Download Live streaming in China: boom market, business model and

Live streaming in China: boom market, business model and risk regulation
Xiaocen Liu1
1.
Law School, Renmin University of China, Beijing, China
Abstract: Live streaming industry in the Chinese market has gone far ahead within a year and became a influential social and
media channel. Based on a rough count, at least 140 live video social apps have emerged in the Chinese app market as of August
2016, with even more to come. To some people’s astonishment, in such a competitive match, Chinese live streaming platforms still
managed to make millions with a tip-based monetization model. With the prosperity of the market and the maturity of business
model, there are also many severe risks and challenges to cope with to establishing a healthy online community.
Key words: live streaming, app,internet service provider,risk
1.Introduction
What is the one business that just starts a new round of cash-burning war in the world?The answer is live streaming. No matter
East or West, tech moguls don’t even bother to hide their interests in this uprising sector. Mark Zuckerberg, CEO of Facebook,
addressed that live video is one of the things that he is “most excited about”. After a slow but steady rollout since last year,
Facebook has pinned the live stream button on the very front of its app this April, opening the originally celeb-only feature to
everyone.
One of the cases that’s familiar to western investors is Momo[1]. This U.S.-listed social company runs a location-based social
app often referred as the Tinder of China. Its newly launched live video business achieved a revenue of USD 57.9 million in Q2
2016, a tripled growth in one single season. Momo’s live video business was just launched in the fourth quarter last year and it has
been the biggest revenue source of the company right now.
And it’s not alone. Weibo, Tencent and even China’s biggest e-commerce platform Taobao have managed to launch their own
live streaming businesses. From a sensational social buzz to a developed niche market, live streaming has already been everywhere
in Chinese tech world.
So how did this sector bud in China and develop to be what it is now? What’s the status of the industry? What are the
challenges and chances confronting the players in the field?
2. Live streaming becomes flourished in China
2.1 The boom of the live streaming market in China
The public attention to live streaming is tremendous. Baidu Search Index shows the search index of live streaming rose from
barely 3000 in 2011 to over 50,000 this year, and the overall momentum is keeping up.This attention has been transformed into
solid media consumption. According to QuestMobile, monthly active users of all live streaming apps monitored have reached
103.4 million, a 126.2% increase from 45 million of the same period last year. The vast user pool brings in competent players.
Along with hundreds of startups, head tech companies Baidu, Alibaba and Tencent, often referred as BAT in China, and some other
established companies also follow up closely, such as Qihoo 360 and Xiaomi. Everyone seems to be eager to take a cut out of the
pie of live stream business.
But what is more noteworthy is the traction live streaming shows in such a communal social phenomenon and the public’s
high receptance of live streaming as a new format of social participation. This August round RMB 300,000(around USD
45,000)[2]for an hour with over 10 million views. This is not a superstar’s concert call but 1the direct income for Fu Yuanhui’s first
live streaming show. Fu, the recent darling of Chinese netizens, is a 20-year-old Chinese swimmer who became a social media
sensation for her funny expression in an interview at the 2016 Rio Olympics. She was invited to a live talk on Inke, one of China’s
top social live video apps, right after she became trendy online. Her live stream attracted more than 10 million viewers within an
hour. These viewers spent over RMB 300,000
)（around
on virtual
USD
gifts
45,000
to Fu, two third of which went directly to the
pocket of the platform.
2.2 Reasons contribute to the current live streaming mania in China
Without sufficient conditions for a booming market, it’s unlikely to sustain hundreds of players. The following reasons
contribute to the current live streaming mania in China.
●
A developed IT infrastructure for live streaming business
According to a report released by China Internet Network Information Center (CNNIC), compared with June 2012, four years
have witnessed an upsurge of 268 million netizens to 656 million that use phones to access the internet as of June 2016, which
accounts for 92.5% of all netizens. And among the 36.6 million new mobile netizens, 64% are desktop users switched to
smartphones adopters. The popularization of smartphone in China also lower the technical barrier of live streaming, especially for
streamers.
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Figure. 1 Data from CNNIC
Meanwhile, China’s optimized mobile network ensures watching lives an enjoyable experience. On the consumer end, the fast
construction of 4G and Wifi networks in China makes digital media consumption on mobile devices more affordable and available.
According to Ministry of Industry and Information Technology, 3G/4G users in China see a 133.3% growth from 352.5 million in
May 2014 to 822.5 million in May 2016, in which 584.5 million are 4G users[3]. And China’s three major network operators’ data
price cut upon the government’s call since the first half of 2015 also contribute to a greater consumption of multimedia contents on
mobile devices.
