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Humphrey HoManaging DirectorHylink USA
China’s digital landscape has progressed to the point where it is not dominated by advertising and consumers are willing to pay for video content. eMarketer’s Man-Chung Cheung spoke with Humphrey Ho, managing director of digital agency Hylink’s US office, about why digital users developed this behavior, and the opportunity it opens up for advertisers.
eMarketer: What led consumers in China to become willing to pay for digital content such as video, music and games?
Humphrey Ho: First, they want to skip ads. Ads have become longer. For instance, long-form video content has 120 to 180 seconds of video ads. Second, it’s cheap. For comparison, YouTube Red costs $9.99 per month, whereas iQiyi VIP or Youku VIP only costs $2.00 per month. Third, it’s downloadable. Many consumers don’t watch content live. Instead, they download an entire series, allowing them to watch it whenever they’d like. Downloading requires a subscription.
The desire for accessibility is the same as the desire for premium music, like iTunes or Google Play. China is migrating quickly from a torrent and illegal download-dominated culture to a culture that wants content on the spot, which justifies a consumer’s decision to pay.
eMarketer: How are consumers in China different from their US counterparts on this front?
Ho: In the US, we have fragmented premium content. Some shows on Netflix don’t exist on HBO, but are on Amazon Prime, but not Hulu. In China, paying for one premium subscription means you have access to all content on all platforms, although sometimes at a slight delay. One subscription gives you access to the Netflix, HBO, Hulu and the like of Chinese content.
In addition, the costs are cheap. Consumers who are willing to pay frequently have incomes comparable to those in the US, making it one-fifth the cost. Lastly, there is accessibility to not only content from China without ads, but also content from Britain and the US, talk shows from Germany and soap operas from South Korea.
eMarketer: Are there underlying social, technological or economic factors that have brought about this willingness to pay for digital content?
Ho: China’s rapid move away from piracy is one factor. Up until 2013, before China cracked down on piracy, we didn’t have to pay for digital content. China was a “torrenting” culture. In late 2013, copyright law led to heavier enforcement. This caused video platforms from Youku to iQiyi to Mango to start buying streaming rights to everything from sports rebroadcasting to popular shows from the US, Britain, Germany and France.
eMarketer: Does the trend of more paid content mean there’s less room for advertising-supported models?
Humphrey Ho: Not necessarily. Currently, most video platforms have a 9% to 10% adoption rate of paid subscribers. Ninety percent use a free model, so advertisers are protected. Subscriber models may grow; however, it is unlikely that it will catch up to the growth of the internet. China’s internet is currently accessed by 800 million people, with the potential to grow to just over a billion [users]. It’s unlikely that there will be 20 million paid subscribers anytime soon.
There is a trend in China to download content for the convenience, but this content still has ads. In fact, the ads are extremely targeted. Youku’s ad serving capabilities allow specific ads to be presented to paid consumers. That creates hypertargeted opportunities for advertisers.
The written policy for many of these premium subscriptions isn’t like in the US, where platforms say they have an “ad-free experience.” Instead, the platforms say they have a “limited-ad experience.” Advertisers want premium subscribers because they have disposable income.
eMarketer: Does that mean there is no way for consumers to free themselves completely from ads?
Humphrey Ho: Essentially, yes. However, in these circumstances ads will only run perhaps 5 seconds, rather than a full-length 30- to 80-second ad. Subsrcibers are rewarded with a very short ad, but ads are not completely thwarted.
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