Extra Buzz 009: Bilibili Breaks (Through) Chinese Internet
Hi Extra Buzzers,
I mis-labeled the last newsletter as 007 when it was actually #008, so don’t worry, you haven’t missed anything, and this is indeed 009! Some light housekeeping to start --
We had a great turnout for our latest happy hour, from FAANG to BAT with Jason. Follow us on LinkedIn for short write-ups and summaries of our learnings. On the heels of that success, we have two community events coming up, both on topics near and dear to our hearts:
Thursday May 21, 2020 10-11AM PDT / 1-2PM EDT / Western Europe time 7-8PM
Webinar: China AI with Rhodes Scholar and ChinAI newsletter’s Jeff Ding. We’ve been subscribers for a long time and can vouch for his top-notch content and community. We’ll be discussing China’s national AI strategy, overlooked Chinese AI companies, the state of AI ethics in China, and clearing up common misconceptions people have about US vs. China AI. Sign up today! https://www.techbuzzchina.com/events/webinar-china-ai-with-jeff-ding
Thursday May 28, 2020 6-7PM PDT / 9-10PM EDT / China time 9-10AM Friday
Happy Hour: China Esports with China Esports Business Digest’s John Oliverius, 18-year veteran of the media industry. We recently discovered this newsletter and agree with John that there are many interesting things happening in Chinese esports that you should keep an eye on! Join us to learn more! https://www.techbuzzchina.com/events/happy-hour-china-esports-with-john-oliverius
You can sign up for both events here. See you soon!
Best,
Rui & Ying
Bilibili Breaks (Through) Chinese Internet
Summary: China’s “largest youth community” Bilibili (NASDAQ: BILI) caused a stir on the interwebs when they released a 4-minute video (Chinese, English fan-dub) for May 4th Youth Day in China titled “The Waves Behind.” The name is taken from a well-known Chinese phrase that metaphorically refers to young people as the waves behind, inexorably pushing the older people ahead of them onto their resting place on the shore. The commercial featured a well-known near-boomer-aged actor in an extensive and unironic monologue on the greatness of youth and youthful dreams, as represented by and set to videos uploaded onto Bilibili, of course. Despite having branched out far beyond its original anime roots and reeling in almost a billion dollar’s worth of revenues last year, Bilibili’s very visible attempt at asserting itself into mainstream Chinese society was met with applause from many but derision from others. Probably because it’s one of the most dynamic Chinese consumer internet companies today, the company completely hijacked the conversation in tech and media for a few days. I explain why I think overall that this was a good and necessary move from Bilibili, not only because it was a great opportunity to (re)introduce itself to the public, but also to reverse some recent PR crises, and even create an opportunity for its core users to bond, not that they hated it that much anyway.
Screen capture from Bilibili May 4th Youth Day ad.
A Quick Review of $BILI
Before we start, definitely familiarize yourself with Bilibili if you haven’t. We did a whole episode on it back in December after many folks wrote to say this was a company they didn’t quite understand or wanted to know more about. To levelset, I’m going to give you what I think are the top 10 relevant facts of Bilibili - The YouTube of China?. If you’re familiar with the company, skip ahead to the next section:
It was founded in 2009 as a fan site for Chinese anime-lovers to go watch their favorite shows.
One of its distinguishing characteristics is the “bullet screen,” or syncing user-generated comments to scroll on top of its videos, essentially making an asynchronous experience feel synchronous.
The original founder Xu Yi was born in 1989, making him a young millennial, but the CEO is the site’s original angel investor Chen Rui, a Gen X’er born in 1978.
Bilibili plodded along for years without a clear path to monetization until it became the exclusive distributor of Fate / Grand Order (FGO), Sony’s top-selling mobile game. The partnership has been successful and Sony just invested $400mm into Bilibili.
It IPO’ed on the NASDAQ in early 2018, in no small part due to the massive success of FGO. At IPO, mobile gaming (mostly FGO) accounted for 83% of revenues.
But it now has multiple significant business lines. 2019 revenue breakdown is mobile gaming (53%), live-broadcasting and value-added services (24%), advertising (12%) and e-commerce / others (11%). Impressive diversification and growth.
However, it is still quite unprofitable. Off of nearly $1Bn in revenues last year, it has an operating margin of -22% (gross margin 17%).
The pros are that it remains in high growth. 2019 revenues are +64% YoY, but more importantly, its non-gaming businesses are growing faster than its gaming business, which only accounted for 43% of Q4 revenues. Remember at IPO it was 83%!
Its official members (68mm, you have to pass a test to become one) are very young and very engaged. 21 years old on average, with the newer registrations averaging below 20 years old, and with a 12-month retention of 80%+. Statistics that would make any social site drool.
