Twenty-one years of video websites: burning through 100 billion, unable to get out of the fog

After 21 years of development, the video website industry is still facing the problem of profitability. From the early days of the PC era to the entry of giant capital, despite the increased awareness of copyright and high content costs, video websites have never been able to get out of the fog of losses.

Recently, two "causal" events occurred in the video website field.

On October 8, the well-known UP host "Film and Television Hurricane" on Bilibili released a video exposing that in order to save operating costs, video websites used algorithms to adjust the bit rate of video content, resulting in the clarity of 4K videos in 2024 being worse than that of 1080P videos in 2020.

Soon, Hurricane Film and Television removed the video from the entire network, perhaps because it exposed the unspoken rule that video websites will do anything to make a profit, including turning highly watched and previously free sporting events into paid exclusive broadcasts.

Video posted by B station UP host "Film and Television Hurricane"

Two days after Hurricane Film and Television released the video, the 2026 World Cup Asian qualifiers between the Chinese men's football team and the Australian men's football team started as scheduled. Like the match in September, CCTV Sports will not broadcast this game, and it will still be exclusively broadcast by iQiyi Sports for a fee.

Previously, CCTV said that it would not broadcast the World Cup qualifiers because the copyright holder's price was "abnormally high", but iQiyi chose to "accept it all" because through the blockbuster events that have attracted national attention, the paid broadcast format is expected to significantly increase the scale of subscription members.

The two things point to the same problem, which is also the lifeblood of video websites: profitability. To this end, video websites are willing to sacrifice some user experience, or "steal" clarity, or "fill" limited space with advertisements, and even bear the "stigma" of consumers for this.

It's not a good thing to eat, but the pressure is real. In the second quarter of 2024, iQiyi's net profit fell 81% year-on-year, from 365 million to 68.7 million yuan.

If we count from 2003 when Baofeng Video was founded, the old problems that have plagued video websites have not been effectively solved in the past 21 years.

Once upon a time, most of the video websites that constituted the "childhood memories" of countless people have now withdrawn from the stage of history; although Youku, iQiyi and Tencent Video have become the "protagonists", hundreds of billions of funds have been burned behind them for copyright, blockbuster products and market competition.

In the past 21 years, from PC to mobile Internet, some old aristocrats of video websites have fallen, and some new kings have ascended the throne. In the alternation of history, the impact of short videos and the arrival of 5G have made the industry feel both danger and opportunity. In the past 21 years, how many video websites have disappeared? Have the players who remain at the table passed through the fog?

The Wild Years

In the PC era, people couldn’t imagine that under 5G, a 1GB movie could be downloaded within 1 second, and they could only endure a download speed of tens of KB and wait for the video to be downloaded before watching it with a playback decoder. Due to the limitations of the player format, the videos that users had worked so hard to download may even be "unwatchable."

Domestic PC video players have solved this problem.

In 2003, the Baofeng Video Client was launched, which can accept 680 video formats. With the help of P2P technology, which was common among video websites at that time, the bandwidth of each participant in the network was used to improve the computing and transmission capabilities of the entire network.

In short, the more a video a user watches, the faster it downloads.

With its leading technological advantage, Baofeng Video quickly captured the audience and once occupied 70% of the domestic player market. By 2007, the average daily number of users exceeded 10 million.

Because of this, when the news about the abnormality on the official website of Baofeng Video broke out, Weibo users immediately started a "memory killing" and one netizen lamented: The first video software I used when I was a child was Baofeng Video.

Of course, Baofeng not only attracted users, but also set off a wave of entrepreneurship in domestic video websites.

In 2005, Zhang Hongyu and Lei Liang, who came from software development backgrounds, started their second business in a single apartment of less than 10 square meters in Shanghai. After a month of hard work, they launched PPS.

PPS also uses P2P technology, and its highlight lies in the live broadcast and on-demand TV programs. In 2005, when the Shenzhou VI rocket was launched into space, PPS was the only video website that successfully broadcast the launch live; by 2007, PPS provided nearly 6,000 on-demand TV series.

Today, watching the opening ceremony of the Beijing Olympics on PPS is still a strong memory for the international students of that time.

The rich on-demand and live content allowed PPS to reap the fruits of user growth despite the lack of operational promotion. In just three months, the number of people online at the same time increased 18 times.

