BEIJING, April 30 /Xinhua-PRNewswire/ -- CCID Consulting, China's leading research, consulting and IT outsourcing service provider, and the first Chinese consulting firm listed in Hong Kong, believes that under high cost pressures, most Chinese online video websites are still in a stage of "burning money". Immature profit models have resulted in an exhausted self-blood generating function to websites. They have to fully reply on external blood supply to survive. Under this situation, funds naturally become the decisive factor which determine the survival and growth of numerous video websites. CCID Consulting points out that compared with financing measures such as venture investment and financing through getting listed, video website advertising has become a magic weapon for video websites to get over their fund difficulties.
Facing the situation of using up all the funds, which they obtained in the first round of financing, online video websites in China are now busy with the second round of fundraising. After YouKu.com got a second round of $12 million of venture investment at the end of 2006, UUSee.com received its second round of investment from such venture investors as DFJ Growth Fund, Highland Capital Partners and Steamboat Ventures, totaling $23.50 million. This is hitherto the biggest amount of financing in China's online video industry.
Tan Bin, an analyst at CCID Consulting's Internet Industry Research Center has analyzes the problems in online video financing in China.
Venture Investment - Hate the Poor but Love the Rich
Venture investment has long been the main driving force for the growth of new Internet applications. Online video is no exception. CCID Consulting's data show that since 2004, China's online video industry has received a total of $120 million of venture investment. This has greatly promoted the development of the industry.
However, the latest two transactions made by venture investors show that after the first round of exploratory investment, venture investors have changed their past investment strategies of spreading investment and nurturing key enterprises and started to concentrate their capital on market leaders and profit model innovators. Most of the video sharing websites that imitate Youtube have been discarded by capital. It can be said that the second round of venture investment financing has promoted the differentiation of the online video camp.
Though the second round of venture investment has won time for websites to continue to explore profit models and also laid the cost foundation for websites to improve their content quality and user experiences, will the 3rd or 4th round of venture investment arrive on time as these websites use up their resources and cannot open new sources of revenues?
Financing Through Getting Listed - a Tortuous road
Besides venture investment, video websites have also started to get from the stock market the funds needed for their development. In September 2006, www.vodone.com successfully landed in the main board market in Hong Kong through YANION INT'L (Hong Kong) and pocketed HK$240 million. "Video Network Alliance", Vodone's concept of online video advertising platform has won recognition from investors in the stock market. "Video Network Alliance" is similar to Google AdSense. It expands the coverage of video advertisements though member websites.
Compared with getting venture investment, raising funds through getting listed is obviously a higher goal. But, the difficulty and complexity of financing through getting listed are beyond what ordinary video websites can image. In addition, investors in the stock market are far less tolerant than venture investors. Also, as online video as a whole is sluggish at present, it will bring great operational pressures on listed websites.
Operating Revenues - "Building Castles in the Air?"
Under the dual pressures of widely recognized lack of profit models for online video and high operating cost, it is virtually building castles in the air if websites want to maintain their normal operations through operating revenues. But, it is precisely some practices of "building castles in the air" that has made us see the dawning for online video websites. For example, the new video websites "Chtopnet" introduced services that use its own money to invite netizens to view advertisements. As long as the netizens of the website which are registered with their real names can view enterprises' all advertisements during a designated period, they can get a certain amount of remunerations. Through paid viewing of advertisements, Chtopnet has effectively integrated the needs of netizens with those of enterprises and brought enterprises into their online video value chain. Restricted by user numbers and website influence, operating revenues can still make up website's cost. Once this model wins recognition from most advertisers, it will be no longer lunatic ravings for video websites to rely on operating revenues to make profit.
Video Website Advertising - Where the "Monetary Future" is.
Venture investment and financing through getting listed can both solve the urgent needs of video websites. But, neither can sustain the long-term development of websites. Profit models have long been a problem that video websites cannot avoid. Video websites are also actively seeking breakthroughs in the areas of video sharing community, video attachment advertising, mobile value-added and advertising platforms.
Community as the development direction for Internet services has been a consensus view from numerous websites. Applications such as IM, online games, blog and SNS often develop in communities. In Youtube-type video sharing communities, individual users do not directly contribute revenues to websites. The road is getting narrower and narrower for video websites to purely serve as personal video sharing platforms. The video attachment-advertising model uses the traditional TV station model as reference. However, before the problems of website content and communication effect are solved, advertisers more adopt a wait-and-see attitude. Restricted by mobile phone terminals and transmission networks, time is still needed for the mobile value-added model to develop. By comparison, the nature of online video media is getting clear. Under the precondition that the content copyright problem is solved, enterprises have given more acceptance to the provision of brand promotion and precision marketing services through the video website platform.
To sum up, the "monetary" future for video websites lies in how to change the value chain structure of online video from "netizen-website-netizen" to "enterprise-website-netizen", connect with individual and enterprise users through contents and services, meet enterprise users' demand and let enterprises to pay the bills for websites and users. This is also the central aspect for video website operators to consider.
About CCID Consulting
CCID Consulting Co., Ltd. (also known as CCID Consulting), the first Chinese consulting firm listed in the Growth Enterprise Market of the Stock Exchange (GEM) of Hong Kong (stock code: HK08235), is a direct affiliate of the China Center for Information Industry Development (hereinafter known as CCID Group). Headquartered in Beijing, CCID Consulting has so far set up branch offices in Shanghai, Guangzhou, Shenzhen and Harbin, with over 300 professional consultants and industry experts. The Company's business scope has covered over 200 large- and medium-sized cities in China. Apart from home market development, CCID Consulting is establishing international cooperation links across the United States, the Asia-Pacific region and Europe, by setting up agents in the U.S., Japan, South Korea, Australia, Singapore, Italy and Russia, with the aim of going global.
Based on four major competitive areas of the powerful data channels, industrial resources, intense knowledge and deep understanding of information technology, CCID Consulting provides customers with consulting, research and IT outsourcing services covering strategy planning, IT application, marketing strategy, human resources and information technology outsourcing. Our customers range from industrial users in IT, telecommunications, energy, finance, automobile, to government departments at all levels and diversified industrial parks.
CCID Consulting is committed to becoming the No. 1 brand for strategy consulting, the No. 1 consultant for enterprise management and the No. 1 expert in market research. For more information, please visit our website at http://en.ccidconsulting.com/ .
For more information, please contact:
Grace Gao
CCID Consulting Co., Ltd.
Tel: +86-10-8855-9020
Email: gaojie@ccidconsulting.com
