Ep. 7: Live Streaming in China: How to Win Fans and Influence Losers
Transcript
(Y: Ying-Ying Lu; R: Rui Ma)
[0:00] Y: Hi, everyone. Today we are going to talk about the Chinese live-streaming industry, as embodied by a few companies, including one which just went IPO, and a few others about to go IPO.
R: The one just went IPO is the twitch of China, and the few that are going IPO, I’m not sure they have a large U.S. equivalent.
[0:43] R: Hi, everyone. We are TechBuzz China by Pandaily, powered by the Sinica Podcast Network! We are a new weekly podcast focused on giving you a peek into what’s buzzing within the tech community in China. We uncover and contextualize unique insights, perspectives and takeaways on headline tech news that don’t always make it into English language coverage. TechBuzz China is a part of https://pandaily.com/, a new English language site that tells you “everything about China’s innovation.” I’m one of your two co-hosts, Rui Ma, and I live in San Fransisco. And yes, I’m still sick.
Y: And I’m your other co-host, Ying-Ying Lu. Alright. So, on to live-streaming. That’s a big topic. How should we start?
[1:25] R: I suggest we start with an industry overview., then explain the demographic and cultural trends that support growth, and finally go into the details of the livestreaming companies themselves.
Y: Everyone understands livestreaming right? In the US, we had companies like Ustream (now IBM Cloud Video) in the early days, and then Meerkat, Periscope, and Facebook Live.
R: It went from mostly web-based to mobile. And the same change has happened in China. According to Frost & Sullivan, mobile livestreaming MAU went from just 5.6mm in 2012 to 176mm in 2017. That’s a 31-fold increase, meaning the number of users were doubling every year.
Y: Yeah.But more impressive than that was the market size, which went from 16mm usd to 4 billion in the same period. Thats almost a 250x increase. The market was tripling every year.
R: For those of you who thought ride hailing and bikesharing was the biggest Chinese tech story of the last few years? Not at all.
Y: It’s true. Even if you look at our past few episodes, video entertainment in general has been a dominant theme. Bytedance, AKA Toutiao, being a key player. They showed up in our first episode and also featured prominently in our episode on Tencent, where top VC Hans Tung of GGV Capital referred to it as a company that Tencent should maybe consider acquiring to stock up on some mojo.
[3:01] R: I get it. Livestreaming is definitely a thing. But why is it SO popular in China?
Y: Well, it started from the Diaosi (屌丝) culture.
R: Diaosi, which literally means, male pubic hair, is a self-mocking term meaning losers. Or generally, young people with little social mobility in China. It basically means mediocrity in every way. Looks, job, definitely financial standing.
Y: These people could be migrant workers, or just average people in China barely scraping by a living. It started off referring to men for obvious reasons, but now it just refers to the whole culture.
R: Wikipedia likens it to the American term “redneck,” but I think it’s actually pretty different. But the idea that it is a term that people know is derogatory and yet feel fierce identification with is the same.
Y: And as the meme grew, it came to really embody anyone who felt like they were marginalized in Chinese society. So it had this hopeless ring to it.
[4:02] R: But then came livestreaming, which gave them hope.
Y: And this is how livestreaming works in China. It’s really based on virtual goods. The streamer gets in front of a webcam and microphone and does whatever it is they do. Singing, telling jokes, and now more and more, playing video games. You can come into the channel and buy them virtual gifts, digital roses, cars, yachts, special effects to take over the screen … for real money.
R: I’m guessing most of our listeners find this silly. I certainly can’t fathom buying virtual roses for anyone. But imagine that you are a diaosi, with little going for you in life, and you are very lonely, and voila, out of the murky depths of the interwebs, there is a livestreamer you identify with, maybe speaks your language a little, has your sense of humor, and you are poor, but you aren’t so poor you can’t spend $3 on some fake roses and have this streamer acknowledge your existence and say thank you for the roses, sir!
Y: Obviously, we aren’t diaosi, but as far as we can tell, that’s kind of how the industry started. Fairly innocuous, right?
R: Yes, but then what happens when you have thousands of diaosi fans in the same room. Roses don’t get you a mention anymore. To get a mention, maybe you need to buy a virtual car. Or a yacht. Or special effects. And these, my friends, cost real money. Maybe $1000.
Y: For a virtual item? So all you get is a shoutout?
R: Well, not just any shoutout. Shoutout in front of thousands, maybe tens of thousands of fans. Isn’t that the basic concept of fame?