When PPS was booming, Wuhan football fan Yao Xin could no longer sit still.

When the 2002 World Cup between Japan and South Korea opened, more than 5,000 students at Huazhong University of Science and Technology waited in front of their computers for the live broadcast, and the campus network was instantly paralyzed. In the end, 15 students had to squeeze into one room and watch the opening game in sweat.

This includes Yao Xin.

As a veteran football fan, Yao Xin also realized a business opportunity during this experience. He wanted to develop an online TV software to serve "thousands of college students watching football in their dormitories." At the end of 2004, Yao Xin, who had taken a year off from school, officially developed PPLive.

By adopting the "hotlink" technology of intercepting TV signals, PPLive provides a large amount of sports content, thereby attracting a large number of loyal sports fans on the C-end, and providing live broadcast technology cooperation to CCTV, Shanghai Media Group and others on the B-end.

But selling technology doesn’t make a lot of money, and Yao Xin was most afraid of being asked about financial figures. Eventually, PPLive embarked on the path of “technology for content”, that is, exchanging technical cooperation for authorized content, and users were able to watch Feng Xiaogang’s blockbuster The Banquet on PPLive.

Zhang Hongyu, Lei Liang, and Yao Xin are the many pioneers of Chinese video websites.

In 2004, American Adam Curry developed the audio streaming software iPodder, allowing users to download music to their iPod and listen directly to it. Wang Wei, who was working for Bertelsmann at the time, also planned to develop a Chinese version of iPodder.

But then he discovered that iPodder's audio was downloaded directly from the server, and most domestic netizens could not build their own websites for others to download, so Wang Wei prepared to develop a website that directly provides streaming media playback services.

This website is Tudou.com. In April 2005, Wang Wei's Tudou.com was officially launched with an initial investment of 1 million yuan. Six months later, the website had an average daily visitor number of over 40,000.

In the second month after Tudou went online, Zhou Juan resigned from NetEase.

When she worked at NetEase, Zhou Juan spent hundreds of thousands of yuan to buy the domain name 56.com. After leaving the company, she plunged into the entrepreneurship of 56.com. While other video websites focused on on-demand content, 56.com focused on original videos created by netizens, which is today's UGC.

The original content of 56.com gained user support. By August 2006, the number of registered users of 56.com exceeded 9 million, and the total number of video views exceeded 800 million, making it the second largest video website in China at that time.

Behind the success of Tudou and 56.com, Chinese video websites are experiencing turmoil. Jia Yueting founded LeTV; Gu Yongqiang and Li Shanyou, who came from Sohu, founded Youku and Ku6 respectively; Wang Xin created Kuaibo in a village in Shenzhen...

For a time, Chinese video websites were very lively.

Data shows that in 2006 alone, the number of domestic video websites increased from more than 30 to more than 300, all competing for the video track in the PC era. This period was also the wild age of Chinese video websites.

The manifestation of the wild years is the lack of copyright awareness, and the coexistence of prosperity and chaos. Although the early Baofeng Video and PPLive optimized the user experience by using P2P technology, "hotlinking" and misappropriating other people's servers as meat machines ultimately pose security risks.

At the same time, due to the lack of supervision of video content itself, infringement and "borderline" phenomena also frequently occurred. An industry insider revealed that there were a large number of banned film and television drama resources in the backend of video websites.

Not only that, in 2005, Hu Ge’s “A Murder Case of a Steamed Bun” became an Internet hit, but because the video itself spoofed the blockbuster “The Promise”, the latter’s director Chen Kaige once had to go to court with Hu Ge.

The early video websites were in a rough state with technical risks and content infringement. The root cause was that the video websites had not explored a healthy business model, their revenue cash flow was unstable, and their broadband costs were extremely expensive. Venture capital became the "blood bag" that came to the rescue of the video websites.

The core revenue source of video websites at that time was still the most traditional advertising business in the PC Internet era. In 2012, advertising revenue accounted for two-thirds of PPS's revenue;

After Youku Tudou was acquired by Alibaba, its head Gu Yongqiang still insisted on developing the advertising business. When the number of Youku Tudou members reached the milestone of 1 million, its membership team had only more than 20 people.

Of course, various players have also tried bigger business ambitions. For example, PPS developed a paid game business, which once accounted for 1/3 of the platform's total revenue; Kuaibo's Wang Xin followed the path of Shanda Box and developed "Kuaibo Xiaofang".

