Report: Smartphone usage set to overtake time spent watching TV in China

2018 is the year that smartphone usage eclipses time spent watching TV in China and it’s all down to the growth of digital video platforms, according to a new report from eMarketer.

You’d be forgiven for thinking that this had already happened in China, which happens to be the world’s largest smartphone market, but eMarketer forecasts that the momentous moment is about to arrive.

According to the report, the average adult in China is set to spend 2 hours and 39 minutes per day on a mobile device this year, up 11.1 percent on 2017. Watching TV, meanwhile, is set to fall by two percent to reach 2 hours 32 minutes daily.

eMarketer said that the growth of digital video services is “a key driver” in this change. The company forecasts that online video time per day will leap 26 percent year-on-year to reach 58 minutes per adult on average. It is further predicting that by 2020 China’s adult population will spend one-third of their time online watching videos.

The signs have been pointing to digital media’s charge in China for some time, with the country’s top firms putting considerable cash behind the leading players.

Alibaba acquired Youku Tudou in a 2015 deal that valued the YouTube-like service at $4.6 billion, while rival Tencent has its own ‘Tencent Video’ service and Baidu — the third part of China’s traditional tech power trio — incubated video service iQiyi before taking it public in a U.S. IPO that raised $1.5 billion earlier this year. All three of these streaming platforms combine user-generated video with produced series, some of which comes from Netflix.

Beyond those three, there are also vertical focused video services which include animation platform Bilibili (which just went public in the U.S.), live-video platforms such as Tencent-backed Kuaishou, and Chushou, which focuses on e-sports and landed investment from Google earlier this year.

Video may be the key driver, but it is far from the only reason that keeps Chinese people glued to their phones. Chat app WeChat is the stickest of all mobile apps in China. It claims to have over 900 million active users who send 38 billion messages and over 205 million phone calls via the app each day.

WeChat also includes offline payments which are another major use for smartphones in China. Alongside WeChat Pay, Alibaba’s Alipay claims over 520 million users who use its service instead of cards or cash when paying for goods.

Ant Financial, Alipay’s parent company, is being tipped to raise $9 billion in new funding at a valuation that could reach as high as $150 billion.

Hat tip @sirsteven

Netflix launches 30-second preview videos on mobile

Netflix is introducing its own take on Snapchat and Instagram stories after it began to roll out 30-second preview videos for mobile viewers.

The previews look much like Stories because the thumbnails are circular and the content plays with virtual videos, so there’s no need to move your phone to the side. Added to that, they play like a slideshow, allowing users to swipe or tap to skip to the next video without returning to the main screen. Shows that appeal can be stored for later viewing with a button that adds them to your list.

The feature is hitting the Netflix iOS app from today, and the company said it will be “coming soon” to Android.

The launch is long-awaited. Netflix began offering previews on the web and via its TV app, and the company said the new feature will help those who tune in via their phone to find more content to watch.

“Years of testing has made it clear that video previews help our members browse less and discover new content more quickly. With the launch of mobile previews, we are bringing a video browse experience to your mobile phone in a fun and mobile-optimized way,” the company explained in a blog post.

Netflix is on a run of late, with the company closing in on a $150 billion market cap thanks to growing subscriber numbers.

The company added 7.41 million new subscribers in the first quarter of 2018 — around two million of which were U.S.-based — and it has forecast an additional 6.2 million more joining in the next quarter. That means the company has nearly 119 million customers, as its huge international expansion from two years ago begins to kick in.

The company also continues to see some pretty strong streaming revenue growth. Total sales hit $3.6 billion in Q1, up around 43 percent year-on-year.

Comcast will start bundling Netflix into its cable subscriptions

Today’s development in weird potential frenemy relationships is an interesting one with Comcast now planning to bundle Netflix into its cable subscriptions, the companies announced today.

Known as the original cord-cutting service, Netflix serves as a hub for not only a ton of original content, but also a huge catalog of movies and shows that offer a near-endless flow of entertainment for the average user for less than $15 a month. Comcast added Netflix to its X1 interface starting in 2016, but it appears that the success of this among traditional cable subscribers may have encouraged Netflix to begin working more closely as it tries to tap more and more consumers.

The companies said they will expand that existing relationship by bundling Netflix into the overall subscription in new and existing Xfinity packages. Netflix’s subscriber growth — the primary driver of its value as a public company — continues to surge, and it appears that this could be another piece in its tool kit to keep that engine humming. Those cable packages already include an increasing breakout of diverse services that allow for streaming outside of the over-the-top experience, like HBO Go and ESPN, and this offers another streaming service on-the-go for users.

By tethering to additional over-the-top services, Netflix has a chance to woo subscribers that might otherwise just stick with their existing service providers and bake itself directly into that experience. These kinds of cross-platform subscriptions are becoming a little more common and a big driver of user growth — for example, Spotify works with Hulu to create a multi-service subscription that ends up, on paper, with more users for both. Getting that taste may also encourage users to eventually graduate onto the service directly and drive additional revenue for those companies.