While Bilibili began as a fairly chill operation, in recent years it’s become more ambitious, especially post IPO. CEO Chen Rui has said numerous times that it must break the $10Bn market cap “barrier” in order to be a lasting (Chinese) media company. That means at least $1.4Bn in revenues. What’s impressive is that at least on the market cap front, Bilibili has broken through, doubling its valuation from less than $5Bn just 8 months ago.
Bilibili NASDAQ IPO official publicity photos.
Bilibili Sets $10Bn Market Cap, $1.4Bn Revenue Target
Which brings you more or less up-to-date on what Bilibili’s been up to in the last few years. To Western investors, Bilibili has been touting itself as the YouTube of China, which was why we named the episode as we did. The main similarity is the dominance of PUGC, or professional user generated content, that accounts for 91% of Bilibili’s traffic. In China, Bilibili, or B-station (B战), as it’s called, is known for its quirky, creative uploaders (called up-主zhu). While it may not seem like much of a distinction these days -- Chinese short-video platforms like Douyin and Kuaishou are filled with immensely creative videos made by Chinese influencers -- Bilibili almost had a monopoly on such talent less than a decade ago. I won’t go into the reasons here, which are numerous and as much socio-cultural as they are due to technology infrastructure and market economics at the time, but the end result is that all of the video sites in China that initially tried to go after the YouTube model (like Youku) all eventually became PGC (professional generated content) platforms, that is, they became Netflix, not YouTube.
But here we are, in 2020, and the world looks very different. Luckily for Bilibili, it has retained and even strengthened the loyalty of its Gen Z anime lovers. Unluckily for Bilibili, anime, fantasy, cosplay and autotunes, no matter how meme-worthy and beloved, are not sufficient to get it to the minimum $1.4Bn in revenues Chen Rui wants (+40% from now). For that kind of growth to happen quickly, it’s got to broaden its customer base to those with a higher willingness to pay, even as it further milks its staunchest supporters. In other words, it has to become more mainstream (or as it’s said in Chinese, “break out of its circle 破圈”). And that’s what it’s been doing, by heavily promoting other categories such as education, lowering barriers by making its membership examination easier (I assume that’s how I passed!), and of course, courting the authorities so that it does not suffer a setback like it did in 2018 (it was removed from app stores for inappropriate content).
This has not gone without notice by both its users, many of whom have complained for a few years now that the site has lost its charm due to over-commercialization and infiltration by outsiders, as well as numerous media outlets. But as has also been noted, anime hasn’t been the dominant content category on Bilibili since 2014, long before law professors began dissecting legal cases on the site for law students seeking to pass the bar (one of the most commonly cited examples for Bilibili’s descent into the “uncool”). Net net, the influx has clearly been many times greater than the attrition. User growth in Q4 was up 40% for both DAU and MAU, and every metric that seems to matter, including number of active creators and pieces uploaded, were all even higher than that. So regardless of what the spurned ex-Bilibili lover believes, more and more people are flocking to the site, staying, and perhaps most importantly, paying.
Bilibili Q4 2019 results official infographic.
Bilibili’s Youth Day PSA - Genius or Not?
Which brings us to the curious incident of the May 4th Youth Day “commercial.” Yes, it is a day of political significance in recent Chinese history. It commemorates the anti-imperialist, patriotic protests by Beijing students in 1919 that jumpstarted the revolutions that would eventually lead to the founding of the P.R.C. But it is not actually celebrated as a holiday in China (technically, 14-28 year olds are suggested to get a half day off, but this is not generally practiced). Most “celebrations” are government or university organized and revolve around civic duty and volunteerism. Indeed, it would be tone deaf to schedule overly commercial activities on this particular day. And it is why Bilibili’s video feels like, sounds like, and indeed kind of is, a PSA about the wonders of being alive as a young person in China today, and not an overt advertisement. It is also why an abridged 2-minute version was shown on CCTV’s evening news and was widely applauded by state media.
At first, the reaction was mostly positive, garnering high praise from straight-shooters such as Meituan CEO Wang Xing, a Gen X’er at 41 years old. But pretty soon, disses appeared. The prevailing narrative quickly became: Bilibili had won over everyone that didn’t matter -- the post 80s and older, while its core audience -- Gen Z -- was utterly unmoved. In fact, how moved you were by it was inversely related to your age. After all, did you see anyone who was in their 20s share it in their WeChat Moments or groups? Wasn’t it all aunties and uncles and grandmas and grandpas who dug these propagandistic, overly dramatic monologues? Some pointed out that some of the young were even gravely offended. How could this 52-year-old man with his overflowing sentimentality speak any truth about our “hardcore” lives? But this is where I think Bilibili was wildly (albeit not likely fully intentionally) successful, and the ad is a great example of the strength of its community and identity.
