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Some Perspective on YOKU's Warner Brothers Deal
This is from Stone Street Advisors
While something akin to Netflix is still a relatively new concept in
China, I think we're in serious need of taking a step back from today's
ridiculous reaction (judging by the stock rising 35% today) to YOKU's new deal with Warner Brothers.
China's Youku Inc (YOKU.N)
has agreed with Warner Bros Entertainment's local joint venture to
offer pay per view movies on its newly launched online paid content
platform, Youku said on Tuesday.Under a three-year agreement with Warner Bros, Youku will add 400 to 450 Warner Bros movies to its Youku Premium library.
"People
are increasingly willing to pay for high-quality content, and we take
the growth of Youku Premium as a sign that the market is improving for
paid services," Dele Liu, Youku's chief financial officer, said in a
statement.
Great, so YOKU is paying (paid) a lot of
money for content it now has to try to sell into a market that may or
may not exist. Let me rephrase that: In order for this deal to be break
even (let alone be profitable), YOKU has to convince users not
accustomed to paying for "premium" content to...pay for it. Has this
strategy worked anywhere in the world? I can't think of any examples of
any similar size/scale.
Youku Premium, officially
launched on Tuesday, began beta testing in October 2010. Since then, the
service has processed 200,000 paid transactions for its library of more
than 300 movies and 3,880 educational programs.
According to YOKU's annual report,
they had roughly 280 million monthly visitors. In 8 (or 9) months
then, assuming this number hasn't changed, they've had 2,240,000,000
visits. Two point two BILLION. In that time, their "beta" test of Youku
Premium resulted in 200 thousand transactions. I'm not entirely sure
of the scale of the beta test, but only 0.009% of site visits resulted
in a transaction. That's only 8 or 9 out of every 100,000.
While
this number will surely increase significantly when Youku Premium is
rolled out across the site, I'm FAR less optimistic than other
participants. I've been privy to semi-confirmed reports of
illegally-hosted copyrighted content not just on YOKU's competitors'
sites (of which there are many), but on YOKU's platform, too.
Ultimately, there are two questions investors must ask themselves:
- Why
would Chinese users accustomed to getting content for free pay for it
when it can still be accessed for free with minimal
effort/inconvenience? - YOKU hasn't filed a 6-k yet, but from the myriad of news reports
I've read, this is NOT an exclusive deal, i.e. the content will still
be available elsewhere, and Warner Brothers is still free to strike
similar deals with YOKU's competitors. This isn't even the first such deal Warner Brothers has struck! Is Youku's brand strong enough to keep users coming back?
The
company is growing revenues at an incredible rate (so they claim), and
the market is growing. But in evaluating how much to pay for the stock, investors should consider more than just headlines. Is a company worth 35%
more because it signed a non-exclusive deal to sell content into a market
not accustomed to paying for it? I highly doubt it.
- advertisements -
there are dozens of chinese web sites that stream pirated movies free of charge (i suppose the ads on the sites pay for the cost of streaming.) just download a small plug-in, and stream away the latest movies and often movies that's not even been released in the USA.
God luck to those Youkus who bought shares today
Given the shitty quality of pirated DVDs, which are no longer seen in HK, and the low price point of VCDs (you can buy major release movies in VCD versions for about USD 5 in a store) I can see how there can be a business model that might work.
It makes no sense for a street vendor to stock the full WB library in pirated form. I don't even think it exists.
And while there are many movies available on the Internet, they are useless to a Chinese viewer without the mandarin subtitles.
The same pirate IP curve occurs in all the Asian countries. Eventually everything eventually goes mainstream and that is the bet in China.
Vic.. tell us how you really feel!
Some of us are doomers because we see a one world gov’t, cashless society, 500 million people on the planet future ahead of us and we missed the runup in LULU. :-)
For many a dark hour I have been thinking about the duality in that sentence above. Ultimately all we can do is live the golden rule in our personal lives. For myself, I’ll keep on trading stocks in this crime-scene of a market in the meantime…I’ve gambled in filthier, more depraved places before anyway.
Thanks Zero Hedge for the greater understanding of the world and for the therapy.
Just think...all that "filth" and "mind control" that the movie studios put out will be viewed by everyone across the globe soon enough. Score another one for Hollywood.