Whenever Netflix reports its quarterly earnings, all eyes are typically on that subscriber number. It’s the leading indicator for the company’s growth, even as it spends more and more money on original content to acquire subscribers. But by getting into the cable bundle, Netflix can find a way to get that content into the hands of subscribers that may one day cut the cable as more and more streaming options emerge for the content they typically want. ESPN is already dipping its toes into the streaming side with ESPN+, which while limited signals an opportunity to break out and attract those consumers that aren’t interested in a cable bundle.

The bundle, which will be available to new and existing Xfinity customers, will be included in its cable TV, phone and internet plans. It seemed throughout the lifetime of Netflix’s streaming expansion that it would be the harbinger for cord-cutting, but now finds itself fitting with existing consumers that already are fine with a cable subscription.

Amazon isn’t to blame the Postal Service’s woes, but it will need to innovate to survive

In the past week, the 45th president has Twit-tacked Amazon three times and, potentially, cost their shareholders over $40 billion in market cap or just more than one Greek economy.

At the heart of our current President’s criticism is a claim that Amazon is making a mint and leaving a *failing* U.S. Postal Service holding the bag. It’s not a new critique from the Twitterer-in-Chief, but it is one that’s worth unpacking given the crippling effect technologies have had on the USPS — where email is even more reliable than a carrier undeterred by “snow nor rain nor heat nor gloom of night.

Is it failing?

“Why is the United States Post Office, which is losing many billions of dollars a year, while charging Amazon and others so little to deliver their packages, making Amazon richer and the Post Office dumber and poorer?” This infantile question was posed by President Trump on Twitter in December 2017. While it’s not clear what exactly prompted Trump’s criticism,  the tweet did spark a wave of debate as to whether the Postal Service is indeed failing and, if so, whether Amazon is to blame.

First of all, it’s true that the Postal Service is “losing billions of dollars a year” – $2.7 billion in 2017, to be more precise. In fact, the Postal Service has been losing money for over a decade. And the USPS does have a curious relationship with Amazon. While competitors UPS and FedEx charge the e-commerce giant $7-$8 per package, USPS only charges for $2 for the service. However, as with most stories, that of USPS is more complicated.

USPS and Amazon

The USPS-Amazon relationship may be seen as “dumb” by the 45th president, but to many it’s a piece of shrewd business on the part of the Postal Service. As of 2017, Amazon was USPS’s biggest customer, and an intelligent way for the independent agency – that traditionally made its money by having a monopoly on first class mail – to get a piece of the increasingly profitable package delivery pie. It’s not the first time that the Postal Service has tried to muscle its way in on the growing package delivery industry. Back in 2010, the entertainment company Netflix accounted for $600 million from its DVD subscription service. Of course, the Netflix DVD delivery service is fast fading and being replaced by on-demand streaming; and Amazon look to be preparing their own delivery service. It seems that the USPS may have to prepare itself to be jolted by another wave of disruption.

One-Two Punch of Email and a Financial Crisis

The Postal Service’s first major battle against the age of innovation came with the rise of email, and it didn’t take the beating that you might expect. Despite the fact that in 2002 the majority of Americans used email, the Postal Service still managed to make profit between 2003 and 2006. During this time, people were still writing letters, sending greetings cards and, perhaps most importantly, bills were still sent by post.

It wasn’t until the 2007 global financial crisis that the Postal Service took a hit that, arguably, it still hasn’t recovered from. After thousands of businesses suffered from the crisis, they started to cut back on expenses wherever possible, and one such place was mail. Back in 2000, nearly two-thirds of bills were delivered by USPS, and the total revenue from bill payments in this year was estimated at between $15 and $18 billion. Between 2006 and 2010, USPS volume fell by 42 billions pieces, with 15 billion of those being caused by electronic billing.

And if that weren’t enough, the rise of social media further confounded USPS’s problems. Between 2010 and 2014, postcard volume fell by 430 million. As more and more people began logging into Facebook, Instagram and Snapchat to send virtual Christmas cards and birthday wishes, fewer people were sending mail, and therefore fewer profits for the agency that had had its fair share of knocks in the 21st century.

Photo courtesy of Flickr/André-Pierre du Plessis

Innovating within a Risk-Averse Government

To suggest that those in charge at the Postal Service have been idly watching as new technologies disrupt and threaten the agency would be unfair.

It is an organization that looks to engage with the latest technology. For instance, in 2014, it released a white paper on the impact that 3D printing could have on the industry and how the Postal Service could benefit; and again in 2015 it released another on the Internet of Things. Both papers were clearly commissioned with a degree of prescience, being published before either technology had begun to pervade the public consciousness.

Unfortunately, though, forward-thinking initiatives such as these have been blocked before they can enter the action stage. USPS’s status as a quasi government entity may have its benefits, such as a monopoly on all first class post, but in return Congress has a say in how the agency is run. It can outline the products and services provided by the Postal Service, and set its prices. However, unlike other Federal agencies, USPS receives no funding, and hasn’t done since 1982.

