Last year, more minutes of TV were viewed in China than in any other nation on the planet and even the TV ad¬vertising market rebounded. A new study by Value Partners suggests that shifts in viewing behaviour from young Chine¬se represent a serious threat to the long-term health of the cable TV sector in China, and form a corresponding opportunity for online media players.

1. TV 2.0: Young China takes TV viewing online
Last year, more minutes of TV were viewed in China than in any other nation
Jenny Ng on the planet. The number of TV households grew, and as in most countries,
Partner the average TV viewer spent more time in front of the box. Even the TV ad-
vertising market rebounded despite continuing weakness in most national
markets following the global economic crisis. Nevertheless, a new study by
Value Partners suggests that shifts in viewing behaviour from young Chine-
Max Parry se represent a serious threat to the long-term health of the cable TV sector
Manager in China, and form a corresponding opportunity for online media players.
Value Partners runs an internship programme for aspiring strategy con-
sultants each summer. This year, we asked one of our Chinese interns to
conduct primary research into their peer group’s TV viewing patterns in
Rogelio Bakels mainland China. We worked with her to design a 24-question survey which
Consultant she distributed via the Internet, specifically Renren, a major Chinese social
networking site.
We surveyed secondary school and university students aged between 17 to
22 years old. Although this is by no means a ‘representative sample’ of the
Miranda Jiang youth in China, being mostly comprised of highly-educated urban youth in
Intern major Chinese cities, the results paint a striking picture of the relationship
this ‘digital native’ demographic has with TV. *
Key survey findings
Online media platforms have overtaken traditional TV
The Chinese youths surveyed appear to be “digital natives” who spend most of their time downloading and
streaming online video as opposed to watching traditional TV. Nearly half of them indicated that they have
stopped watching linear TV entirely (although a cause could be represented by the lack of access to TV sets
whilst at university).
On the contrary, most of those who still watch TV, spend less than 30 minutes per day on the activity, less than
online video (1 hour per day) and browsing (2.5 hours per day).
Today, internet is the preferred platform for watching video content, with 84% of respondents ranking video
streaming and downloading as their favoured method of video consumption.
So why are Chinese youths so put off by traditional TV? The results from our survey demonstrate some intere-
sting findings and pinpoint three reasons:
• Chinese TV content is sometimes perceived as superficial. More than 90% of respondents are dissatisfied
with the quality, citing “the political nature of content”, “the lack of unique programming”, and “excessive
advertisements” as major frustrations. Consequently, foreign TV content from the likes of FOX, the BBC and
various sports leagues are very popular and increasingly accessible through online channels.
• PCs and laptops are more convenient modes of access as opposed to TV for students, the majority of
whom reside on campus.
• The convenience that on-demand online content can provide is highly prized because today’s hectic life-
style cannot accommodate fixed time slots for watching linear TV.
Another interesting finding is that alternative media platforms, such as mobile video and cable-based Video-
on-Demand (VOD) do not enjoy anything like the same level of popularity as web-browser based video portals.
In fact, more than 90% of respondents do not use mobile handsets to watch video content and Cable VOD and
Personal Video Recorders (PVR) – a device that records video in digital format on a disk drive – are among the
least commonly used media platforms.
* Value Partners has also conducted a survey in UK devoted to the ‘digital natives’ and their use of traditional and new media:
“Generation Z rejects traditional TV”. You can read it on: www.valuepartners.com/section ideas/2010.
1

2. Despite robust growth in mobile Internet penetration in recent years, our survey suggests that only a small
portion of users are watching video content on handsets. This is attributed to inadequate network capacity
and slow connection speeds, low penetration of smart phones capable of streaming and displaying video and
preference for watching professionally-produced content (content of this nature tends to have a longer run-
ning time, and is less convenient to view via a small-screen handset).
Lack of enthusiasm for cable-based Video-on-Demand platforms amongst interviewees was partially attri-
buted to lack of awareness and availability of services, but more respondents cited additional subscription
payments as a major drawback of cable VOD platforms. This brings us to the next crucial insight of the survey.
Chinese youth are very price sensitive towards online content
Like other types of media, such as music and print, video content has long been available free of charge over
online platforms, particularly in China where there is a multiplicity of online video sites showing pirated or
unlicensed content. The main advantage of online content, as currently perceived by survey respondents, is
that it is free. This was a more important consideration than the availability of more compelling content which
is not normally available through linear, licensed channels.
The key reason why Chinese youth do not use paid-for online video platforms is the high availability and ac-
ceptable quality of free online video services.
Consequently, willingness to pay for online content – especially among young Chinese – has become very low,
and has a profound impact on the ways in which demand for this service can be monetised.
The participants to the survey would however be somewhat more willing to purchase online video if the
“quality improves” and “prices reduce” – suggesting some potential latent demand for high quality and legal
services.
Overall, Chinese youths are particularly price sensitive regarding online resources, especially compared to
counterparts in the UK, where young people are more inclined to pay for online video content. This could
be the result of a combination of factors, namely the ample supply of free alternatives in China as well as a
widely-held perception that online resources are meant to be free of charge. Given these findings, it seems
that industry players may struggle to monetise demand through conventional subscription- or payment-
based mechanisms, and may therefore benefit from adopting a different business model, as the following
section discusses.
There is hope for content providers and broadcasters in the online space:
young China is willing to watch advertising
Our study highlights that a payment-based model for online video is unlikely to succeed in China. This does
not, however, mean that industry players cannot monetise the demand for online services. The results from
the survey show some interesting findings.
First of all, Chinese youths are willing to tolerate online advertisements, as interviewees indicated that “no
advertisements” was the second least important factor determining whether or not they would watch online
video – unlike in the UK where survey respondents indicated they would pay to avoid advertisements.
Secondly, there is a strong preference for legal content that is free and readily available rather than pirated
materials – 75% of respondents chose “legal websites, with advertisements” as their preferred online platform.
In addition, as the enforcement of international copyright improves and major websites offering pirated
materials (e.g. Xunlei, Tudou, Youku) are increasingly forced to clamp down on them, users may be willing to
purchase content for a small fee, with CNY 20-30 per month being identified as an acceptable price point.
2

