Keyword

1 Large Scale of Online Users Driving New Media Development

1.1 Netizens Amounted to 649 Million

According to the 35th Statistical Report on Internet Development in China (hereafter referred to as ‘The Report’), released by China Internet Network Information Center, the number of netizens in China started to experience slower growth. Up to the end of 2014, China had 649 million netizens, with a penetration rate of 47.9%. Among them, 31.17 million were new users, representing a year-on-year increase of 5.02%.

1.2 The Number of Mobile Phones Internet Users Outstripped PC Internet Users

“The Report” showed that up to the end of 2014, there were 556.78 million mobile internet users, 10.05 times more than 50.4 million in 2007, representing an average annual growth of 40.94%. The number of mobile internet users has already exceeded that of PC internet users with its ratio growing from 74.5% (of all internet users) at the end of 2012 to 85.8% in 2014 (see Table 12.1).

Table 12.1 Number of mobile internet users and penetration rates from 2007 to 2014 (unit million, %)
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Table 12.1 shows that the number of mobile phone users is going to experience a phase of stable growth, although it maintains a double-digit growth rate which is more than twice that of the overall growth of internet users.

1.3 The Number of Smart-Phone Users Exceeded 500 Million

In 2014, there were 1.286 billion mobile phone users in China. Among them, there were 97.284 million new 4G users and 83.644 million new 3G users. The total number of 4G users and 3G users reached 97.284 million and 485.255 million respectively. The number of smartphone users exceeded 500 million.

1.4 Time Spent Online Exceeded 26 h Per Week

In 2014, Chinese netizens spent 26.1 h online per week, representing an average of 3.73 h per day (see Table 12.2).

Table 12.2 Time spent online from 2010 to 2014 (unit hour)
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1.5 The Number of Gamers Exceeded 500 Million

According to the “2014 Report on China’s Game Industry” jointly released by GPC and CNG, China had around 517 million gamers in 2014, representing an increase of 6.72 times compared with 67 million in 2008 with an average annual growth rate of 42.88%. At the end of 2014, the number of mobile gamers reached approximately 358 million, representing an increase of 35.53 times compared with 9.8 million in 2008 and an average annual growth rate of 82.16%.

1.6 High Internet Usage

After years of high-speed development, usage of various internet apps reached a high level. For instance, the instant messaging usage rate has reached 90.6%. Nevertheless, growth in usage rate of internet app users has been stable. Blogs have the highest rate of 24.2%; travel apps or group buying apps have the same usage rate of 22.7%. Usage rates of other apps were below 20%. What is noteworthy is that blogs have regained their momentum after years of downturn while e-mails and Weibo have experienced negative growth.

Contrary to the stable growth in the number of PC internet users, the number of mobile app users enjoyed high-speed growth—air travel app users had the highest growth rate of 194.6%, followed by users of mobile online payment apps with a growth rate of 73.3% and mobile online bank apps with a growth rate of 69.2%. It is important to note that the number of mobile Weibo users declined by 13.0%.

2 New Media Industry Continued to Advance

2.1 High-Speed Growth of Internet Advertising Industry Revenues

2.1.1 The Whole Online Advertising Market Grew to a Total of 154 Billion Yuan

According to data from iResearch, internet advertising revenues amounted to 154 billion yuan in 2014, representing a year-on-year increase of 40.0% and an increase of 3.73 times compared with 32.55 billion in 2010 and an average annual growth of 47.48% (see Table 12.3).

Table 12.3 Internet advertising revenues from 2010 to 2014 (unit RMB billion, %)
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Table 12.3 shows that online advertising revenues maintained a high growth of 40% in 2014, which exceeded the sum of TV and newspaper’s advertising revenues nationwide. It can be predicted that revenues from online advertising will exceed that of traditional media in 2015.

2.1.2 Emergence of Market Segmentation

Data from iResearch showed that in 2014, the searching for keyword advertisements exceeded E-commerce advertisements and became the biggest segment. While brand graphic advertisements continued to decline, share of pre-movie advertisements steadily rose (see Table 12.4). For instance, in the fourth quarter of 2014, the video revenue of Sohu was USD $51 million, with a 64% increase year-on-year.

Table 12.4 Revenue of internet market segment and market share in 2014 (unit RMB billion, %)
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2.1.3 Internet Media Developed Quickly but Appeared to Fragment

In 2014, the combined market value of 16 companies was USD $525.422 billion. The combined advertising revenue of 14 internet media companies, including Baidu, Alibaba, Tencent, Sohu and Qihoo 360, was RMB 121.052 billion, representing an increase of 43.80% year-on-year. Specifically, Baidu’s advertising revenue was RMB 48.495 billion, more than twice that of CCTV. Alibaba’s advertising revenue also reached a total of RMB 37.51 billion. Among these internet firms, LeTV.com scored the fastest growth of 101.17%. In addition, the advertising revenue of Tencent, Qihoo 360, and Sohu surpassed Sina’s, indicating that Internet portals like Sina were in decline. This can be seen from Sina’s market value USD $2.2 billion against Weibo’s value USD $2.749 billion (see Table 12.5).

