Countdown to Alibaba’s 2016 11.11 Global Shopping Festival:

What To Expect – Live streaming will be a major focus

Part 1: Live streaming + e-commerce

October 2016

Teresa Lam, Christy Li Asia Distribution and Retail

Live streaming is a major focus in 2016 Singles’ Day shopping festival. Live streaming is becoming popular with the fast growth of social media. We believe it will be one of the major focuses in the upcoming Singles’ Day shopping festival.

Becoming a core part of social media strategy. Live streaming is an invaluable marketing tool and increasingly becoming a core part of companies’ social media strategy. Live streaming platforms offer a relatively easier way for brands to advertise their products, and for individuals to launch a start-up.

Doing e-commerce on live streaming platforms is fairly new but gradually developing. Currently, most live streaming platforms in China focus more on gaming, talk shows or reality programs. Doing e-commerce on these platforms is still a fairly new phenomenon, but we see the trend gradually developing and more brands and individuals are leveraging live streaming platforms to engage in e-commerce.

Advanced technologies catalyze the growth of live streaming. Advanced technologies such as data analytics, VR and AR technologies are catalysts for growth in the live streaming market. In particular, when VR and AR technologies and devices are mature enough to be commonly adopted in live streaming, the development momentum of the market is set to keep rolling.

Choosing the right live streaming platform is crucial. There are over 200 live streaming platforms in China, and each of these platforms has different focuses and targets different audience. Brands need to consider their own needs when choosing the platform.

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Key takeaways

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Introduction

Last year’s Alibaba 11.11 Global Shopping Festival (also known as Singles’ Day shopping festival) focused on several themes, including globalization, mobile e-commerce, O2O, rural e-commerce, cross-border e-commerce. These themes will continue into this year’s event. Meanwhile, we believe 2016 Singles’ Day shopping festival will be more consumer-focused. Live streaming and consumer-to-business (C2B) model will be some new focuses. In our previous report “Countdown to Alibaba’s 2016 11.11 Global Shopping Festival: What To Expect – Consumer-to-business (C2B) model will be a key highlight”, we discussed the C2B model. In this report, we provide a brief account of the live streaming industry in China. Live streaming is becoming popular with the fast growth of social media. Both local or global brands and retailers increasingly leverage live streaming platforms to market or sell their products. Tying closely with social media, the rapid development of live streaming not only will play a crucial role in this years’ Singles’ Day festival, but will also reshape the entire e-commerce landscape in China. Part 1 of this report looks specifically into how live streaming ties with e-commerce and the major trends in China’s live streaming industry. Part 2 will cover some prominent cases of how individuals and brands leveraging live streaming platforms to do e-commerce.

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Wikipedia defines live streaming as:

“Internet content delivered in real-time, as events happen, much as live

television broadcasts its contents over the airwaves via a television

signal…Live Internet streaming requires a form of source media (e.g. a

video camera, an audio interface, screen capture software), an encoder to

digitize the content, a media publisher, and a content delivery network to

distribute and deliver the content.”

Live streaming comes into play when broadcasters incorporate real-time events as a part of their social media strategy. According to iiMedia Research Group, the market size of China’s live streaming industry reached 9 million yuan in 2015, with over 200 million of registered viewers.

Source: iiMedia Research Group, compiled by Fung Business Intelligence

In 2015…

200 9

billion

yuan

200 million

40 million 3000

Number of live streaming platforms

Market size

Number of registered viewers

Number of online views

Number of online “streaming rooms”

Currently, there are over 200 live streaming platforms in China. YY Live, Donyu and Fengyun Live are the big names in live streaming. They generate incomes mainly from advertisements, virtual gifts from viewers, and cooperation with third-parties such as gaming enterprises. However, most of them are still burning money and not making profit.

Live streaming craze in China

Market overview

24.4%

14.9% 14.4% 9.4%

5.5% 4.4% 3.0% 2.5% 2.4% 2.2% 2.2% 2.0% 1.8% 1.4% 1.2% 1.0%

9.7%

YY L

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Hu

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Source: iiMedia Research Group, compiled by Fung Business Intelligence

Market share of top live streaming platforms in China (by number of downloads), as of March 2016

1

2

3

Douyu

Fengyun Live

YY LIVE

Launched year: 2012 Major content: Sports Major Investors: IDG Capital

Launched year: 2008 Major content: Reality shows • Listed in NASDAQ in 2012 • In 2015, YY spit its streaming for

gaming and launched Huya TV. It invested 700 million yuan into Huya TV.

