Tencent is Not Just the Disney-of-China, It’s the Netflix-of-China As Well

Tencent Continues its Vertical Integration Dominance with
Boodo Universe

By Ryan Carroll, Editor-at-Large

October, 2018.

Regulatory body changes in China is having an obvious impact on China’s gaming sector,putting the world’s largest gaming company Tencent’s Q2 results in the spotlight as “disappointing”.  Leading some market analysts to argue if this is the time to sell Tencent Holding stocks,due to Tencent’s business being heavily structured around its gaming division.  These analysts are only examining the short-term implications of the Beijing regulatory body changes, while viewing Tencent from a Wall Street / American business standpoint.  Overlooking the bigger picture that is Tencent and China as a whole. 

Content across the board is always at the whim of the Beijing regulators, be it games,streaming content or films. Regulatory changes have completely destroyed lesser companies in the past, but Tencent is obviously not a lesser company.  As Tencent positions itself to become the Disney-of-China.  Tencent has been diversifying its content ecosystem from its, e-publishing platform (Tencent Literature’s $1.1BnUSD IPO last year), to investments into the burgeoning ACGN markets (strategic investment into Bilibili Group pre-IPO), to acquisitions in live-action production studios (fully acquiring New Classics Media) and forming distribution systems (Tencent Pictures Distributions).  These moves will continue to diversify and advance Tencent’s content and connected ecosystems, even with slowing gaming figures due to outside disruption.

In Tencent’s Q2 report, the gaming numbers overshadowed the rest of what is happening with the social media to content conglomerate: Tencent Video numbers,the rebranding of QQ Anime to Boodo Universe, and their investment into aggregation site Qutoutiao before its upcoming American IPO.  These moves highlight the fact that a disappointing Q2 report is not a concern over the long run.

Tencent Video is not discussed as much as it should, with everyone in the U.S. referring to Baidu’s iQiyi as the “Netflix of China”. This is a term that once described LeEco’s streaming platform LeTV, before LeEco’s epic fall.  After iQiyi’s listing on NASDAQ, many viewed it as a cinema disruptor in China, forecasting Netflix-like user growth. The issue here is that streaming platforms like Alibaba’s Youku-Tudou and iQiyi have been around for years, and do not always directly compete against theatrical movie releases.

Tencent’s Q2 reporting have revealed something of interest in regard to its content growth. Even with net profit dropping 2%, Tencent Video’s paid subscribers reached 74 million, a 121% growth year-over-year. Tencent Video has even surpassed the “Netflix-of-China” in terms of paid subscribers (iQiyi “only” has 66.2M).

Content is key to most of Tencent’s vertical growth, with much of it revolving around China’s burgeoning ACGN markets – Chinese Anime / Manhua Comics / Games /Freemium Light Novels.  In the Q2 filing isa small but incredibly important move in Tencent’s content ambitions. The announced of the rebranding of QQ Anime into a full-on ACGN platform and app named Boodo Universe. 

The Boodo Universe rebranding is a move to streamline IP creation across Tencent’s connected ecosystems.  QQ Anime is one of the oldest players in the ACGN space, boasting 330M users with User Generated Content (UGC) coming from 1M of those users. An asset Tencent is looking to exploit via its rebranded Boodo Universe. 

Unlike here in the West, Chinese companies own the User Generated Content (UGC) that is published-for-profit on their platforms. Content created by the platform’s users is the core business of Tencent Literature’s freemium e-publishing site. A business model Tencent is looking to replicate via the QQ Anime re-branded Boodo Universe.

UGC is content created by the user of an online platform service.  In the U.S. a UGC platform would be, Amazon Kindle / Wattpad for publishing, or DeviantArt for artist.  In the U.S.authors and artist own the content they upload onto internet publishing or art platforms, with the platform and the artist/author splitting revenues if there is any.

The difference with Chinese freemium platforms is that, the content uploaded by the Chinese artist/author is free-to-view (hence, freemium) but if the artist/author wishes to charge for their content an agreement is first formed. With this agreement the platform (i.e. Tencent) becomes the rights holder for adaptation across its connected ecosystem, or with strategic partners, from live-action to animation to games, based on the UGC itself.

If the artist/author does not sign this agreement to be a VIP Creator for the platform, they cannot charge for their content and the content remains free-to-view.

The Boodo Universe’s app will tap into the UGC of QQ Anime’s 330M user-base, cross-pollinating it throughout Tencent’s connected ecosystem.  On top of this, Boodo Universe rebranding will add features such as live-streaming that previously were not available on QQ Anime. As the Influencer Market (think YouTube personalities promoting sponsors)in areas such as ACGN continues to grow among key demographics i.e. Gen Z.

Boodo Universe as a platform will extends from online-to-offline, taking its users from participating on its app to live Fan Con events featured around ACGN content.  A move to solidify user stickiness among the key Gen Z demographic, that has proven successful by similar platforms, Mtime.com’s MCon and Bilibili Macro Link / Bilibili World. Bilibili Link went from 8K attendees in its first iteration in 2013 to over 100K in 2017, with numbers expected to continue to grow.

Tencent holds a significant stake in Bilibili Group, and was arguably the driving factor behind Bilibili’s $483MMUSD American IPO earlier this year.  With the Boodo Universe app Tencent will look to supplement its ACGN content ecosystem, which the industry leader Bilibili is a part of.

Tencent is known to strategically invest into other companies or competitive sectors to its connected ecosystem, and its recent investment into articles and video content aggregation site Qutoutiao “Fun Headlines” is just another example.

Their investment into Qutoutiao is a strategic counter to the rise of Bytedance’s news and headline aggregation site Jinri Toutiao or “Today’s Headlines”, the top-rated aggregation feed in China.  The Qutoutiao investment comes ahead of its $300MMUSD American offering, and will help Tencent avoid a potentially costly showdown in the business of content aggregation.  While providing a third-party supplementation to their core content business. By aggregating its videos, articles, and content from its content businesses; Boodo Universe,Tencent Video, Tencent Literature, and its strategic investment partners,Bilibili Group, and live-streaming giant Kuaishou (owner of the #2 ACGN platform AcFun).  Feeding Qutoutiao’s aggregation platform that sees 17.1 daily active users, and 48.8M monthly active users, who spend an average of 56 minutes per day on the aggregation platform.

Tencent understands that relying on its gaming divisions is risky in a country that can be fickle in its regulatory bodies for various forms of content. While other forms of casual entertainment such as live-streaming and short video formats,or even WeChat’s own mini-games & mini-programs, continue to take a bite out of the time users spend per day playing games.

Boodo Universe, Qutoutiao, and the continued growth of Tencent Video, is about supplementing content for upstream and downstream use for development across Tencent’s connected ecosystem to further solidify its place as – The King of Chinese Content.

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About the Author
Born and raised in the Missouri-Ozarks Ryan studied Film Production, and East Asian Culture, at the University of Kansas where he was a UGRA recipient that led him on a seven-year long, Journey From the West, to China. Where he worked with Warner Brothers, the China Film Group Corp. and the National Bureau of Statistics of China. Before returning to the States, where he specializes in Chinese Anime & Comics, China’s Box-Office, and Chinese entertainment-tech industries. He has a dog in China, Abigail, and a dog in the Arkansas-Ozarks, King Blue, who help ease his anxiety of suffering from the “Two-Dimensional Complex” that is trying to understand the Culture Industry landscapes of the Middle Kingdom.

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