Written by Gianluigi Negro.

In a famous Ted talk Chris Anderson stated that web video would drive a worldwide phenomenon he called Crowd Accelerated Innovation – a self-fueling cycle of learning that could be as significant as the invention of print. Although Anderson’s prediction sounds deterministic, the significance of video sharing and creativity has found a new laboratory: China.

According to the most recent data provided by the China Internet Network Information Center, by the end of 2014 China had more than 432 million video-sharing users (one third of the entire Chinese Internet population). Another important finding published in the same report confirmed the importance of mobile: there were more than 312 million mobile video-sharing users. The biggest video-sharing platforms include Youku, Tudou, iQiyi, Tencent video, Sohu and Letv.

Currently the most important issue for the market is for video sharing companies to achieve a successful business model. From an historic point of view, the merger of Youku and Tudou in march 2012 represented a watershed in the field. More recently video sharing has become an interesting market for bigger Chinese Internet companies, confirmed by the the $1.22 billion investment led by the e-commerce Alibaba Group into Youku Tudou and the stake Chinese mobile manufacturer Xiaomi has taken in both Youku Tudou and IQiyi. Baidu, the most famous Chinese search engine, acquired the video streaming site IQiyi for $370 million in 2012, adding to its own video sharing platform launched in 2010. It is safe to say that the merger trend will continue in the near future as the “platform, content, terminal and use” (平台、内容、终端、应用) motto continues to drives interest in video. The convergence process was also confirmed by a 2012 report suggesting that 20% of television sets shipped globally were “smart TVs” with integrated internet and web 2.0 features. Japan was the leading country with 36% of worldwide shipments followed by China at 30%.

The situation with the video-sharing industry reflects the overall condition of the Chinese Internet, with limited access to foreign platforms and audiovisual products, and a strongly controlled domestic market.

In 2007, the China’s State Administration of Radio, Film and Television (SARFT) issued a set of rules requiring all online video sites to find a state owned partner in order to secure a license. A year later SARFT published a blacklist ordering 25 websites to cease operations accused of spreading illegal content. In June of the same year, SARFT issued 247 video sharing licenses. The great majority of licenses were given to state owned TV stations, news agencies like Xinhua, CCTV.com, and famous portals like Sohu, 169, Sohu and Sina. Popular video sharing platforms Youku, Tudou and 56.com receieved theire licenses later.

In September 2014 the State Administration of Press, Publication, Radio, Film and Television (SAPPRFT) issued a set of rules requiring video streaming websites to get a license in order to run foreign films and TV series, threatening to ban all unregistered broadcasters. SAPPRFT’s decision was quite important not only for the online video sharing market perspective but also from the perspective of audiovisual consumption in general. Since traditional television channels find it difficult to broadcast foreign products, TV series in particular, for budget reasons, their duty to privilege domestic products and for supervisions concerns, video sharing platforms represent a crucial space for accessing and consuming foreign TV series. During the summer of 2013, the biggest video sharing platforms tried to increase their incomes by providing free foreign productions and purchasing several TV series. For instance, Sohu purchased more than 100 US dramas while Youku had special channels for the United Kingdom as well as exclusive TV shows from Hong Kong. It is safe to imagine that the ban issued by SAPPRFT on September 2014 heavily affected the revenues of the biggest video sharing platforms.

Despite the uncertain judicial framework, the most important companies are trying to find economic sustainability supported by a clear protectionist approach by the Chinese government. This scenario will be confirmed (or denied) by the attempt by Netflix to enter the Chinese market. On the other hand, it is also true that during the last years several video sharing platforms have been investing in home production trying to produce original TV series and cartoons and hiring famous Chinese directors and screenwriters. These efforts were described in the last CNNIC report as needing extra funds and greater advertising revenues.

It is difficult to predict the longer term prospects for video sharing in China, especially considering the lack of an effective business model. Nevertheless, the growing integration of video sharing platforms to other online services and devices confirms the importance of the sector.

Gianluigi Negro recently received his PhD in Communication Sciences, Università della Svizzera Italiana. Image Credit: CC by Raine/flickr.