“Power” of Copyright, Lv Wensheng’s Strategy for Video Websites

Issue 32 By Zhou Yi, China IP,[Copyright]

Lv Wensheng, Board Chairman of JOY.CN Corporation Limited, was under great pressure during the past few years not only from the investors but from this industry.

As policy maker of an online video website, he has been insisting on purchasing authentic videos ever since 2006, when he started www.joy.cn, without using a single piece of pirated material. People around him didn’t understand. “It is really hard to explain the idea to investors or my company staff, especially the latter.” He also said, “I am the only person on this and sometimes I feel so lonely.” Lv talked much during the whole interview, but these two remarks gave the China IP reporter a deeper sense and impression of the heaviness of his burden.

Fortunately, the pressure is in history now. “I felt relieved when I heard of the announcement of the establishment of the ‘China Online Video Anti-Piracy Alliance,’” said Lv. Recently, and presently, people have begun to understand and appreciate my idea; To buy authentic videos instead of using pirated ones has become a consensus among the whole industry.”

Looking back at the development of Joy.cn and online video sites, we can see that Lv’s insistence on authentic videos was neither a simple “ideal” nor “self-sacrifice” to China’s intellectual property course. In fact, he grasped the core of online videos as an industry as early as a few years ago: content. In this trade, only the possession of a large amount of copyright resources can keep a company at the top of the industrial chain.

Lv has been building up his content. Now, copyright has brought him not only a respected profile, but the largest capital for future development of Joy.cn. A “right” has granted him a “power” to gain an upper hand in the industry.

Choosing authentic videos
A true video-sharing site named Maxduo also appeared on the Net in early 2006. Without any promotion it became ranked as seventh place among video sharing sites and globally in the top 900 in terms of traffic. But it suddenly vanished a few months later.

Now, “Maxduo” is in the Baidu search engine and has introduced the first product of the “Podcast channel-Joy.cn-China video portal”, while the domain name www.maxduo.com also directs or hyperlinks you to the channel. This may seem new, but actually it was the site Lv constructed when the concept of “video sharing” was at its peak which facilitated its growth.

“We made a video-sharing site in early 2006, called Maxduo, but today few people know of it. I closed it after five months with a loss of 10 million Yuan. The reason was simple: serious copyright problems. Almost everything on the site was pirated and some of it was illegal. It was a standard sharing site, with fairly good traffic, but it was completely against my values. Today’s podcast of Joy.cn stemmed from Maxduo, but with all unlicensed and illegal content rooted out,” said Lv.

The concept of video sharing became popular in 2005, when the huge traffic brought by community and sharing aroused great interest from venture investors. Copyright was buried under the attraction of traffic and capital. However, it was his past working experience that made Lv abandon piracy resolutely, which he believed as being against his convictions.

In the early 1990s, Lv was one of the founders of Chengdu Business Daily. Then he became a media investor and engaged in the operation companies of many newspapers, such as 21st Century Business Herald and Huashang News. A decade in printed media had taught Lv to understand that the core of content industry is nothing but copyright, and copyright must be obtained legally. “I was under great pressure for closing Maxduo because I lost more than 10 million Yuan. Although there were still investors, I could by no means ‘fool’ them, since piracy would go nowhere,” Lv recalled.

In fact, the experience in printed media has not only helped build his values but lent him the insight into the nature, law and strategy in the media and content industry.

“Already, I was different from some young people involved in other video sites. I didn’t need a business to improve my living. To a certain degree, I took online video as a lifelong cause. What I needed was a long-term mechanism, a clear-cut business mode,” said Lv.

Actually, a fairly mature mode already existed in 2005; that is the VOD payment by telecommunication operators. Drawing inspiration from this mode, Lv believed that the accumulation of copyright was a must for a legitimate video site. Then he put forward the idea of a video portal, instead of sharing, because sharing would be empty talk without content.

But the idea was “laughed at” in the beginning. On the one hand, investors were not interested; on the other hand, inside his company some believed the site could never survive by relying on purchasing copyright videos.

“I had been trying so hard to persuade my staff in the past few years, and we all felt the pain of seeing traffic soaring to other sites. Even last year, in October 2008, there were inside voices calling for the uploading of a little piracy to boost our traffic,” Lv told reporter with a smile.

Of course, Lv understood that a copyright site cannot stand on ideal and impulse, and a commercial act should pay off. From the moment he chose to pay for his copyrights, he explored the industrial chain and laid down his strategy. When others didn’t care about copyrights, he built up his own resources, cooperative partners and network, waiting for a moment of explosive opportunity.

“I believe patience is needed in making media, along with two elements. One is the larger environment for industry development, and the other is corporate capability in integrating resources. In making a site, it is not as simple as believing that big traffic brings in money. It is actually a sophisticated question of business management and operation,” said Lv. “We didn’t take a penny from venture investors until we found a clear business mode.”

Lv was patient enough. He began accumulating his own copyright resources in 2005. “Joy.cn would be a content industry company centered on content.”

There are three sources of content. Unlike other video sites, Joy.cn as a portal integrated many TV news resources and became a site of “information in videos.” Besides, it has been insisting on purchasing the copyrights of films and TV series.

Joy.cn also engaged in creation, which generated copyright. Lv spent 60 million Yuan in the past few years supporting a team called “Joke.” He explained his understanding of “video sharing” this way: “pictures and words can be shared, for you only need to open a blog and write down your ideas, and others can come and read. But a video, except a documentary one, always needs a team to complete the project. So making a video is a commercial act by nature. The question is how to share if everybody cares about copyright?” Now, he has begun to invest in films, with content as his sole object.

