Tech firms line up to ride the online video wave

Burgeoning Chinese sector expected to grow 54pc in value this year

PUBLISHED : Tuesday, 13 September, 2016, 1:54pm
UPDATED : Tuesday, 13 September, 2016, 10:15pm

Chinese tech companies are readying themselves to cash in on the rising demand for online video content, despite fierce competition in the sector, analysts say.

Leshi Internet Information and Technology, one of the largest emerging stars, has already gained an strong advantage in the sector, a Goldman Sachs report said last week.

The Beijing-based firm is poised to benefit especially from its development of hardware such as its SuperTV and SuperPhones, the company’s own branded high-tech versions of TVs and phones.

The company reports a growing user base, especially following its announcement on August 22 of a cooperation with China International Broadcasting Network, the internet TV platform, Goldman analysts Xufa Liao and Brian Dai have highlighted in the report.

Building on that expansion in hardware sales and the completion of a 4.8 billion yuan private placement, Goldmans says Leshi has strong levels of cash to fund further growth.

This year, it is expected to double its 2015 revenue of 13 billion yuan, to almost 24 billion.

Its shares, meanwhile, have seen a staggering potential yield of 40 per cent, the highest of any company in Goldmans’ coverage of the media sector, the report said.

Online video is among China’s fastest growing media sectors. We see it as still in the structural growth stage, but it’s replacing traditional TV, which has a market value of over 200 billion yuan
Goldman Sachs analysts Xufa Liao and Brian Dai

But Leshi represents only one of the many technology companies now riding high on China’s online video wave, with the market’s value expected to grow 54 per cent this year, according to iResearch.

And the rise in membership subscription for online videos is set to rise by 91 per cent, due to the increased willingness to pay for videos and the availability of more high-quality content, Liao and Dai said.

“Online video is among China’s fastest growing media sectors. We see it as still in the structural growth stage, but it’s replacing traditional TV, which has a market value of over 200 billion yuan,” they said.

But competition in the online video sector is intense.

The smaller players are already having to face off against major heavyweights such as iQiyi, Tencent Video, YoukuTudou, and Sohu Video.

The Goldman analysts say Leshi, however, has a number of “sustainable competitive advantages” including the vertically integrated nature of its platform, its content, and its terminals and applications, which together give it significant edge when it comes to being able to monetise its operations through advertising and online game sales.

LeEco, Leshi’s parent group, has announced the holding of what it calls an “E-com Festival” next week, a “comprehensive show” of the company’s ecosystem which it hopes will attract even more paying subscribers.

The Goldman analysts noted that its number of “LeFans” – buyers and users of the company’s ecosystem – has accelerated quickly, hitting 30 million in June from less than 5 million in June 2015.

Internet giants Sina and Baidu, meanwhile, are also hoping to capitalise on the movement towards online video, according to new Macquarie Research last week.

The Chinese equivalent of Twitter, analysts say Weibo’s live broadcasting “functions are very hard to compete against”. Weibo’s own generated content makes up 70 per cent of its total video output.

Alibaba Group, which owns the South China Morning Post, owns 32 per cent of Weibo’s parent, Sina Weibo.

But it’s Baidu that’s currently the country’s number one in terms of video space, according to Macquarie.

While the incremental costs of expanding market share in the sector are high, Baidu will be under pressure to create more self-produced content, instead of trying to bid for popular but expensive content, they said.

“Short video is a big growth area,” the Macquarie analysts said, pointing to western examples such as Snapchat. “A third of content distribution may come from this in future.”