The ideas of the ecological chain are all good, but the preliminary work has not been done well.

The core of video websites is "content is king", but due to the lack of supervision and copyright awareness, the platforms at that time did not establish a profit path centered on video content, including patch ads, paid memberships, etc. The commercial closed loop based on the content itself did not work, and under the prosperity of video websites, they were actually precarious.

So, after the wild years, video websites ushered in a new order.

No chance for the second line

In 2008, the financial crisis swept the world and video websites entered the first round of reshuffle.

Under the financial crisis, venture capitalists tightened their purse strings, leaving video websites in disarray. Data shows that in 2008, more than 400 video websites had difficulty in raising funds, and many platforms started to lay off employees.

Yao Xin also felt the same way about the turbulent year of 2008. He once recalled that PPLive received three letters of intent for investment from different VCs in the United States, but they were all rejected in the end, and the company's cash flow could only last until the Spring Festival.

Amid the external turmoil, domestic video websites are also changing.

On the one hand, the State Administration of Radio, Film and Television established a video website operating license system in 2008, and 247 institutions were awarded video licenses. At the same time, more than 57 video websites were punished and shut down.

On the other hand, copyright awareness of video websites has increased, and copyright costs have also been rising. For example, Sohu Video launched an anti-piracy alliance in 2009 and demanded RMB 100 million from Youku and Xunlei; in 2013, Tencent, Youku, and LeTV jointly launched an anti-piracy action and sued Baidu and Qvod.

At the same time, regarding the increase in copyright costs, PPS CEO Xu Weifeng once said that copyright costs increased more than tenfold around 2010, and copyright expenses accounted for 40% of the company's daily operating expenses.

Under the two major changes, video websites are gradually moving towards compliance, and the platform's attempts to promote legalization have also led to an increase in both copyright awareness and copyright costs. The curtain is about to be raised on a new order for video websites.

Snowflakes of danger and opportunity are falling on every video website.

For Tudou, 2008 was a bleak year. As a pioneer in the domestic video website industry, Tudou failed to obtain a video license and missed the live broadcast of the Olympic Games. Even two years later, Tudou's plan to become the "first video website" to go public was aborted due to Wang Wei's divorce case.

56.com had a similar experience. As a pioneer in video websites, it also failed to obtain a video license. Finally, after more than a month of shutdown and rectification in 2008, 56.com fell behind.

For PPS, profitability was far away, and the growth rate of business was gradually slowing down. By 2012, the growth rate of PPS's revenue had slowed down across the board, and the business that once provided game manufacturers with a portal for product promotion was now facing a huge bottleneck.

Xu Weifeng admitted that PPS had little growth in 2013 and 2014.

For Baofeng Video, after Feng Xin took over, the total number of Baofeng Video users in 2009 reached 280 million, accounting for 73% of the total number of Internet users at that time, and it is still an important force in PC players.

But the crisis also occurred at this time. In 2010, Baofeng Video planned to go public in China. In order to maintain positive financial data and Feng Xin's pessimism about copyright purchases, Baofeng Video missed an important juncture in the copyright war and suffered a serious loss of old users.

Of course, there is hope in crisis. LeTV, founded in 2004, had 45,000 film and television resources by 2010 due to its early layout of copyrights. It also took advantage of healthy business models such as copyright distribution to become the first to enter the A-share market.

It can be seen that after 2008, video websites have once again become popular. Under the premise of the industry gradually becoming compliant, copyright has become the focus of the battle and capital has become the target of competition among various players.

Whether going public or exploring profit models, video websites need more abundant capital to support copyright investment. However, with their self-generating capabilities constrained, the "tight money" problem of video websites has not been effectively solved.

Thus, the wheel of history rolled forward, and the "big boss" of the video industry came on the scene.

In April 2010, Baidu's video website "iQiyi" was officially launched and was renamed "iQiyi" the following year; in April 2011, Tencent Video was officially launched; in October 2015, Alibaba formally proposed to acquire Youku Tudou.

At this point, BAT officially entered the online video industry.

At the same time, the National Copyright Administration and the Cyberspace Administration of China jointly launched the "Sword Net Operation" in 2014, and video websites became the key inspection area. Qvod, which once focused on stealing resources, was arrested in August of that year for its founder Wang Xin.