On top of that, the improvement on network efficiency and cloud business lower the entrance barrier for live streaming app
developers. The breakthrough of content delivery network(CDN) in live streaming industry is another essential contributor in
achieving genuine real-time interaction with shorter delays. Platforms equipped with reliable CDN guarantee the fluency of live
videos under weaker network connections, for instance, outdoor live streaming. On the other hand, a now prosperous cloud
computing business in China makes investment on maintenance of networks and bandwidth more cost-efficient. With developed
back-end solutions particularly for live-streaming available on most cloud computing platforms, the research and development time
and expense for a live streaming app also become more affordable for early-stage startups.
●
A lucrative and proven monetization model
An ancient Chinese proverb goes “No one would get up early if there’s no interest”. So it is for the live streaming business. An
essential reason that live streaming lures so many entrepreneurs and investors is that it has an established and proven monetization
model. As mentioned before, live streaming business in China has bred several public-listed companies. YY is one of the most
known ones among all. YY’s online live performance platform, YY music, was launched in 2011, a year before the company
proceeded to go public on Nasdaq in 2012. Based on YY’s financial results, in 2015, the internet value-added services (IVAS)
generated from online music and entertainment service totaled USD 513 million, accounting for 56.3% of its total net revenue.
Moreover, YY also shows a steady and strong growth of paying user population. The company’s paying user population grows
from 3.2 million to 7.2 million from 2013 to 2015. As of the first quarter of 2016, YY reported 3.89 million paying users, a year
over year growth of 57.1%. The continuing growth and a strong revenue indicate the sustainability of this business model.
Figure. 2 Data from YY’s financial reports
●
An expanded and diversified user group
Another significant traction of live streaming business is that it is still a growing market with great potential. According to a
research report by China International Capital Corporation, user base for social live streaming in China is expected to grow to an
estimated number of 414 million in 2017 with a double digit growth each year.
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Figure. 3 Data from CICC
In a report by Tencent Android Ecosystem Research Institute in May 2016, it shows that, now female users account for more
than 33.2% of the total, slightly better than what it was in PC age. Income-wise, data tracked from a top Chinese live streaming app
show that 75% users have average income over RMB 6,600(USD1,000 ), 60% higher than Chinese residents’ average salary of
USD 656 based on United Nations’ International Labour Organization’s 2015 report. In terms of education, the same data set reveal
that 56.46% among all surveyed interviewees received college and above education, indicating a well-educated user group.
Figure. 4 Data source: Tencent Android Ecosystem Research Institute
In brief, these changes in user demographics show that, recognized by the mainstream, the industry is now removing the label
of “marginalized culture community” [4]pinned back in the PC era and is now expanding to users on higher ladder of the social
stratum. Diversification of streamer types then enriches types of contents streamed on these platforms, which extends to lifestyle
and pan-entertainment. Chatting, outdoor sports, eating, shopping, pets, you name it. In return, diversity in contents keeps a wider
group of users on the platform. This positive circle of diversified content production and consumption improve the dynamics of live
streaming platforms and make it a more favorable entertainment option to many.
3. The value chain in China’s live streaming:an increasingly mature labor division
Outstanding financial results of live streaming platforms have shown the effectiveness of this business. Then how exactly does
it work? In discussion of its business operation, it can be primarily separated into two parts: its well-organized value chain and its
further developing business model.[6]
Just as many other industries, along the development of live streaming sector in China, we see an increasing mature labor
division between each party involved and a strong trend toward professionalization. The entire value chain of live streaming can be
roughly divided into content providers and platform operators.
●
Content Providers
On the content provision end, live streaming platforms see two major types of suppliers: grass-root streamers with few
performance experiences and professional crews. Non-professional streamers account for the majority of the group. They are
regular people with some sort of performing talents, such as singing, dancing or comedy. They may be far away from professional
but their competence is enough to keep audiences on their stream. To them, the biggest challenge is to maintain the quality of their
shows and keep a sense of freshness to their followers. Failures to meet this request will lead to a low retention rate of their
audiences.Because of this, two types of assisting organizations join in: Unions and Talent agencies.
Union: Union is similar to MCN (Multi-channel Network) on YouTube but it does not only take care of streamers’ external
business development, but also commit to the the operation of their streams. A typical Union will recruit new streamers and then
help them to build up their popularity via methods such as cross-channel promotion. They will also help them to moderate their
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streams, and sometimes even make mass purchase in the stream to act as shills to lure in more virtual gifts from audiences. Thus,
they’re both streamers’ agents and their mods. A Union is normally loosely managed, especially legally. Although partnerships
between a streamer and a Union is normally exclusive and financial, rarely would they form any kind of legal relationship, neither
employing or service relations. But streamers are still willing to give in their shares of income in exchange for assistance and
resources from Unions. Top Unions have extensive networks on live streaming platforms - some are even tightly bound with the
platform - which streamers can’t risk to lose.
