Alibaba Plans ‘HBO’-Like OTT Service for China

-It Makes a Big Bet on Paid OTT
-China’s Internet TV Market Is Flourishing
-And What About Netflix?

Online retailer Alibaba is planning to launch a premium streaming video service in China.

The service, called Tmall Box Office (TBO), will offer films and TV series from China and other countries, plus original series and productions. It will be available on Alibaba’s line of smart TVs and net-top boxes.



Alibaba: tapping into a 649 million consumer segment


“Our mission, the mission of all of Alibaba, is to redefine home entertainment,” said Patrick Liu , Alibaba’s head of digital entertainment. “Our goal is to become like HBO in the United States, to become like Netflix in the United States.”

The online video market is extremely competitive in China. The entertainment and media market in China is the third-largest in the world, and is projected to reach $214 billion by 2018, according to PricewaterhouseCoopers.

China is home to the largest market of video streamers, too, with 80% of its 649 million broadband consumers streaming online video, according to China-based iResearch. Alibaba alone has 350 million active users, about the population of the US.

The pricing structure Alibaba announced for its TBO service, which includes a little bit of SVoD, a little bit of free, ad-supported video, and a little bit of transactional video, is indicative of the market in China. Monthly subscriptions are not the norm for online video services.

TBO will compete against ad-supported OTT video services from Tencent Holdings, Baidu, and Leshi Internet Information & Technology (LeTV). Alibaba owns 16.5% stake in Youku Tudou, China’s largest online video platform.

Iqiyi, Baidu’s online video service, is one of the most popular in China. Last year, it overtook Youku Tudou in reaching viewers. It attracted 94 million monthly active users, compared to Youku Tudou’s 83.5 million. Sohu brought in around 30 million viewers, and LeTV attracted 18 million.

While there is a huge streaming video market in China, there is hardly a market for subscription OTT services today in the country. The most popular subscription service is the subscription tier of Baidu’s Iqiyi service. Baidu announced this week it has only 5 million subscribers who pay about $3.25 per month to access content. Youku Tudou also offers a subscription tier, but has only converted 1% of its huge user base into paying subscribers.

Alibaba last year launched an SVoD OTT service with Lionsgate, named Lionsgate Entertainment World (LGEW). That service offers popular and exclusive Hollywood content to deliver to Chinese viewers, but it hasn’t released any viewership numbers yet to date.


Studios, Pay TV Eye Posed to Enter OTT Market, Too

At a recent conference in Shanghai, film executives signaled their interest in leveraging the Internet economy to expand their content businesses and distribution networks. “We have been through 12 years of initial reform; now we need Baidu, Alibaba and Tencent to help us increase our competitiveness versus Hollywood,” said Yu Dong, CEO of Bona Film Group in China. “Already in the past year we have growth of online sales and fan bases.

Alibaba has begun lobbying local film studios and production companies for content to deliver on its TBO service. “We will leverage our assets to create an entertainment ecosystem that is open to all producers,” Liu said at the conference.

Pay TV services in China have been disrupted by the Internet just as elsewhere in the world, and are consequently looking to enter the OTT business, too. Gehua CATV Network, a pay TV operator in Beijing, is expanding its transactional streaming movie service to more areas of China this year. Gehua aims to partner with pay TV operators throughout the country for the service, which will be delivered to pay TV subscribers.


And What about Netflix?

Meanwhile, Netflix is considering entering China with its global OTT service. Earlier this year, its chief content officer Ted Sarandos said the company is interested in the market while at an event in Shanghai.



The Chinese market: Netflix probes


The cards are stacked against Netflix finding success in China, whose government is wary of Western media. Google, YouTube, Facebook, and Twitter are all blocked in the country, and local streaming video services face strict censorship and regulations in their content offerings.

The State Administration of Press, Publication, Radio, Film and Television, the regulatory body that governs TV and video content, has recently tightened its censorship rules around foreign content. Last year, it removed a number of Western TV shows from streaming video sites without explanation or warning.

The company will need to navigate a number of licensing and regulatory obstacles before being able to launch. It will also need to secure local content, which may prove challenging for an outside firm as the streaming market becomes more and more competitive.

If Netflix does launch in China, it will need a local partner, and likely that should be a device partner, ie a TV set maker or a set-top box maker, or a studio partner to help it secure local content. And it will either need to drastically reduce its monthly fees to win over subscribers.

Still, there is already marked demand in China for…

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