Table 12.5 Advertising revenue and growth percentage of internet media
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2.1.4 Explosive Growth of Mobile Advertising Revenues

Following vigorous growth of mobile phone users, advertising on mobile interfaces increased and generally became more mainstream than PC advertisements.

Baidu: Mobile revenue exceeded PC. In the fourth quarter of 2014, the total revenue was 14.05 billion, among which mobile accounted for 42%, up from 36% in the last quarter. In December 2014, search revenue from mobile outperformed PC for the first time.

Tencent: An increase of online users prompted growth in video advertising revenue. Meanwhile, QQ zone on mobile and public accounts on WeChat bolstered the growth of advertising revenue on mobile social networks. Therefore, in the fourth quarter of 2014, advertising revenue rose by 75% year-on-year to reach 2.627 billion yuan.

Alibaba: In the fourth quarter of 2014, the total transactions on mobile was 327 billion, with an increase of 213% year-on-year, which accounted for 42% of total revenue. The same period of last year tracked 20%, and the third quarter 36%. The number of active users per month on mobile was 265 million, with a 95% increase year-on-year. Up to September 30, 2014, the number was 217 million. Mobile revenue was at 6.42 billion and had increased by 448.25% over the same period last year, occupying 24.52%.

2.2 The Value of Gaming Industry Was More Than 110 Billion Yuan

2.2.1 The Scale of the Gaming Industry Is Large

According to the “2014 China Gaming Industry Report” jointly released by Game Work Committee and CNG, the actual sales revenue of the game industry hit 114.48 billion, a 37.7% increase compared with the same period of last year, and was 5.17 times more than 18.56 billion in 2008, resulting in a yearly average growth of 35.42%.

In the gaming market, client interface remained the biggest market at 60.89 billion yuan. Benefiting from the rapid increase in mobile netizens, mobile game revenue outdid web games for the first time and reached 27.49 billion yuan, with a 144.6% year-on-year growth, occupying 24.014%.

2.2.2 Online Gaming Firms Maintained High Growth

In 2014, 6 online gaming firms on the market including Tencent, NetEase, Sohu, and Perfect World still kept expanding at a high growth rate of 26.28%. Qihoo 360 reached a 141.9% growth rate while Sohu had a decline of 0.03% (see Table 12.6).

Table 12.6 Revenue of 6 listed online gaming firms and rate of growth in 2014 (unit USD $ billion, %)
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2.3 Internet Finance Began to Take Shape

2013 was regarded as the first year of internet finance. After then P2P developed rapidly, and crowdfunding began. Innovations like internet payment and investment fund sales marked a new developing phase of internet finance. Up to the end of July 2014, the People’s Bank of China had issued licenses for payment transactions to 269 third party payment firms. In the first half of 2014, the volume of online lending was about 81.837 billion yuan, and it is predicted that the annual volume may approach 200 billion yuan.

2.3.1 P2P Online Lending

In terms of quantity, up to June 2014, the number of P2P online lending platforms totaled 1263. Their half year transaction volume approached 100 billion, close to the annual volume in 2013.

In terms of regional distribution, up to June 2014, the number of P2P online lending platforms amounted to 1263 and were mainly located in eastern coastal areas where private lending was popular. Three provinces (Guangdong: 316, Zhejiang: 168, Shandong: 87) and two cities (Beijing: 70, Shanghai: 62) had 703 P2P platforms in total, exceeding 55% of the national total.

In terms of transaction volume, up to July 2014, it exceeded 20 billion yuan. The monthly volume will reach an amount of more than 30 billion yuan at the end of the year, so the annual volume will exceed 300 billion yuan.

In addition, the number of investors approached 290,000 up to July 2014. Industry stock funds totaled 33.76 billion yuan, which nearly doubled compared to 2013. A single investor held about 100,000 yuan.

2.3.2 Crowdfunding

According to 01Data, up to the end of 2014, there were 128 crowdfunding platforms, among which there were 32 equity-based ones and 78 goods-based ones. Furthermore, 3014 successful projects by 15 mainly goods-based platforms had raised 270 million yuan, with more than 700,000 active users. As for equity-based ones, the total sum exceeded 1.5 billion yuan.

2.3.3 Internet Payment

In 2014, internet payment continued to remain popular, especially mobile payments. Up to the end of December, mobile payment users exceeded 217 million, with an increase of 73.3% year-on-year. The overall growth rate was 5 times more than internet payment. Mobile payment users occupied 39.0% of netizens, having a growth of 13.9% compared with 25.1% at the end of 2013.

By the end of July 2014, there were 269 firms acquiring licenses for third party payments, among which 90 obtained internet payment licenses and 37 obtained mobile phone payment licenses. 55 of these firms were located in Beijing. Next was Shanghai, with 24 firms, while Guangdong ranked the third with 21. Zhejiang and Jiangsu both had 16. The rest were all fewer than 10. As for the 27 firms that obtained licenses in 2013, though located in different areas, only 5 had nationwide coverage; others only operated in provincial areas.