Talent agencies: Agencies today are regarded as a 2.0 version of Unions with more organized systems. Unlike Unions, they
are mostly developed from regular talent agencies. The primary role of these agencies for streamers including selecting streamers
for platforms, sometimes even to their specific demands, and then train selected candidates into skillful streamers. In other words,
their primary clients are normally live streaming platforms but not streamers.
Streamers trained via talent agencies contribute to the trend of switching from UGC to PGC on live streaming platforms.
Professional talent agencies also have strict selection scheme in which streamers can’t reach certain popularity in given time will
lose the support from the agency It’s an uprising trend that professional production team and online video sites begin to work
together with live streaming apps to explore how to integrate advantages of strong interactivity into a well-planned and organized
entertainment program. These professional crews see the value of live streaming as a new entertainment format so that they are
experimenting possible means to integrate their expertise into the this new format and to keep up with the trend.
However, so far, few have find the balance between interactivity and content quality. Live entertainment shows in traditional
television sphere are highly demanding. Meanwhile, compared with individual broadcasters, professional crew have to make heavy
investment in personnel and equipments.Without a chance for post-editing, it’s challenging for professional production crews to
produce contents with significant high quality that really worths the investment.
●
Platform Operators
Live streaming platforms are supposed to be the pivot of the entire business chain but now they are losing their say in the game
because of the fierce competition. Live streaming platforms used to take the majority of revenue generated via IVAS on platforms,
but latecomer of the game has to cut down their share to as low as 10% to attract more streamers, implying their disadvantageous
position in the game right now. Meanwhile, their profit margin is also squeezed down because of the increasing bandwidth costs
and content expenses paid to streamers.
Unlike YouTube, most existing live streaming platforms in China outsource to external technical teams for R&D and
maintenance, which cuts their expense and time investment in R&D to a great extent while keeps the outsourcing payment a
considerable operational costs. Meanwhile, maintaining a high stream quality requires broad bandwidth. Considering its
correlation with user population and image quality, bandwidth has become a considerable expense for live streaming platform,
especially for popular ones and during marketing campaigns.
In terms of contents, live streaming platforms are also in a tricky position. Live streaming platforms were supposed to be the
core but in this content-driven sector, the high resemblance of products ushers in platforms’ loss of bargaining power to content
providers. For Twitch-like game streaming platforms, the financial burden of contract fee with first-tier gaming streamers have
already been overwhelming big which even dampens their capacity of profitability. The expense on contents, together with the
expense of bandwidth, cut down these platforms’ profit margin. To revert the trend, live streaming companies tend to act more than
just platform operators. A current momentum is to extend their operation to other parts of the value chain. A number of live
streaming platforms begin to produce their own contents and talents.
4. The business mode in China’s live streaming: an urge for variety
The mature monetization model is the key for the fast growth of live streaming business in China. It goes to two parts: virtual
gifts selling (i.e. IVAS) and advertising.
4.1 Virtual gifts selling
Virtual gifting selling is now the dominant revenue driver for all independent live streaming platforms in China. Virtual gifts
on Chinese live streaming platforms are first introduced by 9158 in 2005. It’s a bit similar to tipping on Twitch but the user and
streamer psychology between the two is very different.
For virtual gifting, normally it starts with users purchasing points or tickets via in-app. These points can be converted into
virtual gifts in streams. Audiences giving out relatively greater amounts of gifts can have privileges in the streams such as special
medals or higher positions in the rank for the stream. These gifts will then become streamers’ virtual assets, which they can cash out
based on the specific conversion rates set by live streaming platforms. The conversion rate from virtual gifts to cash is normally
60% to 50% of the conversion rate vise versa. It equals that platforms have taken a share from streamers’ income during the
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process.In this way, income generated by selling virtual gifts is distributed between platform and streamers. In the cases with
Union- or agency-contracted streamers, the income distribution will further involve these parties.
Figure. 5 Income distribution of streamers
Full-time streamers normally can get a monthly income about USD 600 but only few can make it more than USD 2,000 a
month. As live streaming becomes increasingly popular, some streamers also begin to sell commodities in their channel for others
and can earn a juicy amount of advertising fee. Only top-notch streamers, normally game streamers, can have a monthly income
over USD 20,000, partially of which can be attributed to their contract fee with live streaming platforms.
