China’s booming live streaming industry may have reached its peak

Dealing with scandals, regulatory scrutiny and rising costs, China’s live streaming industry has reached a turning point

PUBLISHED : Monday, 18 December, 2017, 8:04am
UPDATED : Wednesday, 20 December, 2017, 2:39pm

The party could soon be over for China’s booming live streaming industry, which saw revenue triple last year, as the tens of millions of yuan a year paid out to top presenters becomes unsustainable amid a decline in online viewer numbers.

The industry has seen explosive growth in the last two years, with the number of platforms growing to more than 100, while revenue surged from just 7.4 billion yuan (US$1.1 billion) in 2015 to 20.8 billion yuan in 2016, according to iResearch, which also forecasts it will more than double to 43.2 billion yuan in 2017.

But there are signs that viewer interest is waning, which could affect investors’ appetites for the sector. Monthly active viewers of live streaming with an entertainment element have been in decline since December 2016, said iResearch. Viewers of live streaming content via mobile devices fell from the peak of 141 million in November to 107 million in March this year.

Meanwhile, most live-streaming platforms still depend on voluntary virtual gifts from viewers as their main revenue stream, according to Cheetab Lab, the mobile internet research unit owned by Cheetah Data, and that is risky because there is not enough other revenue to cover the escalating costs of retaining the top presenters.

In mainland China, where more than 95 per cent of internet users are on mobile devices, live streaming, like social media, is seen as one way to interact with people who have similar interests and also be entertained without paying for it. But there are growing concerns among authorities over the type of content being produced in a new industry where top earners can make up to 40 million yuan a year.

US venture capital firm KPCB’s data shows that in China, hourly revenue generated from live streaming, which includes advertising and paid downloads, beats other media such as online gaming, TV and music.

Such robust growth has given platforms that run live streaming a boost. YY, listed on Nasdaq since 2012, saw its live streaming revenue surge more than 50 per cent to 2.06 billion yuan in the first quarter of 2017, while live streaming accounts for nearly 80 per cent of the revenue of dating app MOMO, which is also listed on Nasdaq.

What it takes to be an Internet live-streaming star in China

Last week, it was confirmed that a 26-year-old Chinese rooftopper died in November from a fatal fall from a skyscraper while making a selfie video for a US$15,000 dare, which triggered criticism from state media over the perils of live-streaming.

Earlier in December Meipai, China’s popular short video service operated by Hong Kong-listed selfie touch-up app Meitu, banned minors from using its live streaming service following a scandal involving primary schoolchildren broadcasting nudity online.

Until this year the industry had been unregulated so people could put anything online, said Li Chun, founder and chief executive of Gathering Stars, a Beijing-based agency that manages more than 100 streamers with a focus on gaming.

‘Streamers could build up a fan base very quickly by doing something provocative. There were certainly some companies betting on a quick success that allowed that to happen.”

China’s Ministry of Culture (MOC), responsible for the protection of traditional Chinese culture, and the State Administration of Radio Film and Television (SARFT), the media censorship body, this year introduced new rules covering live streamers’ behaviour and restricting certain content.

China’s Meipai bans minors from live-streaming service following nudity scandal

Platforms and talent managers have become wary of content that might be deemed illegal under the new regulations. “If you are an individual you can do whatever you like, but when you are broadcasting on a particular platform and being managed by an agency, you need to consider what you do, how it might affect the relationships,” said Li.

In addition to regulatory scrutiny, after a couple of years of rapid growth, China’s live streaming industry is becoming more institutionalised, with agencies such as the one owned by Li scouting for talent, working with platforms and brands for product endorsements and other advertising opportunities.

Weibo, China’s microblogging platform which started live streaming services in 2016, said it has added more than 30 agencies to manage content and presenters on its platform this year.

Han Lin, who manages Weibo’s gaming content, said viewership has recorded a significant increase since the company began to work with agencies and managers.

“There are very few people who can reach the top,” Han said. “But there are so many lesser known ones. They might just have 100,000 fans or even fewer than that, like 20,000. These guys might lack resources to make their own videos but if they join an agency, they can receive advice on presentation and tailor-made solutions.”

But playing games, singing and doing make-up from a bedroom at home is not going to get much attention from the agents. Agents do background checks on streamers and monitor how they interact with viewers.

Xin Ying, senior operations manager with Xing Media in Beijing, who offers advice to the student streamers on its books, said she’d likes to see good content from streamers but that is not enough. “They also need to demonstrate that they are able to engage with viewers.”

Both Xin and Li said while they provide traffic analysis and data to the streamers as part of their advice on what works and what does not, they do not interfere with the content production.

Genre is also important for live streaming wannabes. Gaming is by far the popular genre and also the most lucrative in a country that is the biggest gaming market in the world.

Top earner XiaoZhi, who broadcasts on Quanmin TV, received 40 million yuan last year, according to data from Daxue Consulting, a research firm. On average, the top five game streamers each made over 20 million yuan a year from live broadcasting on platforms such as Panda TV, run by Wang Sicong, whose father is Dalian Wanda Group chairman and billionaire Wang Jianlin, and Douyu TV, founded in 2013 and backed by Tencent, the Shenzhen-based social media and gaming firm.

They also need to demonstrate that they are able to engage with viewers.
Xin Ying, Xing Media

Besides getting well paid by the platforms, top earners earn additional income from product placements and attending promotional events.

Only those that have a strong following make it to the top. China’s live streaming platforms look similar when it comes to content. For example, there are hundreds of presenters live streaming hit games such as League of Legends, Honor of Kings and PlayerUnknown’s Battlegrounds.

Therefore, platforms rely on presenters that have masses of fans to sustain and grow viewership, and consequently their operating costs have shot up. Top live streaming platforms such as YY, which also owns gaming platform Huya, said operating costs surged nearly 30 per cent to 1.38 billion yuan in the first quarter of this year, due to rising fees paid to performers, channels and content providers.

This year, Huya raised US$75 million from its parent YY and Douyu received investments from backers including Tencent and Sequoia Capital.

There is no industry standard on the revenue split between the platform and the presenter, though in some cases platforms can take as much as 80 per cent. However, popular presenters have more bargaining power and can negotiate a larger share than average streamers.

“All of these platforms work in the same way,” said Shanghai-based Cyril Drouin, chief e-commerce officer for Greater China at Publicis Communications, who has worked with brands such as Bacardi to use live streaming to market their products. “It’s the live streamers the brands are looking for, except for those that are exclusive to a platform.”

Douyu, one of the top platforms, with the most active users as a percentage of the population based on data from Cheetah Lab, said content production and pay to presenters are the main costs, declining to elaborate on how much they’ve spent.

Douyu said it already has a diversified revenue stream and in future it would experiment with new ways to collect income.

“We mainly look for presenters ourselves...We haven’t been working much with talent agencies and managers,” Douyu said in a written response. “But we will work with them more often.”

Unless the platforms are able to find other ways to monetise their business and reduce their dependence on the top earners, Li at Gathering Stars believes some players with fewer resources won’t be able to stay in the game. He compares live streaming to the bike sharing industry, which has seen a number of casualties due to a lack of capital, and Li believes streaming platforms that cannot sustain or build viewership will not be able to raise further investor funds.

“Right now, if you lose your top presenter, the viewers will disappear. It’s like watching TV – if there isn’t anything you like when you tune into a channel, you’ll switch off.”