(Yicai Global) Aug. 10 -- The value of China's paid content market will rise to CNY829 billion (USD121 billion) by 2022, almost twice its current CNY444 billion, per the latest projections by UBS Securities. It found the paid content segment with the swiftest growth will be online videos during the 2018-2022 period.
"Though investors have begun to worry that the population bonus of China's internet industry is disappearing, we think that the opportunity from paid content is growing," Liu Zhijing, a director and analyst with UBS Securities, said at a forum on the topic the firm held yesterday.
This conclusion was drawn from a comparison with the paid content market of the US. "Historically, America's media sector saw a shift in its industrial mainstream, namely from advertising revenues to membership fees," Liu added.
"A US market study conducted in 1972 showed that 90 percent of people were disinclined to pay for content. By around 1980, however, the sector took off, and a similar story will unfold in China," Liu said.
"UBS Securities holds the view that by 2022 paid content will cover around half of the media market, much higher than the 34 percent of last year. This will thus present opportunities to content producers in the A-share market, for their current valuations are far lower than that of overseas internet companies and their US peers," Liu advised.
Among these paid content segments, the one with the swiftest growth during 2018 to 2022 will be online videos, Liu projected.
Excluding non-core incomes like selling copyrights, the annual average growth rate of China's online video industry in the next half decade is likely to hit 28 percent, and its scale will rise to CNY242 billion in 2022, Liu believes. The annual average growth rate of revenues from paid subscriptions will reach 41 percent in the next five years, and the number of subscribers for online videos will grow almost one and a half times to 223 million, with the penetration rate among Chinese reaching 50 percent.
Major paid content platforms in China still operate at a considerable loss, and the three major video websites have been in the red for years. Faced with rising costs, can the pay-for-content model improve the profitability of this sector?
"Currently, the annual membership fees of the three major video websites is only CNY198 (USD29), showing a significant gap with, e.g. Netflix and CNN, whose average yearly subscription fees are CNY629 and USD1,000, respectively, Liu noted.
Chinese video websites' membership prices are thus bound to rise greatly in future," Liu predicted.
Editor: Ben Armour