We’ve covered the launch of Qiyi.com, a new video site backed byBaidu, Inc. ((ADR) NASDAQ: BIDU). The site imitates a lot of Hulu’s functionality and design, and in terms of business model Qiyi is certainly also looking at advertising. Qiyi’s CEO, Gong Yu, was recently interviewed by QQ Tech (link in Chinese), and while it’s a lengthy piece (with lots of marketing talk), Gong did share some interesting perspectives and stats. I’ll try to blend his quotes with some questions I have for the site.

On content acquisition:

“…Our content comes from several sources… Copyright intermediaries are a major source of content in our procurement… We aim to be the biggest legal video content database in China by the end of this year… Our licensing rights for domestic TV series are usually 1-3 years, with some cases being 5 years.”
– Gong Yu, CEO, Qiyi.com

My thoughts: I think one key difference between Qiyi and Hulu is that Hulu is founded by content companies – NBC, Fox and ABC. Theoretically and quite probably in practice this gives Hulu lower acquisition costs to content. Qiyi on the other hand, is an “outsider”, and Gong has basicallyadmitted they need to go through middle-men to get the content. This will definitely raise its costs.

On revenue generation:

“We see three main models for video sites. The first is user-generated content. The second is short clips purchased from TV networks, usually news and documentaries, to form a news-reporting service. The third is long-form entertainment. Almost all of Qiyi’s resources are used on long-form entertainment. This means the amount of content we have will be less than websites such as Youku which does all three models.

However, of these three models, we see offering long-form entertainment to users for free and generating revenue through advertising as the most healthy model, so we are devoting all our resources to it.”
– Gong Yu, CEO, Qiyi.com

My thoughts: Clearly Qiyi is adopting Hulu’s existing model. However, I have reservations on whether Hulu is as successful as Gong believes, since the news last week on Hulu looking at a premium membership model probably suggests that advertising alone is not enough for profitability. Furthermore, online advertising in China has always been a lesser developed business model, which is the very reason Chinese social networks were so creative in using virtual currencies to generate income – pure advertising based plays just haven’t survived that well in China historically.

On site features:

QQ Tech: How did Qiyi come up with innovative features such as auto resume of the clip last watched and “dim lights”?

Gong Yu: This is due to our positioning and the needs of the market… as a new video site [late-comer to the game] our first step is not how to grow the overall market but how to build a brand in a already established market. The speed and quality of the video is important, but user experience is also very important.

Friendly user experience is in the details, such as the auto resume function you mentioned, it’s to address specific user habits…

… Other features such as the “dim lights” which helps you to focus on the video, and video recommendations based on your mood (“happy”, “sad”), are all to make the site user friendly to users of all ages.

My thoughts: Obviously a lot of these features are straight from Hulu.

On feedback from users through beta-testing:

“Users gave positive feedback on the user-friendliness and uniqueness of the site and its design… Users highlighted the high quality of videos… They also noted that more content needs to be added, but most hit shows from recent years are already available.”
– Gong Yu, Qiyi CEO

My thoughts: Video quality may be a differentiator, but that probably won’t last. And these shows are available on most Chinese video sites. Conversely, the availability of copyright infringing content on competitors’ sites (even a casual search on Sina Video returned episodes of US TV series such as CSI) means that competitors will still have an “unfair” advantage, for as long as they can get by the litigations. If anything, Qiyi will be footing the bill for educating Chinese consumers on copyright – not sure if that’s a viable business model.

In sum, I’m somewhat bearish on Qiyi, 1) the ad-based model it’s trying to copy isn’t exactly a blockbuster for Hulu; 2) content not exclusive (as far as I can tell); 3) Chinese online environment still very liberal for piracy / bittorrent, so lots of alternatives for content.

China’s online space has long been one of rare industries where there is not big state-owned players present – Baidu, Inc. ((ADR) NASDAQ: BIDU),Alibaba.com Limited (HKSE: 1688), Tencent Holdings Limited(HKG: 0700 | (ADR) PINK: TCEHY), etc. are all private companies. People often speculate if and when this will change (just last night I had such a conversation with a friend who works in VC). Well, this has just become true for the online video sector.

China’s state-owned media giant China Central Television (CCTV) has just launched China Network Television (CNTV.cn), which is an aggressive foray into the online video space by any measure. Previously, CCTV has been content with offering ad-hoc streaming of important programs on its website and partnering with internet properties such as Sina. CNTV is a dramatic development as it is essentially trying to move all of CCTV’s content online (think Hulu, but 10 times more aggressive).

The site, which will officially launch on Monday, Dec. 28th, is already accessible. At launch, the site offers 5 distinct “channels”:

1. a 24-hour news channel,
2. a sports channel,
3. a general entertainment channel,
4. a user-generated-content (UGC) channel (think Youtube clone), and
5. a video-on-demand (VOD) channel.

In addition, CBOX (in Chinese), a software client, is available for download (though right now the link seems to be broken, so I haven’t been able to test it).

The 24 hour news channel and the sports channel (titled “5+”, as CCTV5 is the sports channel under CCTV) require a plug-in to view. 5+ currently only has some ads (it’s 7am Monday as of this writing, so the channel hasn’t officially launched yet), whereas the news channel is currently streaming CCTV News. I think these two channels will offer some forms of original programming going forward, and not just stream TV content. I’m not sure if the plug-in is based on some form of P2P technology (as used by competitors PPLive and PPStream), but at 7am the news channel isn’t streaming that well, so there are some technical issues to resolve. The entertainment channel, the UGC channel and the VOD channel utilize Adobe Flash.

The UGC channel, named CNTV Xiyou (grapefruit, I have no idea why it’s named as such…), looks and feels like any other online video site. As can be expected, there isn’t a lot of content right now, but I did see clips from other television stations uploaded – not sure how CNTV will handle piracy, but this will likely be a very sensitive issue due to CNTV’s state-owned background.

Personally I found the VOD channel, CNTV Bugu (cuckoo, again, no idea why it’s titled this), to be the most interesting. The service has two components – a live component and a database of programs. Right now, live streaming of 51 TV channels (CCTV properties and a range of the most popular provincial channels such as Beijing TV) is available. For the database, it seems to be CCTV’s ambition to make all of its programming fully searchable and watchable online, and Bugu is the first step in that direction. The database has a impressive collection already – I just watched the 30-minute news from September 14th. There are also some films, courtesy of CCTV6 (the movie channel), for example All Quiet on the Western Front, though again there could be some copyright issues involved (when CCTV purchased the license for the film, did it also include online broadcasting rights?).

CNTV’s launch has serious implications for the space. It’s an aggressive entry into all the sectors of online video. While UGC sites like Tudou (in Chinese) and Youku (in Chinese) might feel the pain less (CNTV in this regard is just another Youtube clone; there is not differentiation – yet), properties like PPLive (which has recently renamed itself PPTV) and PPStream which heavily rely on traditional TV resources will certainly be strongly challenged. One of CNTV’s stated goals is to make CCTV’s 20 channels fully viewable online, and since CCTV is the monopolistic player in many fields (sports for example – there are few competitors to CCTV5), this will make CNTV the go-to property for a lot of viewers. Of course, a lot depends on the actual execution, but it’s safe to say that the landscape is about to change.