TV 2.

0: Young China takes TV viewing online

Jenny Ng Partner
Last year, more minutes of TV were viewed in China than in any other nation on the planet. The number of TV households grew, and as in most countries, the average TV viewer spent more time in front of the box. Even the TV advertising market rebounded despite continuing weakness in most national markets following the global economic crisis. Nevertheless, a new study by Value Partners suggests that shifts in viewing behaviour from young Chinese represent a serious threat to the long-term health of the cable TV sector in China, and form a corresponding opportunity for online media players. Value Partners runs an internship programme for aspiring strategy consultants each summer. This year, we asked one of our Chinese interns to conduct primary research into their peer groups TV viewing patterns in mainland China. We worked with her to design a 24-question survey which she distributed via the Internet, specifically Renren, a major Chinese social networking site. We surveyed secondary school and university students aged between 17 to 22 years old. Although this is by no means a representative sample of the youth in China, being mostly comprised of highly-educated urban youth in major Chinese cities, the results paint a striking picture of the relationship this digital native demographic has with TV. *

Max Parry Manager

Rogelio Bakels Consultant

Miranda Jiang Intern

Key survey findings Online media platforms have overtaken traditional TV

The Chinese youths surveyed appear to be digital natives who spend most of their time downloading and streaming online video as opposed to watching traditional TV. Nearly half of them indicated that they have stopped watching linear TV entirely (although a cause could be represented by the lack of access to TV sets whilst at university). On the contrary, most of those who still watch TV, spend less than 30 minutes per day on the activity, less than online video (1 hour per day) and browsing (2.5 hours per day). Today, internet is the preferred platform for watching video content, with 84% of respondents ranking video streaming and downloading as their favoured method of video consumption. So why are Chinese youths so put off by traditional TV? The results from our survey demonstrate some interesting findings and pinpoint three reasons: Chinese TV content is sometimes perceived as superficial. More than 90% of respondents are dissatisfied with the quality, citing the political nature of content, the lack of unique programming, and excessive advertisements as major frustrations. Consequently, foreign TV content from the likes of FOX, the BBC and various sports leagues are very popular and increasingly accessible through online channels. PCs and laptops are more convenient modes of access as opposed to TV for students, the majority of whom reside on campus. The convenience that on-demand online content can provide is highly prized because todays hectic lifestyle cannot accommodate fixed time slots for watching linear TV.

Another interesting finding is that alternative media platforms, such as mobile video and cable-based Videoon-Demand (VOD) do not enjoy anything like the same level of popularity as web-browser based video portals. In fact, more than 90% of respondents do not use mobile handsets to watch video content and Cable VOD and Personal Video Recorders (PVR) a device that records video in digital format on a disk drive are among the least commonly used media platforms.
* Value Partners has also conducted a survey in UK devoted to the digital natives and their use of traditional and new media: Generation Z rejects traditional TV. You can read it on: www.valuepartners.com/section ideas/2010.

Despite robust growth in mobile Internet penetration in recent years, our survey suggests that only a small portion of users are watching video content on handsets. This is attributed to inadequate network capacity and slow connection speeds, low penetration of smart phones capable of streaming and displaying video and preference for watching professionally-produced content (content of this nature tends to have a longer running time, and is less convenient to view via a small-screen handset). Lack of enthusiasm for cable-based Video-on-Demand platforms amongst interviewees was partially attributed to lack of awareness and availability of services, but more respondents cited additional subscription payments as a major drawback of cable VOD platforms. This brings us to the next crucial insight of the survey.

Chinese youth are very price sensitive towards online content

Like other types of media, such as music and print, video content has long been available free of charge over online platforms, particularly in China where there is a multiplicity of online video sites showing pirated or unlicensed content. The main advantage of online content, as currently perceived by survey respondents, is that it is free. This was a more important consideration than the availability of more compelling content which is not normally available through linear, licensed channels. The key reason why Chinese youth do not use paid-for online video platforms is the high availability and acceptable quality of free online video services. Consequently, willingness to pay for online content especially among young Chinese has become very low, and has a profound impact on the ways in which demand for this service can be monetised. The participants to the survey would however be somewhat more willing to purchase online video if the quality improves and prices reduce suggesting some potential latent demand for high quality and legal services. Overall, Chinese youths are particularly price sensitive regarding online resources, especially compared to counterparts in the UK, where young people are more inclined to pay for online video content. This could be the result of a combination of factors, namely the ample supply of free alternatives in China as well as a widely-held perception that online resources are meant to be free of charge. Given these findings, it seems that industry players may struggle to monetise demand through conventional subscription- or paymentbased mechanisms, and may therefore benefit from adopting a different business model, as the following section discusses.