3. Implications for telecom & media players
Mobile companies will find it challenging to monetise demand for video content
Given this context, it is expected that the business case for offering video content via mobile phones will be
challenging. The main problem is that few users are watching videos on handsets: there is a low willingness
to pay for content delivered over mobile platforms – users can already retrieve it from free online resources via
their handset. Moreover, while an advertisement driven model may be feasible online, building a sustainable
business model exclusively on mobile advertising is anticipated to be challenging, as international experience
indicates.
TV operators should make VOD more attractive to the Chinese youth
Although traditional linear TV is not a preferred video platform amongst young China, there is reasonable
scope for VOD services to potentially succeed. VOD appeals to young China’s viewing habits, as it incorpora-
tes scheduling flexibility and freedom to choose content. Our survey findings suggest that current offerings
are however inadequate, and to make VOD services more appealing to young Chinese people, TV operators
could:
• Reduce prices and adopt a revenue model that increasingly incorporates advertisements.
• Improve content quality and variety.
• Introduce “Internet TV” to tap into the online space and win market share from PCs and laptops.
Domestic content producers must innovate to compete with foreign players
The Chinese youth is not well satisfied with the quality of programming available in China, and hence often
prefers to watch material that is produced overseas. Domestic content providers may have to increasingly
innovate by aiming at generating unique, insightful programmes with a larger appeal, especially among the
young Chinese demographic.
In conclusion, the shifts in TV viewing behaviour among young Chinese appear to be profound, and are ex-
pected to have a defining impact on the broadcast media industry in the years to come. The cable TV sector
in China is anticipated to face considerable challenges, and must rethink its strategy and business model in
order to regain viewership from the country’s ‘next generation’. Online media players, in turn, should be keen
to build on the momentum of the Internet revolution and capitalise on corresponding opportunities going
forward, negotiating the challenges in terms of business models highlighted by this consumer survey.
3

4. About Value Partners
Value Partners is a global ma- At the beginning of the 2000s, For more information on the issues
nagement consulting firm that Value Partners decided to ex- raised in this note please contact:
works with multinational corpo- pand its service offerings beyond max.parry@valuepartners.com
rations and high-potential entre- management consulting to in- rogelio.bakels@valuepartners.com
preneurial businesses to identify clude complex, innovative and
and pursue value enhancement business-critical IT services: Va- Find all the contacts details on
initiatives across innovation, in- lue Team was created and, in less www.valuepartners.com
ternational expansion, and ope- than 10 years, reached on 3,000
rational effectiveness. professionals active out of offices Milan
in 4 countries. In April 2011 NTT Rome
Founded in Milan in 1993, today DATA – one of the main players in London
it draws on 25 partners and over the IT sector in Japan – acquired Istanbul
275 professionals from 23 nations, Value Team for an enterprise va- Dubai
working out of 12 offices in Milan, lue of over 270 million Euros, to Sao Paulo
Rome, London, Istanbul, Dubai, make its platform for growth in Buenos Aires
São Paulo, Buenos Aires, Mum- the key European and Latin Ame- Beijing
bai, Beijing, Shanghai, Hong Kong rican markets. Value Partners Shanghai
and Singapore. Value Partners and Value Team will continue to Hong Kong
has built a portfolio of more than co-operate on complementary Singapore
350 international clients – from projects for individual customers. Mumbai
the original 10 in 1993 – with a
worldwide revenue mix, as over In Asia, Value Partners has been
60 percent of the management active since 2004 and has esta-
consulting revenues are genera- blished a strong presence over
ted outside Europe. the years, with offices in Hong
Kong, Shanghai, Beijing, Singapo-
Value Partners combines metho- re and Mumbai. We are commit-
dological approaches and analyti- ted to Asia and have capitalised
cal frameworks with hands-on on the opportunities that exist
attitude and practical industry in both developed and emerging
experience developed in an exe- markets across the region.
cutive capacity within each sec-
tor: telecommunications, new Value Partners serves clients in
media, financial services, energy, diverse industry sectors, inclu-
manufacturing and hi-tech. ding telecoms & media, indu-
In 2007 Value Partners acquired strials, consumer goods and retail
Spectrum Strategy Consultants amongst others. We also work
– a leading UK company specia- across multiple functional areas
lized in publishing, broadcasting, and provide assistance to orga-
entertainment, IPTV and mobile nizations in various capacities,
– thus further strengthening its ranging from corporate strategy,
international presence. Today Va- company valuation and interna-
lue Partners is a leading advisor in tional expansion, to cost optimi-
the telecom, media and technolo- zation and business turnaround.
gy sectors worldwide.
4