Amid the vigorous anti-piracy campaign, copyright costs have further increased.

The difference is very obvious. In 2006, the 81-episode "Wulin Waijia" was sold for only 100,000 yuan; five years later, the 40-episode "Palace Lock Heart Jade 2" cost as much as 1.85 million yuan per episode.

"Wulin Waijia" aired in 2006

With the entry of giants and copyright compliance, a new order of video websites has begun to emerge. Video websites represented by Youku, iQiyi and Tencent Video are backed by the resources of giants and are rapidly reaping the rewards in the copyright field. They are also innovative in producing their own dramas and niche variety shows. Coupled with the synergy of multiple traffic entrances in the giant ecosystem, Youku, iQiyi and Tencent Video are gradually taking the lead in content scale and user volume, forming the first echelon of the industry.

Looking around under the throne, the fates of the second-tier teams are different.

In 2013, PPS, unable to withstand the pressure of growth, finally took the "rose branch" from Baidu. In the month of the acquisition, iQiyi launched the slogan of "30 days to complete the merger" to compete with Youku Tudou's "300 days merger" plan.

Therefore, within ten days after the official announcement of the acquisition, PPS employees completed internal communication meetings and office relocation, and the laid-off employees only needed to hand in their office equipment and could leave without having to go through work handover.

On the other hand, PPTV blindly expanded its copyright after winning $250 million in financing from SoftBank in 2010, and eventually fell into a capital chain crisis. Even at the 2012 annual meeting, each employee only had a 10-yuan cold box lunch. In 2013, Suning officially took over PPTV.

In addition to PPS and PPTV, Li Shanyou's Ku6.com was acquired by Shanda in 2009, 56.com was acquired by Renren for $80 million in 2011, and Xunlei Kankan was sold to Xiangchao International in 2015...

Second-tier video sites are “gone forever.”

Looking through the rise of Youku, iQiyi and Tencent Video and the demise of the second-tier players, the capital of the giants represents not only the scale of copyrights, but also the satisfaction of employee rewards, the strength of product research and development, and even the talent reserves, brand promotion resources and strategic decision-making capabilities possessed by the giants, which are significantly stronger than those of the second-tier players.

Of course, every company makes mistakes. Youku has experienced management changes, and PPTV has neglected technology research and development. However, video sites under the giants have a higher tolerance rate and a faster pace of adjustment, while second-tier companies find it difficult to find opportunities to "win the turnaround battle."

Therefore, in the brutal video war, second-tier players have no chance.

The battlefield of online video has become a game for giants, but Youku, iQiyi and Tencent Video are still caught in a vortex of losses. With copyright costs continuing to rise and the fierce impact of short videos, where will video websites go?

Can't get out of the fog

After entering 2019, both iQiyi and Tencent Video have joined the "100 million club" of paid members. In the third quarter of 2019, Tencent Video's paid members reached 100.2 million, and iQiyi's number of subscribed members reached 105.8 million.

As users' copyright awareness increases and the scale of content continues to grow, coupled with the bundled sales of video websites and major platform memberships, the number of paid members of iQiyi and Tencent Video has reached the 100 million mark.

At the same time, each platform is also making every effort to compete for new content heights.

Facing the most popular short drama track at the moment, in September this year, iQiyi announced the launch of two content sections, "Micro Theater" and "Short Theater". Among them, "Micro Theater" will launch two new works every week, mainly 1-5 minutes of vertical screen content; "Short Theater" plans to launch a new work every week, each episode is 5-20 minutes long, and mainly horizontal screen content.

In the view of Gong Yu, CEO of iQiyi, short dramas must also have content quality and standards. He said: "iQiyi short dramas are not the same as short-cut low-cost web dramas, and iQiyi micro dramas are not the same as low-quality mini-program micro dramas."

Obviously, new demands are driving changes in user content consumption, and video sites are therefore competing for innovation in content formats. However, as the second-tier teams are generally integrated and assimilated, the giants are still fighting each other.

Compared with the grassroots era, in the era of giants led by Youku, iQiyi and Tencent Video, video websites have a more complete business model, that is, charging advertising fees from the B-end, and then selling paid content to the C-end, thereby continuously transfusing blood into content investment.

However, even if the giants take action, "increasing revenue and reducing expenditure" is still a difficult problem for video websites. After copyright prices have been repeatedly inflated, the platform operating costs have remained high.

