U.S. VOD Services to Dominate Asian Market Outside China in 2019: Study

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Video giants YouTube, Netflix and Amazon will command more than half of Asia's $11 billion online video market this year, according to a study by Media Partners Asia, with Chinese players controlling the territory's $16 billion industry.

YouTube, Netflix and Amazon Prime Video will have a combined 54 percent market share in 2019 of online video revenues in the fast growing Asia Pacific market, excluding China, where all three platforms don't operate, according to a new study by Media Partners Asia (MPA).

The report, titled Asia Pacific Online Video & Broadband Distribution 2020, forecasts that the Asian VOD market outside of China will be worth $11 billion this year. China's industry alone is set to top $16 billion in 2019, the study finds. Overall, the Asia Pacific online video industry will generate $27 billion in advertising and subscription revenue this year, up 24 percent year-on-year from 2018

This pie is forecast to expand at a robust 13 percent compound annual growth rate to $50 billion by 2024, propelled by rising investment and competition, widening broadband access and ongoing development of local content, payment infrastructure and IP protection.

MPA estimates that Netflix will have 13.2 million paying subscriptions in Asia Pacific as of year-end 2019, with the service crossing one million subs in India alone last year. While figures for Amazon Prime Video were not given, MPA said the service "has made significant progress in India and Japan where the operator has invested in local content while other Amazon services also scale."

Taking into account Chinese digital platforms, the study lists top 15 online video operators who will account for almost 70 percent of revenues in 2019. YouTube tops the list followed by Chinese players iQiyi, Tencent Video, Youku and ByteDance, with Netflix, Amazon, Disney-owned Indian platform Hotstar, Hulu Japan and others completing the lineup.

Understandably, China, the world’s second-largest online video market after the U.S., is a major growth driver in the region, representing 59 percent of online video advertising and subscription revenue in Asia Pacific in 2019. The study forecasts this share shrinking slightly to 55 percent by 2024. MPA said it reduced earlier growth forecasts for China as a result of "economic deceleration as well as increased market maturity and regulatory oversight." However, online video revenues in China are forecast to reach $27 billion in 2024, up from $16 billion in 2019, reflecting a 11 percent compound annual growth rate.

China’s online video ecosystem remains highly developed, benefiting from sizable investments from digital majors Alibaba, Baidu and Tencent.

"These three players are absorbing sustained losses in video thanks to profitability in other parts of the business," the study explains, allowing them "to buy and create local premium content in volume, as well as (acquiring) exclusive sports rights, while developing innovative technologies and large talent pools."

A fourth player, ByteDance, has emerged in recent years as another major player in China’s online video market. Between them, Alibaba, Baidu, ByteDance and Tencent will account for 69 percent of online video revenue in China this year, MPA forecasts. Chinese players have also started rolling out online video services in Asia, notably ByteDance in India, Japan and Southeast Asia, as well as iQiyi and Tencent in Southeast Asia and Taiwan.

Excluding China, the APAC region's largest markets by revenue are Japan, Australia & New Zealand, India, Korea, Taiwan and Thailand (with the fast-growing Indonesian market set to overtake Thailand by 2024).

MPA projects that online video revenues in APAC ex-China will grow from $11 billion in 2019 to $23 billion by 2024, reflecting a 16 percent compound annual growth rate.

“The online video industry is evolving and growing rapidly across Asia Pacific," said MPA executive director Vivek Couto, adding this was especially true in countries "with a significant addressable broadband market, developed payment infrastructure and a dynamic local content ecosystem, as entertainment and, in some cases, sports rights move online."

But he cautioned that "stand-alone OTT video remains loss-making in Asia Pacific on the whole, although some operators should start to see profits over the next three to five years, either in large domestic markets or as part of an expanding global and regional footprint."

Another challenge facing the industry is the shadow of regulators attempting to bring OTT regulations "in line with broadcasting and pay-TV." Couto warns that putting restrictions on foreign investment "could inhibit best-of-breed competition, while imposing TV content standards on niche online services may be counter-productive. Rules on foreign content titles allowed within libraries also potentially limit consumer choice.”

In terms of future growth, the report foresees advertising-supported VOD (AVOD) models continuing to dominate across most of APAC over the next five years, with the exception of China, and Australia/New Zealand. Subscription services, however, are expected to gain scale in key market.

In Japan and Korea, subscription-based video-on-demand (SVOD) will contribute a significant chunk of sector revenues by 2024. Advertising will remain dominant however, reflecting the slow-burn nature of SVOD in these markets as well as the growth of online video advertising, which should in particular benefit YouTube.

In India, SVOD will account for about one third of sector revenues by 2024, the study finds. While YouTube is the strongest player in the region, local services are also making inroads in online video advertising market.

Disney-owned Hotstar, with both SVOD and AVOD services, is a strong and fast-growing platform in the region, helped by sports rights to the wildly popular Indian Premier League cricket league. The study finds that Hotstar has also benefited from demand for catch-up content from parent network Star India as well as access to premium Hollywood entertainment, both from the Disney-Fox library and from such HBO series as  Game of Thrones and Chernobyl, among others.

MPA estimates that Hotstar will account for more than 20 percent of online video advertising in India this year, while its low-ARPU (average revenue per user) subscription model has also attracted a critical mass of customers. Hotstar will end this year with 7.5 million paying subscriptions, with the substantial majority on low ARPU plans, according to MPA.

Hotstar offers its premium service at 999 rupees (about $14) per year, the same as Amazon, while Netflix starts its basic monthly package at 500 rupees ($7) per month. However, responding to the price-sensitive Indian market, Netflix recently launched its mobile-only plan at 199 rupees ($2.80) per month.

Overall, the Asia Pacific market will remain fairly evenly split between advertising and subscription models, according to MPA, with advertising’s share decreasing slightly from 56 percent in 2019 to 54 percent in 2024 while subscription increases its share from 44 percent in 2019 to 46 percent in 2024.