Launched year: 2014 Major content: Sports, gaming, reality shows Major investors: Phoenix Capital, Tencent, Sequoia Capital, Nanshan Capital

Live streaming platforms hosted by popular broadcasters have increasingly become a widely used marketing and distribution channel. Recently, live streaming has attracted attention from both local and global brands and retailers. Increasing numbers of brands, retailers and e-commerce players are leveraging live streaming platforms to market or sell their products. Streaming platforms have become one of the most effective marketing tools and popular distribution channels. Meanwhile, some popular broadcasters have turned into Internet celebrities (akin cewebrities). Some of them are hosting live broadcasts and selling their own products.

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The rapid development of live streaming in China is largely attributable to two major forces – the post-90s generation and the explosive growth of mobile Internet. Half of China’s population is post-90s. They are especially active in using mobile technologies and are looking for new ways of social interaction compared with consumers of other age groups. According to a recent survey conducted by Tencent, 19% of the apps downloaded on surveyed consumers’ smartphones focus on social interaction, while 8% of the apps focus on videos viewing. This brings huge opportunities for the live streaming market, which combines social interaction function with video viewing. At the same time, the rise of budget smartphones, such as Xiaomi, Oppo, and Meizu, has brought mobile connectivity to most parts of China. Mobile Internet penetration is getting higher in China. The number of Internet users who use mobile to access the Internet totalled 656 million in June 2016, with penetration rate reaching 92.5%. This provides a solid basis for the growth of the live streaming market which largely targets the mobile population.

Source: China Internet Network Information Center

Breakdown of Internet population in China, as of June 2016

Aged below 19, 23.0%

Aged 20-29, 30.4%

Aged 30-39, 24.2%

Aged 40 or above, 22.4%

Million people Penetration

Dec-13 500 81.0%

Jun-14 527 83.4%

Dec-14 557 85.8%

Jun-15 594 88.9%

Dec-15 620 90.1%

Jun-16 656 92.5%

Internet population and penetration, December 2013 – June 2016

Source: China Internet Network Information Center

Post-90s and the rapid development of mobile Internet

fuel the growth of live streaming

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Live streaming in China has experienced several stages of development. In the early days, broadcasters broadcasted online videos on social media platforms such as YY, 9158.com, and 6.cn. Broadcasters could be anyone and they talked about any topics of their interests. During this stage, viewers could only watch the videos via PC. In the second stage, which started in around 2014, streaming of games became prevalent; viewers could use both PC and mobile phones to watch and interact with broadcasters. In the third stage, which began recently, live streaming has incorporated elements of entertainments. With the fast growth of the empowered fan communities, popular broadcasters (often referred to as cewebrities) increasingly leverage live streaming platforms to interact with viewers. Some cewebrities also sell their own products via these platforms. Going forward, live streaming is set to gradually extend from selling goods to selling services such travel, education, healthcare, etc. At the same time, we expect the live streaming platforms to incorporate new technologies such as virtual reality (VR) and augmented reality (AR) to provide immersive experience to viewers.

Source: TalkingData, modified by Fung Business Intelligence

Developmental stages of live streaming in China – From 1.0 to 4.0

2005 2014 2016 Future

• Via PC • Platforms signed

contracts with broadcasters

• Viewers could send virtual gifts to broadcasters, which are equivalent to real money

1.0

• From PC to mobile

• Streaming of gaming emerges

• Viewers could buy virtual goods for games

2.0

• Entertainment + streaming

• Celebrities, cewebrities, e-commerce players entered the market

• Empowered fan communities led to the fast development of the economy of fandom

• Broadcasters can have real-time interaction with viewers

• From selling goods to selling services, e.g. travel, education, healthcare

• Incorporate other new technologies, e.g. VR/AR technologies

4.0 3.0

Evolution of live streaming in China –

Live streaming from 1.0 to 4.0

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There are many types of broadcasters, the most common ones include celebrities, KOLs such as fashionists, sports broadcasters, and pro-gamers of e-sports. Individuals can also register on platforms to become broadcasters. Those popular broadcasters are also known as cewebrities*.

Celebrities

KOLs (e.g. Fashionists)

Sports broadcasters

Pro-gamers

Individuals

Others

Source: iiMedia Research Group, compiled by Fung Business Intelligence

Source: Fung Business Intelligence

* Cewebrity comes from two words – “web” and “celebrity” and is referred to any individual who became famous because of the Internet.

