Weibo's revenue challenges are far from micro
Fallout from rumour crackdown comes as the Sina-owned blog service feels heat from WeChat
Mainland online media group Sina Corp is facing twin challenges to its revenue - from a crackdown by the government on bloggers and competition from Tencent's WeChat.
Sina's flagship product Weibo - China's answer to microblogging service Twitter - contributes a quarter of advertising income, the group's second-quarter report last month shows.
But advertising revenue for the Nasdaq-listed group could be hurt if users spend less time on Weibo because the "stars" whose comments they like to follow are posting fewer sharp comments on the service.
Beijing launched a campaign against internet rumours last month, warning that anyone who posts an online message deemed to be defamatory that was forwarded more than 500 times or viewed more than 5,000 times could be jailed for up to three years.
The warning got the attention of Weibo star commentator, real estate tycoon Pan Shiyi, who appeared on state broadcaster CCTV to talk about "social responsibility" of microbloggers.
Until now, Pan has been one of the most prolific posters, and has 16 million followers. But since the warning from Beijing, many celebrity and star commentators - including Pan - have posted less and toned down their criticisms.
"Weibo's advertising income might be seriously affected as a result of declining star users," said Hayman Chiu, a senior research analyst at Cinda International. "Sina will continue to report losses for the third quarter, if income doesn't improve from what it achieved in the second quarter."
Chiu said so-called "big V" users of Weibo - those whose identities have been verified by Sina - helped the service quickly accumulate tens of millions of users drawn to their posts.
The big Vs are regarded as socially astute observers and critics, and many are scholars, millionaire businessmen, or movie stars. But now these stars are becoming less active because they are fearful of being prosecuted, and Weibo needs to find another engine to drive growth in its user base.
Dong Xu, an analyst with Analysys International, said Sina might lose some value among advertisers as a result of declining activity by star users, but it would only happen in the long term. "In the near run. the impact on Sina will be small," she said.
Sina reported a year-on-year increase of 20 per cent in net revenue to US$157.5 million for the second quarter. Total advertising revenue grew 17 per cent to US$120.6 million, while Weibo advertising revenue for the quarter grew 209 per cent to US$30 million.
However, despite the big increase in revenue, the group reported a quarterly net loss of US$11.5 million, because Weibo had failed to monetise its service sufficiently to meet the cost of expanding its user base.
And now the popularity of the service was declining as it faced strong competition from rivals such as WeChat, an instant messaging service.
"Weibo's growth is slowing and at the moment the star product of the market is WeChat," Chiu said.
Weibo has 500 million registered users, according to Sina, and about 75 per cent use Weibo through their mobile devices.
Dong said Sina failed find a solution to monetise its microblog service based on the character of the product. "Instead, its business model is as simple as selling advertising space and growth in that will be slow," she said.
Industry commentator Xiang Ligang said that with Weibo's high-growth period behind it, efforts to commercialise the service would get harder.
However, the acquisition of a stake in Weibo by e-commerce giant Alibaba was an important step for the operation.
Alibaba bought 18 per cent of Weibo for US$586 million in April, with an option to raise its stake to 30 per cent.