July 31, 2014 (Chinavestor) Financial Risk: major companies of the industry are making sustained loss except for LeTV, the reason being the high content cost and bandwidth cost. Companies with loss are seeking for external funding sources to power their business investment. If companies don’t find sustainable revenue-generating channels and reduce cost, financial risk might intensify for the industry.
Regulation Risk: China’s online video companies are regulated jointly by SARFT (the State Administration of Radio, Film and Television) and MIIT (Ministry of Industry and Information Technology). They give licenses to legal online video companies operations and regulate on video content. The regulations give both opportunities and challenges for online video companies. From the opportunity side, the intensified “limit of entertainment programs” on TV since 2011 gives chances for online video websites to broadcast these programs and generate more advertising revenues; and the piracy combating policies protect those companies from unfair user traffic loss. However, on the other hand, the strict censorship of video content may prevent the enrichment of companies’ online video library built-up and sometimes the ban of certain programs “for no reason” may put the companies under the risk of “policy pit”.