widely available and hugely popular on mobile in China.

Amateur Singing, Professional Profits

About half a dozen early live platforms made a fortune in live streaming amateur performances, including YY, Tiange and 6.cn.

Tiange‘s 9158.com was one of the first services to host amateur singers and adopt the virtual item model. Besides virtual item sales, Tiange also generates minor revenue from gaming and advertising. Before expanding to other businesses in the past year or so, the company’s operating profit margin peaked at 41% in 2013.

Source: Tiange

Source: Tiange

Source: Tiange

Source: Tiange

As of June 2014, there were more than 29,000 live broadcasting ‘rooms’ on Tiange’s platform that were receiving as many as  5.5 billion virtual items monthly, according to the company.

Average revenue per user (ARPU) on YY Music, the equivalent of 9158.com, would reach 530 RMB ($82 USD) in the fourth quarter of 2015. 2.2 million paying viewers contributed more than 1.1 billion RMB in virtual item sales. Just over three years ago live performance streaming surpassed third-party games on the YY platform in both sales and ARPU.

Another major player in amateur singing was 6.cn, which started as an on-demand video site. 6.cn was acquired by Songcheng, a leading performing arts company in China, for 2.6 billion RMB (roughly $400 million USD) in March 2015. The company reportedly made 160 million RMB (roughly $25 million USD) in revenue in 2015.

The model has also helped a few on-demand music streaming services who are still struggling to turn a profit through their core business. Revenues from Fanxing, a YY Music-like service launched in 2012, accounted for 70% of the total for Kugou, one of the most highly used music streaming services in China, as of February 2016, as reported in local media. Kuwo, another major music streaming service, also developed a clone in the same year. The Chinese Ministry of Culture counted live singing streaming as part of China’s online music market in 2013 and concluded that about half of China’s online music sales that year could be attributable to live streaming.

Profitability aside, live singing performances on these platforms are oftentimes described in China’s tech industry as lowbrow entertainment, considered more of in the vein of pornography rather than art. It is found that gift buyers on those platforms are oftentimes males and gift receivers are overwhelmingly female, and the main audience, based in lower-tier cities or rural areas, are considered less educated.

Virtual Gifts Aren’t Profitable For Everyone

As Chinese tech companies become increasingly obsessed with providing a wealth of centralized services, live video streaming platforms are now packed with as many categories as possible. Online live-streamed gameplay, education courses, music concerts, sports events and gameshows have already become widely available.

Source: YY

Source: YY

Although virtual gift giving has crossed into several verticals, very few newly-added content categories are able to motivate viewers to make purchases. Generally speaking, fans show a preference for buying virtual gifts for their ‘stars’, whether they are professional artists or amateur singers.

Some platforms are experimenting with paid access to live streams of music concerts or other entertainment events. Several tech companies including Tencent and LeEco (formerly LeTV) touted that concerts live streamed through their platforms in recent years managed to attract tens of thousands of paid users.

Premium subscription has been a common offering on the Chinese web. LeSports, the spinoff of online video streaming site LeTV.com, recently rolled out a paid subscription model, with premium live sports costing 59 RMB (US$9) per month, much more expensive than existing paid subscriptions, which are in the 10 to 15  RMB (US$2) range.

Live Streaming On Mobile

Partly thanks to the hype created by mobile live streaming apps like Meerkat and Twitter’s Periscope, relevant Chinese tech services, including video clip sharing apps, on-demand video sites and social apps quickly adapted to the addition. Standalone live video streaming apps also keep emerging to challenge these established companies.

The two leading video clip sharing apps, Miaopai, funded by China’s leading Twitter-like service Weibo, and Meipai, owned by China’s largest photo editing service developer Meitu, both released a live streaming feature in early 2016.

Location-based social networking app Momo announced in late 2015 that they would open up their live video streaming platform to all users, even though it had originally been designed for the company’s self-organized concerts only. You can find live video broadcasters mixed in the list of Momo users with rankings based on their physical distance from you.

Once again, the major difference between these offerings and western live streaming apps is the virtual gift giving feature. Virtual gifts on Momo are priced from 0.1 RMB to 1888.8 RMB (US$290).

45% of YY Music’s total revenue was generated from mobile in the fourth quarter of 2015, up from 14% a year ago. While the average spend per user was about 20% less on mobile than desktop, total paying mobile users outnumbered those who paid via desktop, accounting for 64% of the total.

But there are still doubts about whether newly launched apps are able to monetize with this model. Qihoo 360, the market leader in internet security, incubated a live video streaming app called Huajiao last year. Hu Zhensheng, CEO of Huajiao and former CEO of short video sharing app Weipai, said in Feb this year that he didn’t think there was much room in the virtual gift model. Huajiao would experiment with advertising instead, according to Hu.

It is expected a larger percentage of content streamed on mobile will be contributed by average users in the future which, like all the previous user-generated online content, will be harder to monetize. But at the same time live streamed content may create more opportunities for social. YY has launched a separate live streaming app, called ME, for average users to live stream their daily life.

Image credit: Down.cc