Y: But diaosi are throwing away thousands of dollars at their favorite livestreamers? How are they getting this money?
[5:46] R: And this is where we really heavily relied on the research of Hao Wu, a Chinese documentary filmmaker whose latest film is on live-streaming. So a real diaosi doesn’t have that amount of money. Or can’t sustain it. But then certain rich people got into the game, and you know how it is. Some people might be rich, but they’re not famous. But here, in a popular livestreamer’s room, they can throw around a few thousand dollars and get thousands of others to agree that, wow, they are a really big deal.
Y: Amazing. So the rich and poor alike are now hooked in.
R: That’s how it started. But as it grew into a multi billion dollar market, it got a lot more complicated than that. It’s an entire economy with agencies, promoters, awards shows, etc.
Y: Too much detail to cover on our show. So you’ll have to catch Hao Wu’s film, Republic of Desire, when it comes out later this year, for the full story. We also hear from him towards the end of this episode.
[6:42] R: Back to the technology companies that deliver this experience. The biggest is YY, which is NASDAQ listed and has a market cap of over $6Bn. It was founded back in 2005 as a gaming portal, but now makes something like 90% of its revenues from livestreamer virtual gifting.
Y: Last year, it had livesteaming revenues of $1.6B and operating income of $400mm. Over 16mm users paid an average of $96 on its platform. It’s also the platform that Hao’s film focuses on.
R: And a few years ago, it started working on videogame livestreaming, and called it Huya (虎牙). I think this is probably easier for our listeners to understand, because the US equivalent is Twitch, bought by Amazon a few years ago for about a $1bn.
Y: And Huya just IPO’ed on May 11 on the NYSE, raising $180MM and $12 per share. It was a great IPO because not only did the company price near the high end of its range, it had a first day pop of 34%.
[7:49] R: Huya has YY as a controlling shareholder, but it also has guess who, that’s right, Tencent, as a major shareholder.
Y: That’s right, Tencent bought 34% of Huya in March. They also have this contract in place to buy up to 50.1% between March 8, 2020 and 2021.
R: I told you Tencent hasn’t lost its mojo. It’s also a major investor in Douyu, Huya’s biggest competitor. It’s got this space covered. Listen to Episode 5 if you’re confused about what I mean.
Y: Yeah, based on these two weeks of post IPO performance, the stock is at $20 now, looks like Tencent made a smart investment. Huya’s average monthly active users (MAUs) rose 30% to more than 80 million in 2017, while its mobile MAUs surged nearly 75% to 36 million. The average time spent daily on its mobile app is now 98 minutes. It has about 610,000 broadcasters.
R:Twitch, for your reference, is bigger, but not a ton bigger. From what I can find, it’s got 100mm+ MAU, 16mm DAU, and over 2mm broadcasters. We don’t know its revenue numbers though.
Y: But we do know that Huya had $340MM in revenues in 2017, and that 95% of it was from virtual gifts, with the remainder from advertising and other services. It did have losses of $12MM, but it’s pretty close to profitability.
[9:21] R: And now we go from Huya, game streaming, back to the entertainment livestreaming that got YY so big in the first place. Because there are not one, but two companies, who have filed to go IPO in this space.
Y: Yes, one of them isInke (映客), who filed back in March to list on Hong Kong, and the other is M17, looking to go public in the US. Although, the two are very different, because while Inke focuses on China, M17 is Taiwan, Hong Kong and Japan.
R: Inke has grown ___ since starting in 2015.
Y: Wow, it’s barely 3 years old?
R: I’d say it was the darling of the Chinese internet industry for all of 2015 and 16. It made a profit, on an adjusted basis, of over $120MM last year, on revenues of over $600MM. And it had 25MM MAU at the end of 2017. Basically 100% of its revenues are from livestreaming.
Y: That’s impressive. How does it compare to this other company, M17 that’s also filed?
R: M17 merged with a Singapore based dating company a few years back but now has 90% of its revenues from livestreaming. It’s significantly smaller in terms of revenue at only $90mm in 2017, and is seriously unprofitable, with an operating margin of -49%. But unlike Inke and most of the Chinese platforms, which gets about $100 in revenues per active paying user, m17 is at $335.
[10:57] Y: That’s crazy. I really don’t get it. Should we become livestreamers, Rui??
R: Well, funny you say that, because we are sort of personally benefiting from this livestream boom. These mics we are using? They used to cost 10x what we got them for. All because livestreaming became so hot in China and then all the manufacturers got in on it, so you can buy pretty high quality stuff for cheap.