Of course, profit is a more practical question, no matter how excellent the content is as the base and product of a site. This is especially true when we must invest so much “extra” costs to pay for copyrights.

“I have been walking on two legs in making profit; one is advertisement income, the other is user payment,” said Lv.

He became somewhat “excited” talking about the prospect of advertising, for in his eyes, ads on video sites are higher than those on text and picture sites in both form and market value. Video ads are not limited by site space and time. On-screen advertising in particular can reach audiences very well whether or not they are on the front or channel page. For users, video ads are more trusted and accepted. Their value will double when one cannot tell ad from content. For advertisers, Lv believes that ads on video sites liberated many advertisers of the medium and small enterprises, for they are not as expensive as TV ads, but bear the same form and are even more creative. “Our ‘Joke’ team shoots ads for such enterprises,” he said.

Another profit mode is user payment, the largest part of future market in Lv’s eyes. “This year we bought the exclusive copyright of My Brother Is Named Shunliu, which brought us 30 million hits. If each user pays 0.5 Yuan it would equal 15 million Yuan; the market is huge. More than that, user payment (B2C) is easier than advertising (B2B), because in a rational agreement advertisers pay to generate user consumption, but impulse consumption is something users pay for.”

But presently there is a great barrier for obtaining user payments. It is not that users are unwilling to pay for watching videos, but the system lacks a payment channel and user experience to make it easy for consumers to do so. There is hardly any channel for allowing viewers to pay very small sums. In addition, online video cannot provide a high quality experience which is equal to DVD and TV. “Now we pay great attention to paying through cell phones, and also developing our own modes, such as a mode similar to point cards in online games. Based on experience, it is a technical problem that can be easily solved,” said Lv.

Even if the payment channel issue is solved, the remaining question is how to create a system which allows content to reach more users. Lv saw the potential of 3G when Joy.cn was first constructed, and “Joke” was built more or less for 3G. As online TV appeared, Lv also put the terminal in his strategic map and put forward the “three screen in one” strategy. “As long as you are a user of Joy.cn, you can watch our content on any terminal,” said Lv. That means a user can pay for content on any terminal.

Content from three sources (TV, film and self-made videos) on one platform (Joy.cn) provides users three terminals (three screens) and forms two business modes (B2C user payment, B2B advertising), whcih is the strategy mapped out by Lv. It brings a video site to three markets. “Firstly, it must face traditional Web advertising market, whose present scale is 18 billion Yuan. Besides, in a sense it faces TV advertising market, which is approximately 80% of the 69.5 billion Yuan market. Secondly, our films faced a huge consumption market, and the most basic is the pirated DVD market, whose scale was about 45 billion Yuan in 2008. Lastly, we are also facing the large paid market of 3G and future online TV,” Lv told a China IP reporter.

The strategy is still based on content and copyright, but few people can see that. Despite his patience regarding his copyright ideals, Lv is anxious. In his words, the existence of piracy not only causes him to lose profit, but damages trade rules and creates an unfair competitive environment.

However, Lv never expected the situation to change suddenly, as it did in 2009. He once believed “authenticity is the only way out to the video industry”, but now, authenticity has become a consensus of the whole industry.

Turning point
In March 2008, Joy.cn obtained the first batch of “permission for dissemination of audiovisual programs on information network”, and became the first privately run video website to receive such rights six months ahead of www.tudou.com. It was not until then that Lv and his site became known, along with his idea of authenticity. At the end of that year, many video sharing sites became willing to pay for copyrights.

“Obtaining the ‘permission’ was one of the turning points in our development, and from that time on we began to show our strength and the society started to care about copyrights,” said Lv.

China saw a change in the larger environment of copyright in 2008. Cultural creative industry became an important sector in which intellectual property was the key. State special campaigns were launched against the Internet infringements. Inside the industry, video sharing sites even began to deny themselves profits while investors walked away after September 2008 due to unsatisfactory returns. This year, advertisers began to doubt piracy on video sites. Despite their “portal-level” traffic, they were neither recognized by the mainstream society nor favored by advertisers.

In early 2009, Lv took the initiative to set up an “anti-piracy alliance” by organizing 80 right holders, which was established against tudou.com and caused a stir in the society.

Only six months later, the alliance reappeared with a completely new look. Firstly, souhu.com and voole.com joined in with a high profile. They launched a stronger verbal war against piracy and even lodged lawsuits. Secondly, advertisers became another entity and declared their withdrawal from piracy sites. Thirdly, the number of right holders increased and third-party assessment institutions also joined in.

The video site industry has been in chaos since the birth of the alliance, filled with lawsuits, news, counterattacks from sharing sites such as youku.com and exchange of abuses. Despite this turn of events Lv kept a low profile. “I’m not interested in verbal war. What I need is an environment. Now everybody should understand that a video site can only survive by switching from piracy to copyright. It’s a pity if they still don’t understand.” He went on to say, “now a consensus has been reached in the whole industry and that is important.”

The environment Lv needed is taking form, and his strategy began to show strength. But he still knows a fact: there is a long way to go for the industry. This year, Joy.cn might well enter the capital market, but its listing plan was put off till 2011. Lv explained: “we still need a bit of time to develop, and the industry needs to be mature. I believe that 3G will take shape in 2010, advertising will be on a scale by 2011 and payment business will rise in 2012, which will also be a peak for the listing of video sites.”

Will there be more rivals when the industry becomes mature? Lv was not so anxious: “actually portals are our biggest competitors now, and films are more and more expensive. But I think it’s normal. There are always competition and cooperation between companies of the same industry. It’s more important to build up the industry first.”

We hope Lv is correct about the future.

(Translated by Li Heng)

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