Top 10 cewebrities in China, 2016

1

王思聪

2

PAPI酱

3

奶茶妹妹

4

王尼玛

5

叫兽易小星

6

张大奕

7

凤姐

8

回忆专用小马甲

9

天才小熊猫

10

同道大叔

Major types of broadcasters

Major types of broadcasters

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Live streaming is monetized mostly with virtual gifts sent by viewers to online broadcasters. The prevalent of using mobile payments allow people to send virtual gifts to their favorite broadcasters at ease. The virtual gifts can turn into real money, and live streaming platforms get commissions from the broadcasters.

How does live streaming monetize?

Picture source: http://yue.yy.com/msg/7889, freepik

Viewer’s comments

Top viewers who sent the most virtual gifts

Share the link on other social platforms

Comment box

Send virtual gifts

Virtual gifts from viewers

Screencap of a live streaming platform

After logging in, viewers can leave comments to the broadcaster. They can also purchase virtual gifts and send to the broadcaster. They can see the comments from other viewers in real-time, at the same time, and they can see who is sending virtual presents to the broadcaster too.

Picture source: http://ql1d.com/news/show/id/367385.html

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Recently, increasing numbers of broadcasters have leveraged live streaming platforms to sell their own products. They have set up their own online stores, either directly on the streaming platforms or link to their stores on other third-party online platforms. Very often, they adopt the consumer-driven C2B business model by soliciting viewers’ comments before producing the products. They then advertise the products on live streaming platforms. Popular broadcasts may generate buzz and sales. Famous broadcasters, or cewebrities, can further generate income by creating their own brands and selling both online and offline. According to Taobao, half of the best-selling lady’s wear stores on Taobao were launched by cewebrities.

Source: Taobao, compiled by Fung Business Intelligence

Number of followers and number of viewers on Taobao, as of 9 May 2016

Five out of the Top 10 best-selling lady’s wear stores on Taobao were launched by cewebrities.

How do broadcasters engage in e-commerce?

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Screencap of a live streaming platform with purchasing function

When viewers are interested in the product showed in the streamings, they may click on the button and more product information will pop-up. Viewers can click on the purchase button to buy the product.

Picture source: http://www.kaitao.cn/article/20160909124409.htm

Enter the “streaming room”

Viewer’s comments

Product information and links to the purchasing page

Button to leave comments

Button to purchase the demonstrating product

Source: Fung Business Intelligence

How do broadcasters engage in e-commerce?

• Manufacturing: Some broadcasters will solicit viewers’ comments before producing the products. They adopt the customer driven C2B business model.

• Marketing: Broadcasters advertise the products on live streaming platforms. Popular broadcasts can generate buzz and sales.

• Setting up online stores: Broadcasters set up their own online stores, either directly on the streaming platforms or link to their stores on other online shopping platforms.

• Monetizing: Famous broadcasters, often referred to as cewebrities, can further generate income by creating their own brands and selling online or even offline.

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Currently, most live streaming platforms focus more on gaming, talk shows or reality programs. Doing e-commerce on live streaming platforms in China is a fairly new phenomenon. However, marketers increasingly realize that live streaming is an invaluable tool for marketing and more brands have started to advertise their products via this channel. Broadcasters can interact with viewers in real-time and can adjust the content of the broadcast instantly to suit the audience. It is much better than the one-way communication of traditional advertisements. In the coming years, we expect live streaming to become an invaluable marketing tool for brands and retailers.

Picture source: http://www.imaijia.com/O2O/8a042899556d6a4a01557765007f0163.shtml

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Key trends in live streaming 4.0

Live streaming becomes an invaluable

marketing tool

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More Broadcasters to engage in e-

commerce

An increasing number of broadcasters are now trying to make money on the live streaming platforms by converting fans to consumers. Many have set up online stores; according to Huxiu, 34% of the broadcasters have set up online stores.

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Source: CBNData, compiled by Fung Business Intelligence

Figures from CBNData showed that lady’s wear was the most popular category that cewebrities sold online in 2014-2015, followed by maternity and baby products and lady’s footwear.

Female is the major consumer group buying on these platforms, and most of them are purchasing fashion items. Meanwhile, sales of liquors, kitchen appliance and bicycle riding equipment increased significantly in 2015. We expect food, outdoor sports and computer peripherals will be the next wave. More male customers are expected to buy on the platforms.