Y: But what about actually, you know, streaming?
R: Remember Hao’s documentary? That life ain’t easy.
Y: Right. To really make big bucks, the livestreamers needed to sign to an agency, and a lot of them put in their own money to buy themselves gifts in order to go up the popularity charts. But beyond that, many of them don’t seem to go outside very often and lived the lives of vampires.
R: Because many livestreamers are active at night when their viewers are not working!
Y: Also to get more viewers, some livestreamers have resorted to really dangerous tactics, streaming themselves playing pranks, doing dangerous stunts, or straight up committing crimes.
[11:59] R: Whatever it takes to get more views! But this has obviously led to bad outcomes. Chinese government has stepped in and demanded that unsavory content be removed from these platforms.
Y: And it goes back to the bigger effort of content policing that we mentioned way back in episode 1, when a huge content community owned by Toutiao called Neihanduanzi was shut down due to this quote unquote unsavory content.
Y: That’s why in every one of these IPO prospectuses, you see regulatory risk as a primary risk factor. Not just on content, but the government is always coming out with regulations regarding real name registration, virtual gifting, etc. All adding friction or cost to these companies.
[12:41] Y: That and it’s not clear that we aren’t at the end of the hype cycle for livestreaming. Inke, for example, saw their MAU fall from 30 to 25mm from the end of 2016 to 17. And there are plenty of skeptics who don’t see how this is all sustainable, because at the end of the day, the streamers are really just asking for viewers to give them money.
R: Some of them are talented, yes, but for entertainment, I’d rather watch
professional performers. And most of that you can still watch for free. Just not live.
Y: It’s hard to say that once you remove the vanity aspect of it what happens. Because the viewers aren’t really paying to “reward” the streamer, but are doing it to get the streamer’s attention and the rest of the room as well. They’re paying to get a higher, albeit virtual, social status that they can’t have in the real world … how long does that really last.
R: It might work better in the video game world than with just jokes and singing and stupid pranks. That’s my opinion of course.
Y: Well, lots of companies are still going at it pretty hard. Besides YY, Inke and M17, there’s publicly listed Momo which started off as sort of dating slash social networking but is now mostly livestreaming as well. R: And on the videogaming side, Huya and Douyu are followed by a long list of platforms too. I really think these are going to do better in the long run. Probably less controversial content, and I’d personally rather watch a good fortnite player than a mediocre singer. I’ve got my own karaoke machine!
Y: Hey, Inke’s slogan is – we are the livestreaming social network where good looking people hang out.
R: Are you suggesting we get on it? Do we make the cut?
Y: Well it depends on how many of our listeners are also livestream viewers. Let us know what you think about this industry and why you are or are not bullish.
[14:35] Y: As an entire generation has come of age on social media, virtual relationships are slowly replacing real-life human connections. And China has taken it to an extreme. Here, live streaming has become the most popular online entertainment for hundreds of millions. People’s Republic of Desire provides a journey into this digital universe, where young performers earn as much as US$150,000 a month singing, dancing or doing talk shows to live, interactive audiences of tens of thousands. Their fans include China’s super rich, who each night lavish virtual gifts on their favorite performers– with 40 percent of the money paid for these gifts go to the performers– and the dirt poor, many of them migrant workers in urban areas searching for a cheap way to be entertained, to feel connected.
To get updates on when the film goes into distribution and is available for other screenings here in the US, please find and like “People’s Republic of Desire” on Facebook.
R: We talked a lot about this film in this episode. This Saturday, both Yingying and I had the privilege of screening it at CAMMFest, and also attended a pre-screen reception organized by our friend Elliott Ng here in San Francisco. We asked the filmmaker, 吴皓 who used to work in tech including at companies such as TripAdvisor and Alibaba, about his experience creating the documentary and his opinion about what the rest of the world can learn from the phenomena we’ve talked in this episode. Here’s what he had to say:
Y: We’d like to give a shoutout to our partners at SupChina. In addition to our podcast here with Pandaily, they publish the excellent Sinica podcast, a weekly discussion of current affairs on China with journalists, writers, academics, policy makers, and business people. So while we only focus on tech, they really give you the entire overview.
R: SupChina, hand in hand with GGV, also publishes the GGV 996 podcast, which interviews top tech leaders in China tech and investment. Follow us on twitter, at @thepandaily, @techbuzzchina, @ruima and @ginyginy. Thanks to our producers Carol Yin and Kaiser Kuo.