According to LatePost, China's three Internet giants BAT spent 100 billion yuan in the ten years from 2010 to 2020 to build three video websites, which are as competitive as a state-owned TV station; content costs account for a large proportion of them. For example, in 2019, iQiyi's content costs were as high as 22.2 billion yuan.

Moreover, due to the product orientation of video website content and the pulsed growth of users, a hit will quickly increase the user scale of the platform, but hits are not common.

Take iQiyi as an example. In the first quarter of 2023, relying on the broadcast of popular dramas such as "Kuang Kuang" and "The World", iQiyi achieved a profit of 618 million yuan in the quarter, a year-on-year increase of 265.54%; the number of subscription members reached 129 million.

But after the first quarter of last year, iQiyi did not produce a pulse-like number of hit dramas that could break the circle; throughout 2023, the number of iQiyi's subscribers fell from 129 million in the first quarter to 100 million.

Hit series are important, but long dramas and variety shows have too shallow a user retention rate, and the "self-made exclusive" model forces users to "multitask": users attracted by iQiyi's hit series this season may be migrated to Tencent Video's hit series next season.

Externally, the continuous emergence of competitors in the video field has broken up the already small market size; when user attention is limited and each company focuses on exclusive self-made content, it is not easy for video websites to grab user traffic, and the benefits are predictable.

The rise of short videos and live broadcasts has put video websites under tremendous pressure. After all, "short, flat and fast entertainment content" based on algorithm recommendations is more likely to make users addicted, which makes the retention rate of short videos better than that of video websites.

In addition, the free entertainment forms of short videos and live broadcasts are also impacting the user payment scale of Youku, iQiyi and Tencent Video. Faced with alternative entertainment content, "free" can better stimulate users to watch.

The C-end paid business is impacted by short videos and live broadcasts, so how is the B-end business progress of video websites?

In terms of advertising business, the situation of "too many monks and too few porridge" has not changed. The annual advertising budget of brands is relatively stable. Even if new brands expand their budget expenditures in the short term, there are more choices. Kuaishou, Douyin, Xiaohongshu, and Bilibili have all become larger and richer sources of traffic.

The most important thing is that video websites allow non-paying users to watch advertisements, but also hope that users will recharge their membership to avoid advertisements. Faced with an already conflicting business model, video websites cannot have both.

On the industry side, since 2017, iQiyi has launched a series of training and support programs for directors and producers, further penetrating into the upstream industries such as production and directing. iQiyi hopes to maintain control over the entire industry chain of film, drama and variety shows and take its destiny into its own hands. This also means that content costs are further compressed and profits and losses are expected to be balanced.

But today, the entire film and television industry has not yet emerged from the cold winter period, and iQiyi's advancement into the industrial end cannot solve the substantive problems.

After 21 years of development, the merger of Youku and Tudou, the two leading video websites, did not achieve the height of a "new oligarch", but instead caused endless competition in the long video track. iQiyi and Tencent Video surpassed Youku, the second-tier Migu Video focused on sports events, and Mango TV, backed by Hunan Satellite TV, played to its strengths in variety show content. No one is a super winner.

iQiyi is an important chess piece of Baidu in the mobile ecosystem; Youku shoulders the important task of directing traffic to Alibaba's core e-commerce; and the content position represented by Tencent Video is the track that Tencent wants to have full control over.

Youku, iQiyi and Tencent Video have divided the country into two groups. The second-tier teams have established a firm foothold in the vertical field, while new forces such as Kuaishou, Douyin, Bilibili, and WeChat Video Account are still making full efforts to advance. The business of paid memberships and advertising of video websites is constantly being differentiated.

Industry traffic is highly unconcentrated, and video websites are facing unsolvable problems.

New and old problems intersect, and the model dilemma has no solution. Raising membership prices and investing in a group do not solve the problem at its root. This will be difficult to eliminate quickly over time. There is no longer the sound of gunfire in the video website field as there was in the past, but Youku, iQiyi and Tencent Video have not yet gotten through the fog.

Official Account | itlaoyou-com Source | Dige.com Author | Dapeng This article is written by the author of Operation Party [IT Friends], WeChat official account: [IT Friends], original/authorized to be published in Operation Party, and any reproduction without permission is prohibited.

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