China’s king of titillating content Jinri Toutiao issues apology for providing what the people want

Venture capital investors who called on Jinri Toutiao’s chief executive Zhang Yiming last year wanted to know why so much of the news aggregator’s content focused on societal ills, celebrity gossip and off-colour jokes.

“Every time we run internal tests the results show that viewership drops off precipitously when alternative content like international current affairs, science and technology is served up”, said Zhang, according to investors present at the meeting, speaking on condition their names not be revealed due to the confidential nature of the discussions.

Breaking down China’s most popular news app, Toutiao

On Wednesday Zhang issued a “self reflective” public apology after the news aggregator, known as Today’s Headline in English, was ordered by central government authorities to close its popular Neihan Duanzi app, know for its off colour jokes, a week after it separately singled out the same site for “vulgar content”. The company was also ordered to take down its eponymous news app Jinri Toutiao from app stores for three weeks, although existings users still have access.

“We let our users down by over emphasising growth and scale over quality and responsibility,” Zhang said in an open letter reminiscent of the “self criticism” of “wrongdoers” during the era of Chinese leader Mao Zedong.

Zhang said Toutiao would “correct the flaws” in its algorithms and machine vetting, expand its vetting team from 6,000 to 10,000 people, and permanently ban creators whose content was “against community values”.

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Beijing ByteDance Technology, the parent company of Toutiao, did not immediately reply to emailed requests for comment on the investor’s meeting.

Founded in 2012 by Zhang, Toutiao has become one of the most popular news apps in China, using artificial intelligence algorithms to deliver personalised, and often titillating, content to more than 120 million daily users. However, unlike many tech start-ups in the country, it is not backed by any of the three internet giants – Baidu, Alibaba Group Holding and Tencent Holdings – which have launched or invested into news and short video services to counter the rise of Toutiao in the content industry.

“ByteDance is a rock star. It went from nothing to an operator of multiple, very successful content products in a very short period of time,” said Jeffrey Towson, a Peking University professor.

“Once you become very significant in news or in social media in China, you are going to work with the government, because those are areas of government concerns,” he said, adding that it was more like “growing pains” for the company.

ByteDance reportedly raised at least US$2 billion in August 2017, giving it a valuation of US$30 billion, putting in the league of tech unicorns like Airbnb, according to CB Insights.

Its shareholders include Sequoia China funds, CCB International, DST Global.

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Other Chinese internet content companies planning to list overseas have flagged the risks of government censorship to investors. 

“To the extent that PRC regulatory authorities find any content on our platform objectionable, they may require us to limit or eliminate the dissemination of such content on our platform in the form of take-down orders or otherwise,” US-listed Chinese video streaming site Bilibili said in its prospectus last month. 

Huya, a game streaming site, flagged similar warnings in its prospectus filed to the SEC on Monday as the company seeks to raise up to US$200 million on the New York Stock Exchange.

The latest crackdown on internet companies ranging from live streaming sites to news providers has seen executives from the offending companies issue apologies to the public and regulators.

After Chinese state media shamed the live-streaming platform Kuaishou earlier this month for hosting videos that featured teenage mothers, CEO Su Hua wrote in an open letter than the platform was “a bad influence on society” and the problem was “the result of long-term neglect”.  

“We won’t dodge the responsibility or regulation,” he said.

The crackdown has seen investors become more cautious towards the live streaming and content industry because featuring more “positive” content drags down web traffic and subsequently valuations, according to Zheng Linghui, founder of Jianyihui, a Beijing-based community for private equity and VC investors. 

“Even though the punishment is only temporary, regulatory risks have began to unravel in front of their eyes,” he said. “The exit pressure for early-stage investors increases, so seeking IPOs in the US and Hong Kong seems a logical choice.”

Last year ByteDance went on an overseas buying spree, bagging the popular teenager app Musical.ly, news and video aggregation site News Republic that is popular in Europe, and US video creation app Flipagram, on its way to creating a global user base to build up its content empire.

At an internal meeting held last month, Zhang told employees that “globalisation” was the keyword for the company’s development in 2018, adding that about 10 per cent of the company’s users are from overseas, with the goal is to have half of its users from outside China in three years, according to reports from mainland Chinese media.

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The 35-year-old Zhang, who also serves as chairman of ByteDance, is a self-made billionaire with a net worth of US$4 billion, according to Forbes.

Zhang grew up in China’s southern Fujian province as the only son of parents who are civil servants. 

After graduating in 2005 with a major in software engineering, he helped start four companies, including a social media platform Xunku, micro blogging site Fanfou and real estate site 99Fang.com. Before setting up Toutiao in 2012, Zhang worked for Microsoft China. 

Zhang, who describes himself as a “serious absorber of information”, saw that smartphones would replace newspapers as a means to convey news and information. The launch of Toutiao was also well timed, with China’s mobile internet exploding from 356 million users at the end of 2011 to 753 million by 2017.

ByteDance has seen several of its star content platforms attract unwanted attention from Beijing authorities recently. Besides Toutiao and Neihan Duanzi, the company’s short video site Huoshan was criticised for featuring low brow content from underage users while Douyin, the popular short video site for China’s Generation Z, was closed temporarily so it could upgrade its content policing systems.