Across The Border

China’s crackdown on internet live-streaming to shake up the industry

Chinese regulators have tightened their oversight of the streaming industry significantly, requiring sites to increase the censorship of content

PUBLISHED : Tuesday, 07 March, 2017, 3:13pm
UPDATED : Tuesday, 07 March, 2017, 10:20pm

Remember the 21-year-old Chinese girl who earns up to 30 times what an average college graduate makes, just by live-streaming her everyday life from a mobile app at home?

The golden days may be gone for these young streaming stars who work for many fledging live video channels. As the Chinese authorities step up their control of the internet and carry out their latest crackdown on live-streaming broadcasters, the booming industry faces a shake-up, with many smaller players poised to suffer a funding squeeze and be driven out of the market or acquired by industry leaders, according to analysts.

China’s Ministry of Culture (MOC), which is responsible for the protection of traditional Chinese culture, has launched a massive inspection on “online performance service providers” targeting “vulgarity”, “obscenity”, and “wrong life values”, with half of the country’s streaming site operators to be randomly selected in the first round, as the inspection target, the ministry said in a recent announcement.

Those to be inspected in round one include the top social networking app Momo, game video streaming website Douyu TV, e-sport streaming site Panda TV, online video-sharing site 6Rooms, Dubsmash-like app Xiaokaxiu, and some internet companies with video channel services, such as New York-listed Qihoo 360 Technology.

The moves came after the MOC unveiled new regulations on the streaming industry at the end of last year.

The State Administration of Radio Film and Television (SARFT), China’s top media censor body, also pledged in September to “intensify the supervision of the live streaming industry”.

“The regulations on live streamers have obviously tightened up,” said Wang Xian, an equity analyst for Zhongtai Securities.

“Both the MOC and SARFT have taken action, with new rules containing lots of restrictions on streaming sites, streamers themselves, the content they provide, and even the way they perform,” Wang added.

“We expect the streaming industry to face a shake-up,” he said.

China’s streaming industry is worth some 10 to 15 billion yuan (US$1.45-2.18 billion) in 2015, according to an estimate by China International Capital Corporation.

Beijing-based Founder Securities predicted last year that the streaming market will expand to 60 billion yuan by 2020.

Nonetheless, the rapid growth has also caught the attention of government officials.

According to new rules from the MOC in December, online streaming platforms must obtain a license from the government and shouldn’t allow hosts from outside mainland China to create channels without first seeking a permission from the Ministry of Culture

We expect the streaming industry to face a shake-up
Wang Xian, an equity analyst for Zhongtai Securities

They should also record all video streaming content for 60 days for potential regulatory checkup.

As for the streamers, they are required to register with real names, “conduct a self-censorship before uploading the video/audio content”, and “provide healthy content and promote the socialist core values consciously”.

Violations of the new rules may cause the site to be shut down or the streamer to be banned from the industry, the ministry warned.

“The rules have clearly raised the bar for market entry and business operation, which is good news for large players,” said Shi Hongmei, an analyst for Orient Securities.

As of the first half of last year, companies that have a license for streaming service had been mostly “big traditional media organisations” and internet platforms with multiple years of experience running video channels.

“For a lot of smaller players, it will be difficult to obtain the license due to requirements on registered capital and shareholder structure,” Shi said.

Besides, the requirement on recording all video materials for 60 days will increase the business cost.

Tighter restrictions on the content also make it harder for streamers working for less famed platforms to “make sensational effects just to grab internet eyeballs”, she added.

Shi expected more live streamers to prefer working for big companies in future, which will attract more audience in turn. In contrast, smaller video channels could face difficulties in attracting funding.

Those views are shared by Deutsche Bank analysts.

“Ever-tightening regulation and lack of capital should drive small players to exit,” Eileen Deng and Alan Hellawell, analysts for the German investment bank, said in a recent research note.

“We have already noted that tens of mobile live broadcasting platforms have ceased operations due to lack of capital,” they added

Ever-tightening regulation and lack of capital should drive small players to exit
Eileen Deng and Alan Hellawell, Deutsche Bank analysts

China’s total live broadcasting users grew to 344 million at the end of last year, representing 47 per cent of the country’s internet population.

“Industry leaders should gain market share during this consolidation,” the analysts said.

Deutsche Bank expected the Nasdaq-listed Chinese live broadcasting site YY to gain “a long-term competitive advantage”.

As YY is set to announce financial results on March 14, the analysts forecast total revenue has increased 32 per cent year-on-year to 2.5 billion in the fourth quarter.

They also anticipate the company to register a 28 per cent year-on-year growth in revenues for the first quarter of this year.

However, risks included regulatory changes that could have an unexpected negative impact on the company, they added.

Shi from Orient Securities was more upbeat on the earnings outlook of video-sharing site 6Rooms due to its “leading position” in the industry, which could attract more popular streamers.

“Considering its higher active user base,” she added, “revenues from paid users from drive their earnings growth in the following two years.”