Others

Bag and accessories

Cosmetics Food Sports

Lady’s wear

Maternity and baby products

Lady’s footwear

Men’s wear

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Smaller brands and individuals leverage on live streaming

platforms to advertise and sell their products

In recent years, some well-established brands have leveraged live streaming platforms to market and distribute their products. In the future, we expect more smaller brands and individuals to follow suit as live streaming platforms offer a relatively easier way for smaller brands to advertise and sell their products or for individuals to launch a start-up. The platforms allow brands and individuals to engage with viewers in real-time and see the comments in real-time. Costs are relatively cheaper than selling via other offline channels. At the same time, this new channel allows brands or retailers to provide more personalized products and better shopping experience to consumers. It is also easier to generate impulse buying and lead to higher sales as a result of the “Bandwagon effect”.

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Advanced technologies catalyze the growth of live

streaming

Advanced technologies catalyze the growth of live streaming. With the help of big data, brands and retailers can link the audience’s profile with their preferences, and this can provide valuable information for product development and marketing purpose.

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VR and AR technologies are also catalysts for growth in the live streaming sector. Recently, some Internet giants and e-commerce players have put more focus on VR and AR technologies and come up with related initiatives or strategies. They are eager to push VR and AR beyond entertainment and gaming. When VR and AR technologies and devices are mature enough to be commonly adopted in live streaming, the development momentum of live streaming is set to keep rolling.

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Live streaming platforms attract venture

capital funding

Venture capital companies have been investing aggressively in live streaming platforms in China over the years. The major reasons venture capital investors are positive towards the live streaming industry include: (1) Network bandwidth is fast enough to provide smooth streaming; (2) Live streaming can be supported by various models of mobile devices; and (3) Live streaming is increasingly popular among youngsters.

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Chinese government to impose new regulations to regulate

web broadcasting activities

The Chinese government has been keeping a close eye on web broadcasting and imposing stricter rules on live streaming. In July 2016, the Ministry of Culture issued a guidance stating that live-streaming performers are now accountable for any content they show that is deemed inappropriate, and serious violators will be blacklisted nationwide. The ministry also conducted random checks on domestic live video-streaming platforms. In September 2016, the State Administration of Press, Publication, Radio, Film and Television of the PRC (SARFT) issued a circular to clarify that organizations and individuals engaging in various forms of web broadcasting activities are required to hold an Information Network Broadcast Permit for Video/Audio Program from the SARFT. For brands and retailers who host live streaming events for marketing purposes, it is essential for them to observe relevant laws and regulations as all the events will be under supervision by relevant authorities. We expect the government to impose stricter rules on the live streaming sector and set up stringent penalties for broadcasters or platforms accused of broadcasting pornographic or violent content.

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In the coming years, we expect venture capital funding continues to pour into live streaming platforms at a pace that exceeds that of previous years.

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Live streaming platforms are increasingly become a popular marketing tool and distribution channel. That said, the use of the live streaming platforms to engage customers are not without challenges. The first and foremost challenge is ethical issues. Some broadcasters may broadcast inappropriate content and it cannot be stopped right away. In April 2016, the Ministry of Culture announced it was investigating a number of popular live-streaming platforms for allegedly hosting pornographic or violent content that "harms social morality". Another challenge is the low profitability of the live streaming platforms. Currently, many platforms are trying to attract footfall by inviting “star broadcasters” to interact with fans while broadcasting live video. However, the income from advertisements, etc. cannot cover the high signing fees of broadcasters and the costs of running the platforms.

Please stay tuned for our upcoming report on some prominent cases of how individuals and brands leveraging live streaming platforms to do e-commerce.

Major challenges of live streaming industry

Coming soon…

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Photo source: Fung Business Intelligence Centre

Picture source: http://www.freepik.com

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CONTACTS

Asia Distribution and Retail

Teresa Lam

Vice President

teresalam@fung1937.com

(852) 2300 2466

Christy Li Senior Research Manager christyli@fung1937.com (852) 2300 2476 Fung Business Intelligence 10/F, LiFung Tower, 888 Cheung Sha Wan Road, Kowloon, Hong Kong Tel: (852) 2300 2470 Fax: (852) 2635 1598 Email: fbicgroup@fung1937.com http://www.fbicgroup.com/