In this business model, streamers act as salespeople for virtual gifts on platforms -- the more gifts they receive, the higher their
income and the platform’s revenue can be -- thus it has become one of the primary KPI for professional streamers as well as the
major incentive for amateur ones. Tipping, in comparison, is the additional value attained for partnered streamers aside from their
subscription fees. Since, as long as streamers can get virtual gifts online, they can monetize from their streams, it lowers the barrier
for streamers to cash out from their stream feed, way before they foster a big fan base and receive brand advertisement contracts.
The tangible income -- however trivial it may be at the beginning -- let streamers see the possibility of monetizing out of the
platform and then have a stronger motivation to stay on the platform and keep streaming.
4.2 Advertising
As more traffic driven to live video streaming platforms, the advertising value of these platforms begins to soar. Live video
streaming per se also have some natural advantages as a new form of interactive advertising: the real-time promotion with direct
communication bridges the information gulf between streamers and audiences, assure skeptical audiences and convert these
audiences into consumers.
The direct communication between viewers and streamers, who sometimes are store owners themselves, increases the
credibility of brands and boosts consumers’ purchase impulse. Due to a survey by Penguin Intelligence, 30.4% Chinese consumers
are browsing e-commerce sites without a purpose. Live streaming may be the key drive to convert their spare attention into
purchase decisions.
Table 1 Major marketing campaigns on live streaming platforms
Merchants & Brands
Means of marketing
Duration
Sales performance
Baby products maker Wyeth Illuma
Pop star live streaming
60 min
Cosmetics brand Maybelline
Actress and web stars live streaming
120 min
RMB1.4 million
(USD 210,000)
Fashion magazine Elle
Actor live streaming
15 min
7,000 prints sold
Web star Zhang Dayi’s Taobao shop
Web celebrity live streaming
120 min
RMB 20 million in GMV
(USD 3 million)
RMB 1.2 million
(USD 180,000)
E-commerce is now the most promising sector for live streaming apart from online entertainment. China has an even greater
opportunity in this field, not only because China has a flourish e-commerce industry, but also because that consumers here still have
a strong distrust toward e-commerce brands. The distrust can be dissolved by sufficient and comprehensive information. Live
streaming may be one of the best approaches to get consumers closer to the process of manufacturing and build up the missing trust
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between the two. It’s more than likely that live streaming will be a standard feature for all e-commerce platforms in China in a close
future.
5. The risk and challenge analysis of China’s live streaming
The problem of monitoring and prohibiting hazardous contents live streamed is now the biggest headache to many in day to
day operations. Gambling, pornography, violence, and many other kinds of negative contents can serve as a short-term stimulus to
the traffic but will be a great damage to a platform’s branding and order in the long term. At the same time, these sorts of contents
are strictly prohibited by app stores and local regulators, which can lead to a temporary suspension in stores or even a complete
takedown from the internet.
5.1 The risk points
5.1.1 The risk of right infringement
Currently there’s still no particular laws and regulations that protecting the copyright of live streaming industry.In the second
clause of the “Regulations on the Protection of the Right of Network Information through Communication”stipulated that, “Any
organization or individual should get the consent and permission of obligee while providing other people’s work, performance,
video and audio products to public through information network and pay the patent royalties accordingly.”
For the lack of consciousness on copyright, there are plenty of contents in live streaming may be suspected of infringement to
the right of communication and copyright through information network, especially in the fields of game, performance and
entertainment, sports events providing by the streamers or platform through network without the authorization of the copyright
owner. Thers are also fuzziness on how to define the copyright via internet and disputes on the affirmation on right infringement
problem. Thus it calls out the perfection of laws and regulations to regulate on it accordingly.
A recent case closed in May convicted Douyu to compensate Mars TV RMB 1.1 million(USD 164,800) for unauthorized live
streaming of DoTA 2 championship organized by Mars TV. The charge holds Douyu liable for unfair competition but not copyright
violation. The verdict implies that the copyright holder is the developer of the game instead of competition organizers, which means
live streaming platforms can possibly be accused of copyright violation if game developers are willing to.
5.1.2 The risk of illegal content
Currently there are several laws and regulations in China such as “The criminal law”, “The internet information service
regulation”, “The temporary regulations on internet culture activity” which clearly prohibit the illegal network information
containing the pornographic, violent, rumor contents etc. Along with the booming of the live streaming market, some platforms and
steamers spread the contents including vulgarity, pornography and violence in a flagrant way. Some even create the contents of
rumor, horror and subornation for eye-catching.