1. To grow and to differentiate itself from other platforms, Bilibili needed to assertively and proactively re-define its value proposition and identity to “strangers,” i.e. upper millennials and older.
Even though Bilibili is now at 130mm MAU, nearly half of the 300mm Gen-Z’ers it is going after, many people, including some in its target demographic, still think of it as by and for anime fans, a very niche subculture indeed. This video clearly carved out Bilibili as a place where the youth of China go to live out their dreams in these “best of times.” If you suspected that Bilibili was a place where the young were wasting their time (as might be argued of Douyin, to its dismay), doubt no more. Bilibili is a place where the best of China’s youth came to showcase their talents. Even if you were not sympathetic to these particular talents, you could not possibly be unsympathetic to youth.
2. With its young and inexperienced creators increasingly involved in PR crises, it needed to manage society’s perceptions of its platform.
MCNs dominate much of Chinese new / social media, and like full-service talent agencies, many of the big influencers we know today were developed by and have been signed on to these organizations from the start. Bilibili also works with many MCNs, but due to its quirky community, many of its biggest stars found their fame organically at first and still retain significant control over their content and personas. Increasingly, as Bilibili grew bigger and its creators more famous, they courted more and more controversy. Some of it was very much justified, but some of it, like the most recent “charity fraud” case in April with top creator Xudasao (he’s on YouTube too!), was very much unwarranted and possibly encouraged by malicious forces. In any case, these incidents have been on the rise and have all been hugely negative PR for the platform and its users. Through this ad, Bilibili is emphasizing that its creators are young people with a vision, not fraudsters or perverts.
3. Ironically, by using this “stodgy” format, Bilibili has created an opportunity for its community to bond even further.
As many viewers have noted, the earnestness of the near-boomer-aged narrator and the lack of irony in his florid, lecture-like speech made them somewhat uncomfortable. But if you grew up in China, you have come to accept that this is a common style of expression. It is also, coincidentally, a style that is very easy to parody and satirize, which is practically the raison d’etre of many Bilibili creators. Sure enough, at least 1,000 parody or response videos have been created and uploaded to Bilibili in the short amount of time since the ad was made public. There’s probably a lot more but this is the maximum number of results returned for any search term on Bilibili. Ironically, the best place on the internet where you could poke fun of the ad and find an audience was … on Bilibili. While nothing can please everyone, those who merely thought the ad was “lame” and irreflective of their lives were not driven away from Bilibili, but towards it. And that, my friends, is the definition of a very close-knit, sticky community.
When you search the ad's keywords on Bilibili, you get back mostly parody or response video results.
4. And anyway, because of the trust that it’s built with its users over many years, many of them were receptive and even congratulatory. Plus, the narrator is not a Bilibili user. Does he really speak for Bilibili?
First, the original video already has nearly 20mm views as of writing, which is a very high number. Second, of the nearly 50,000 comments, a skim will show that the majority are positive, some unreservedly so. It’s not strange, really. Chinese media is often (asked to) focus on the positives of society, and it’s what many viewers, even the rebellious young, have come to expect from “traditional media.” And that’s the genius of the ad too, in that it picked a distinctively non-Bilibili narrator to speak to the public about Bilibili. He doesn’t speak for Bilibili or its users. He speaks for his generation, the Gen-X’ers and baby boomers (and judging by reactions, some “upper millennials” like myself in our late 30s). Finally, by mostly holding off on advertising and remaining free for its members, Bilibili has built a lot of trust over the years. And furthermore, there is really no alternative place to go. After observing the slow decline of Douban and Zhihu, sites that also began as subcultures but have really struggled to grow, many Bilibili users know that they need to play along somewhat at least, or risk losing their home. Of course there are those who defy any sort of mainstream assimilation, but for the less hardcore, they can accept a cringey ad if it means the community they love can continue to flourish.
So there you go. How the Bilibili ad hit you is really a result of how much you agree with the narrator’s point of view on youth, and his own lack thereof. If you felt it hit the spot -- good, now you can begin to see Bilibili as the place where young people chase their passions, remember how good that feels? If you felt condescended to, don’t worry, you can go to Bilibili to vent your frustration -- maybe create your first work that will help you become a Top 100 Up-主 (creator). And if you’re a shareholder, you should probably rejoice. That was probably the most efficient use of marketing dollars I’ve ever seen. Who doesn’t have a point of view on what it means to be young? It’s one thing we’ll all experience. And it’s one thing Bilibili seems to understand very, very well.