In 2016, the Postal Service wanted to make the most of its relationship with Netflix and other video rental business, but the proposal was blocked by the Postal Regulatory Commission. In 2013, USPS attempted to end Saturday letter delivery – a change that would have saved $2 billion a year. The proposal was blocked by Congress. And in 2016, it was ordered to lower the cost of postage stamps from 49 cents to 47 cents, resulting in a $2 billion annual cost.

At the heart of the troubled USPS-Congress relationship lies the problem. A big existential question mark hangs over the Postal Service’s head: what exactly is it? With 2.7 million people working for it, it’s the biggest employer in the US (Walmart, by comparison had 2.2 million as of 2017). It also delivers to remote locations that private companies like FedEx and UPS won’t touch. For these reasons, it exists out of necessity. There are also those who want to see the Postal Service fully privatized or even abolished, believing it to be an outdated relic of nostalgia.

Understandably, those within the Postal Service are equally unsure as to what they should be. On one side, they’re being encouraged to innovate and drive up profits, and on the other they’re being blocked making the changes necessary.

As it stands, the USPS motto “neither snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds” still holds true. Their resilience through massive shifts in consumer behavior is nothing short of remarkable.

They are at the service of the American people, and so it’s up to them to decide what they want it to be. Although it may be true to say the Post Office is losing money thanks to Congress and cutting Amazon a more-than-fair deal, its importance is far more nuanced and complex than he gives it credit. And without the Postal Service, it would be more than just Amazon that would be losing out.

As the world moves to more and more virtual communication channels it will be fascinating to see USPS evolve.

Original Content podcast: We drop by Netflix’s ‘Terrace House’

Terrace House is a tough show to explain.

Like The Real World and other reality TV, the show puts a group of largely young and attractive strangers together in a house. But that’s about where the similarities end.

On Terrace House, most of the cast members genuinely seem to be rooting for each other. And while there’s drama, it’s scaled way back, so that passive aggressive remarks about soup can end up dominating an episode.

Darrell’s a big fan, so on this week’s episode of the Original Content podcast, we checked out the latest season, Opening New Doors (a co-production of Netflix and Japanese TV network Fuji). Sadly, this is his final episode as a regular host, but at least he got to go out with a bang. (And we’re hoping to lure him back.)

We also covered the week’s streaming and entertainment news, like the (distant) launch date for Apple’s TV efforts, Netflix’s plans for Carmen Sandiego and new trailers for The Handmaid’s Tale and Westworld. Plus, Jordan finishes watching the entire Star Wars saga.

You can listen in the player below, subscribe using Apple Podcasts or find us in your podcast player of choice. If you like the show, please let us know by leaving a review on Apple. You also can send us feedback directly.

Baidu’s streaming video service iQiyi falls 13.6% in Nasdaq debut

The streaming video service iQiyi, a business owned by China’s online search giant Baidu, dropped 13.6% in its first day of trading on the Nasdaq — closing at $15.55, or down $2.45 from its opening price of $18.

The company still managed to pull off one of the largest public offerings by a Chinese tech company in the past two years raising $2.25 billion — the only Chinese technology company to make a larger splash in U.S. markets is Alibaba — the commercial technology juggernaut which raised $21.5 billion in its public offering on the New York Stock Exchange in 2014.

“It’s a special day and an exciting day for iQiyi, and I will say it’s also an exciting day for the Chinese internet,” said Baidu chief executive Robin Li of the iQiyi public offering.”Eight years ago, when we got started, we were not the first one, we were not the largest one, but we gradually worked our way up, and caught up and surpassed everyone. It has been not an easy journey, but finally we are public. We surpassed everyone. That’s because we have a very strong team. I have a full confidence on Gong Yu and on the whole iQiyi Team.”

Over its eight year history there’s no doubt that iQiyi has gone from laggardly to lustrous in the Chinese streaming video market. Baidu’s offering and Tencent’s video service have both managed to overtake the previous market leader Youku Tudou, which was acquired by Alibaba in 2016.

Tencent leveraged its 980 million monthly active users on the WeChat mobile messaging app, the 653 million monthly active users on its older QQ messaging platform and the company’s attendant social network (think Facebook) to juice growth of its video streaming offering, according to analysis from The Motley Fool.

For Baidu, the company’s pole position for online search became critical to the growth of iQiyi — along with a partnership to China’s ubiquitous hardware manufacturer and technology developer Xiaomi . The company also locked in early content licensing deals with big Hollywood studios like Lions Gate and Paramount — and a deal with Netflix to juice its subscriber base in China. By the end of 2017, Baidu was claiming more than 487 million monthly active users for the service.

The former leader in China’s video streaming market, Youku Tudou, seems to have wilted under the weight of its acquirer’s platform. Alibaba’s ecommerce was never a natural fit with online video streaming.

For all of their massive user bases each of China’s leading video streaming services face a profitability problem. For its part, iQiyi went to market with substantial losses of $574.4 million for the last fiscal year.

 

 

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