There is hope for content providers and broadcasters in the online space: young China is willing to watch advertising
Our study highlights that a payment-based model for online video is unlikely to succeed in China. This does not, however, mean that industry players cannot monetise the demand for online services. The results from the survey show some interesting findings. First of all, Chinese youths are willing to tolerate online advertisements, as interviewees indicated that no advertisements was the second least important factor determining whether or not they would watch online video unlike in the UK where survey respondents indicated they would pay to avoid advertisements. Secondly, there is a strong preference for legal content that is free and readily available rather than pirated materials 75% of respondents chose legal websites, with advertisements as their preferred online platform. In addition, as the enforcement of international copyright improves and major websites offering pirated materials (e.g. Xunlei, Tudou, Youku) are increasingly forced to clamp down on them, users may be willing to purchase content for a small fee, with CNY 20-30 per month being identified as an acceptable price point.

Implications for telecom & media players Mobile companies will find it challenging to monetise demand for video content
Given this context, it is expected that the business case for offering video content via mobile phones will be challenging. The main problem is that few users are watching videos on handsets: there is a low willingness to pay for content delivered over mobile platforms users can already retrieve it from free online resources via their handset. Moreover, while an advertisement driven model may be feasible online, building a sustainable business model exclusively on mobile advertising is anticipated to be challenging, as international experience indicates.

TV operators should make VOD more attractive to the Chinese youth

Although traditional linear TV is not a preferred video platform amongst young China, there is reasonable scope for VOD services to potentially succeed. VOD appeals to young Chinas viewing habits, as it incorporates scheduling flexibility and freedom to choose content. Our survey findings suggest that current offerings are however inadequate, and to make VOD services more appealing to young Chinese people, TV operators could: Reduce prices and adopt a revenue model that increasingly incorporates advertisements. Improve content quality and variety. Introduce Internet TV to tap into the online space and win market share from PCs and laptops.

Domestic content producers must innovate to compete with foreign players

The Chinese youth is not well satisfied with the quality of programming available in China, and hence often prefers to watch material that is produced overseas. Domestic content providers may have to increasingly innovate by aiming at generating unique, insightful programmes with a larger appeal, especially among the young Chinese demographic. In conclusion, the shifts in TV viewing behaviour among young Chinese appear to be profound, and are expected to have a defining impact on the broadcast media industry in the years to come. The cable TV sector in China is anticipated to face considerable challenges, and must rethink its strategy and business model in order to regain viewership from the countrys next generation. Online media players, in turn, should be keen to build on the momentum of the Internet revolution and capitalise on corresponding opportunities going forward, negotiating the challenges in terms of business models highlighted by this consumer survey.

About Value Partners

Value Partners is a global management consulting firm that works with multinational corporations and high-potential entrepreneurial businesses to identify and pursue value enhancement initiatives across innovation, international expansion, and operational effectiveness. Founded in Milan in 1993, today it draws on 25 partners and over 275 professionals from 23 nations, working out of 12 offices in Milan, Rome, London, Istanbul, Dubai, So Paulo, Buenos Aires, Mumbai, Beijing, Shanghai, Hong Kong and Singapore. Value Partners has built a portfolio of more than 350 international clients from the original 10 in 1993 with a worldwide revenue mix, as over 60 percent of the management consulting revenues are generated outside Europe. Value Partners combines methodological approaches and analytical frameworks with hands-on attitude and practical industry experience developed in an executive capacity within each sector: telecommunications, new media, financial services, energy, manufacturing and hi-tech. In 2007 Value Partners acquired Spectrum Strategy Consultants a leading UK company specialized in publishing, broadcasting, entertainment, IPTV and mobile thus further strengthening its international presence. Today Value Partners is a leading advisor in the telecom, media and technology sectors worldwide. At the beginning of the 2000s, Value Partners decided to expand its service offerings beyond management consulting to include complex, innovative and business-critical IT services: Value Team was created and, in less than 10 years, reached on 3,000 professionals active out of offices in 4 countries. In April 2011 NTT DATA one of the main players in the IT sector in Japan acquired Value Team for an enterprise value of over 270 million Euros, to make its platform for growth in the key European and Latin American markets. Value Partners and Value Team will continue to co-operate on complementary projects for individual customers. In Asia, Value Partners has been active since 2004 and has established a strong presence over the years, with offices in Hong Kong, Shanghai, Beijing, Singapore and Mumbai. We are committed to Asia and have capitalised on the opportunities that exist in both developed and emerging markets across the region. Value Partners serves clients in diverse industry sectors, including telecoms & media, industrials, consumer goods and retail amongst others. We also work across multiple functional areas and provide assistance to organizations in various capacities, ranging from corporate strategy, company valuation and international expansion, to cost optimization and business turnaround. For more information on the issues raised in this note please contact: max.parry@valuepartners.com rogelio.bakels@valuepartners.com Find all the contacts details on www.valuepartners.com Milan Rome London Istanbul Dubai Sao Paulo Buenos Aires Beijing Shanghai Hong Kong Singapore Mumbai