Related firms include Alipay (founded in December 2014), 99Bill Corporation, Chinapnr, and Bestpay of China Telecom.

3 Frequent Occurrence of Large-Scale Mergers

Benefiting from relating industry policies and upgrading of the consumption industry, the media market continued to be vigorous. Furthermore, merger policies were not that strict as before, and massive mergers by internet giant frequently occurred. Merger markets within the media industry became common.

3.1 Merger Volume in Media Industry Was Over 220 Billion Yuan

3.1.1 Overview of the Merger Market

Based on data from related market firms such as Wind, there were more than 200 mergers in China in 2014, with a volume of 220 billion yuan and with large individual transactions.

3.1.2 Amount of Separate Mergers Reached 49.2 Billion Yuan

In 2014, BesTV’s purchase of Oriental Pearl was the biggest separate merger in the media industry, amounting to 49.2 billion yuan (unfinished yet). The top 10 biggest merger purchases were all over 3 billion yuan (see Table 12.7).

Table 12.7 Top ten merger cases in media industry in 2014
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3.1.3 The Transaction Volume of Mergers Made by Listed Companies Was 163.5 Billion Yuan in Media Industry

According to related resources, the transaction volume in an equity investment of culture and media companies in 2014 approached 163.5 billion yuan, among which the volume of public internet companies was 123.5 billion yuan, and domestic public ones were 34.8 billion yuan. Therefore, the former’s transaction volume was far more than that of the traditional firms (see Table 12.8).

Table 12.8 Equity investment transaction volumes of domestic media listed firms in 2014 (unit billion yuan)
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3.1.4 Mergers Made by Internet Giants like TABLE

In 2014, five internet giants, Tencent, Alibaba, Baidu, MI, and Qihoo 360, relying on their capital strength, made a series of mergers to accomplish their business ecosystem.

Increasing traffic with news and drawing profit from other services, in recent years, internet giants surged into the media industry to grow their own internet ecosystems by means like mergers.

4 Development Trends and Prospects

4.1 General Assessment

Owing to the Real GDP per capita breaking USD $7000 and driven by policies regarding the Internet as the base frame of the whole economy, the new media industry in China stepped into a superior developing phase, which resulted in a pretty massive scale. In the next few years, benefiting from integration with other industries, it will still keep a high growth rate.

4.2 Trend Outlook

First of all, there will be a complete transformation in the media industry market. Internet advertising cannot maintain a high-speed growth of more than 40% any longer. Still, it is going to grow more than 30%, with an amount of 200 billion, which will exceed the advertising volume in traditional media.

Second, “Internet +” integrates organically with traditional industries. TABLE and the 5 internet giants, will rapidly upgrade and reform traditional industries relying on large numbers of internet users, advanced big data, cloud computing technologies and a mature mode for exploration, which will bolster high-speed development in the new media industry as well.

Third, mobile internet will become the leader. Owing to massive mobile phone users, mobile internet, instead of PC internet, will further drive the growth of the new media industry in 2015.

Fourth, O2O will expand rapidly. Following the five giants’ acceleration of distribution in O2O, consumption in first-tier cities converts from high-quantity to improving-services. While second and third class cities will approach to a phase of increasing-quantity. O2O market modes of catering and entertainment tend to be mature while demands in medical treatment and home making service are badly in need to be released.

Fifth, new trends will appear in mergers. Firms in media industry strive for a high growth via mergers, which form the core of market value management to public firms. One way is that a listed firm merges with another. A typical example is that BesTV merged with Oriental Pearl to establish a media company worth of hundreds of billions. What becomes new mainstream is a mode of “public firms plus PE”. Another way is crossover mergers, which has become a common practice these days.

Sixth, internet media delisted from abroad and then going public domestically. At present, since price-earnings ratio in the domestic capital market is much higher than abroad, in 2014, China Concept Stocks like Giant Interactive Group, Shandagames, Focus Media delisted from abroad, and plan to go public domestically.

Seventh, the commercialization of big data. Recent years, though developing rapidly, big data still remains in an elementary phase. In future, big data will have a closer relationship with e-commerce, advertising, finance, and safety, etc., and commercialization will increase.

Eighth, internet firms with a level of the business ecosystem will begin to emerge. On September 19, 2014, Alibaba successfully went public in the USA, raising more than USD $25 billion. This has become the highest IPO in history. Alibaba, in 2014, for one thing, gained momentum by purchasing media firms; but it also strongly positioned itself in the media industry using the huge capital raising from going public. A massive business ecosystem has taken initial shape due to large-scale mergers by listed internet giants like Tencent, Baidu, and Qihoo 360.

Of course, there were some problems in the new media industry. First, the rate of internet user growth slowed down. Second, too many traditional resource industries merged into the media industry for the benefit of growth, while they were not competitive enough to support their development in it. Third, huge mergers made by giants like BAT prompt overestimation of new projects, which to some extent, goes against sustainable development in the whole media industry. Anyway, these problems will constantly be conquered, and the bubble will burst so that everything is going to move in a right direction following the gradually mature development of the Internet.