As one of the widest spread internet meme goes — “Content is king”. There are plenty of ardent supporters of the philosophy in China’s video streaming industry and the country’s top video site Heyi Group, which is more commonly known as Youku Tudou, is one of them.

Procuring quality video content is a strategic focus of the company in recent years with billion-level investments being injected for that initiative each year. It’s easy for us to wonder where did the company has spend all these money and how it’s going to monetize the contents for sustainable revenues. Jim Lerch, business development director at Youku, explained these questions at Shanghai Fashion Web held late last month.

Original/Licensed IP Contents Are The Money Burners

“In terms of content strategy, Youku has been spending a lot of money, a lot more than we did before,” said Jim. The company has poured 600 million RMB (around $90 million USD) and 1.1 billion RMB in original contents and licensed contents respectively in 2015. The figure is expected to jump to 2 billion RMB and 6 billion RMB this year.

“Youku is devoting more resources to the UPGC area to attract content creators, video bloggers and so on.” Jim said.

Licensed content obviously takes a lion’s share of Youku’s content. A large percentage of the funding was spent on some big brand IPs such as China’s top singing reality show The Voice of China (中国好声音).

Original content, a major traffic generator, is also the investment focus of the video-hosting site. For example, the peak views for a single episode of the platform’s No.1 original show Mars Intelligence Agency (火星情报局) hit over 100 million.

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The company started to build its own original IP since 2009 from internet talk shows like Morning Call, which is hosted by songwriter Gao Xiaosong, then went for outdoor reality show, micro movie, web-drama, animation and so on. Since 2014, Youku began to leverage on resources from traditional media to co-develop web-variety programs. Its current partners include Galaxy Media, SMG, Joy Media, Weizhong Media, among others.

We-media, or high-quality videos made by semi-pros, is major driving force, which commands 50% of overall traffic on Youku, Jim pointed out. A combined 10 billion RMB was set aside to make We-media the center of their entertainment ecology.

New Ways To Look At Revenue

“For big licensed IPs, it’s kind of a page view-based. We make some money from the subscriptions in the first few weeks before releasing it to all the users and also there’s ad revenue.” he said.

Derivative revenue is an important part. For big IP like The Voice of China, Youku works with the content owners to get rights to make small little shows that go along with the main show, which means some of the talents will launch parallel talk programs.

Also, brands can get involved to sponsor web shows or series, a more diversified way of marketing as compared to the traditional the pre-roll or post-roll ads. The platform has launched customized broadcasting show for Oreo with two celebrities, where users can interact with the broadcsters as it happened by sending virtual gifts.

%e5%b1%8f%e5%b9%95%e5%bf%ab%e7%85%a7-2016-09-29-%e4%b8%8b%e5%8d%885-13-48Screenshot of Oreo Customized Live Broadcasting Show

What’s New in Video Industry?

One year ago, we talked about shifting mobile and how this dramatic change from PC to mobile will influence people’s video consuming habits. This year, it has been the rise of OTT (over-the-top) devices, which contributes to something like 15 percent of Youku’s traffic, Jim pointed out.

Another rising trend in the industry is VR, AR and MR. Youku has launched its owe dedicated VR app and has inked partnership with headset makers and content providers for VR experiences. “The services will be monetized through ad products, commerce, O2O, live broadcast, content distribution and more.”

Youku as an Alibaba Company, What Does It Mean for Youku Users and Clients?

One of the biggest changes for Youku this year is that it has become an Alibaba company as part of the internet tycoon’s media and entertainment matrix. Data synergy with Alibaba is the most prominent benefit in line with the platform’s partners, said Jim.

“The traditional way of advertising is way too fragmented to get the same effectiveness comes out of that. There are a lot of things to leverage from our data and from Alibaba’s data. For example, accurate demographic targeting: If you use Alipay you are putting a lot of information because it’s right from your ID card for age and gender. The data also gives insights on real purchase behaviors and intents, customer’s attitudes and needs, etc.”

image credit: Youku Tudou