Meanwhile due to the low-barrier and the instant dissemination of live streaming, it’s merely impossible to inspect the
contents of live streaming in advance which inevitably increases the uncontrolled risks. Besides, considering of the lack of
age-classification, plenty of juveniles have the high risk to contact the contents including pornography, violence, rumor, horror,
subornation etc that existed in live streaming may which will undoubtedly harm the teenagers mentally and physically.
5.1.3 The risk of invasion of privacy
Without the consent of the party involved, some streamers have hosted the live streaming in public and or some relatively
privacy space, some streamers even induce others to talk about their privacy before secret mobile phone lens.Their behaviors
shall be suspected with the infringement to the right of privacy and violation to “The misdemeanor law”. Under this situation,
even though the streaming platform did not provide the contents directly, it may also face to the risk of indirect infringement to
rights. Thus the platform should take effective measures to reduce the risk. For example, the platform should effectively prohibit
the infringement behavior of the streamers in time through the measures of deleting content, disconnecting the links etc while
receiving the claim of the others on the infringement to the right. If the platform should know or has obviously known such
infringement behavior to the right, it should burden the infringement responsibility directly.
5.1.4 The risk of property
Accompanied by the popularity of the live streaming, the commercial interests began to emerge. Some offenders intrigue to
earn the illegal interests by deception which release some commodity transaction information with a extremely low price or links
while the live streaming to seduce the audiences to click. Once clicked, it may cause the computer virus infection and financial loss
accordingly.
In some live streaming containing game and sports programs, gambling can be easily occurred. During the game or sports
events, the audiences may bet on the results and then pay for it through the third party payment platform. In addition, there are
plenty of pornography existed in some platforms which the streamers induce the audiences to send out virtual gifts through scantily
clad or flirting. With the trend of gradually strict governance on live streaming, part of streamers seemed to be self-restraint, but in
fact to transfer their sex trade to other social media platforms.
5.2 The supervising policy on live streaming in China
Both the ministry of culture, the police office, the office for cyberspace affairs, SARFT. and MIIT. shall take the supervising
responsibility for the live streaming in China. The ministry of culture shall take charge of the work for industrial development
planning, market supervising, administrative enforcement etc; the police office shall supervise the live streaming from the
perspective of cybersecurity and cybercrime; the office for cyberspace affairs shall supervise it from the perspective of internet
information contents; SARFT shall supervise in the fields of variety broadcasting activities; MIIT shall supervise it from the
perspective of infrastructure security.
Due to the multiple attributes and complexity of the live streaming fields and the diversification of the risks involved, the
supervision among each administrative authority shall inevitably have the overlapped part accordingly. So that we could both see
the sole supervision by a single sector and the unified supervision and enforcement by multiple sectors generally.
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object
Platform
Content
Ministry of
Culture
Network
cultural
activities
Network
culture
operating
entity
Network
cultural
products
Table 2 The supervising perspective of each competent authority on live streaming
Police
Office for cyberspace affairs
SARFT
Illegal&criminal
behaviors
The real identity registration
system
——
Internet information
service providers
The provider of mobile internet
application&internet
information service
Network
audio-visual
operating entity
Illegal&criminal
contents
Network information content
streaming type
(radio & TV
program)
MIIT
Internet
information
service content
the provider of
internet
information
service
Information
security
of
website/app
Meanwhile, considering that some illegitimate activities may only last for seconds, the mission of 24/7 monitoring can be very
demanding, especially for platforms with limited regulatory capacity. User reports are widely applied but the effect is questionable
considering that audience’s attitudes toward illegitimate contents may vary.
6. Conclusion
No matter what, this is already a multi-billion market in China which is still pacing ahead at an astounding high speed, with all
sorts of possibilities. It may have to confront some challenges in a short term such as the new regulations that may come out within
this year. The industry may also see acceleration in integration and reorganization in the rest of this year. But before long, it may
become a standard social and online marketing approach, and may possibly get into more fields in the future.
Any tiny change may usher in enormous impact when scale up 1.4 billion times. How will live streaming change China in the
next stage? It’ll be a question that’s worth your attention and will be topic we’ll continue to keep an eye on.
References
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[3] John Fiske. Understanding Popular Culture. Routledge Press, 2010.
[4] Tseng F M, Chiu Y J. Hierarchical fuzzy integral stated preference method for Taiwan's broadband service market. Omega,
2005.
[5] Nicholas Negroponte. Being Digital. Alfred A. Knopf, 1995.
[6] Frank Pasquale.The Black Box Society: The Secret Algorithms That Control Money and Information. Harvard University
Press, 2015.
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