China’s Online Video Industry Poised For Profitability By 2019 (Report)

China’s online video industry could be profitable as soon as 2019, according to a report by JP Morgan, which notes that a looming shift from content licensing to original productions is bound to pay off for the nation’s three major players: Baidu, Alibaba, and Tencent — which operate video platforms iQiyi, Youku Tudou, and Tencent Video, respectively.

Right now, China’s online video industry is loss-making, according to Variety, as the aforementioned companies continue to invest in original content. However, this is paving the way for greater returns. There are currently 520 million online video viewers in China — 60 million of whom have paid subscriptions to iQiyi, Youku Tudou, and Tencent Video. This number is expected to leap to 234 million by 2020, according to JP Morgan.

“We are turning more positive on margin outlook for China’s online video industry as it shifts content strategy toward original production,” writes JP Morgan analyst Alex Yao

. “Our analysis suggests monetization efficiency of video subscription is three times higher than an ad model.”

Yao adds that a shift from licensing to originals will also likely poach cable TV subscribers and turn them into online video consumers.

While iQiyi, Youku Tudou, and Tencent Video currently dominate the online video field in China, JPMorgan says that iQiyi and Tencent Video are its leaders, and describes Youku Todou as a “chaser,” per Variety. JPMorgan expects that iQiyi will break even next year, followed by Tencent Video in 2019, and Youku Tudou, finally, in 2020.