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China's digital media giants rival US

News, 09 December 2014

BEIJING: Google remains the world's largest digital media company by some distance but a new study highlights how Chinese companies such as Tencent and Baidu are starting to erode the dominance of US businesses.

The latest Digital Media Index from global research and advisory firm Strategy Analytics analysed revenue trends across 44 public digital media companies and noted that China now accounted for two of the six companies with the highest online media revenues and four of the ten fastest-growing.

Google was the runaway leader in this analysis, with $31.4bn in digital media revenues in the first half of 2014, more than three times that of nearest rival Amazon on $10.3bn.

In third place, Facebook ($5.4bn) was only narrowly ahead of Chinese internet service portal Tencent ($5.4bn). Web services company Baidu ($3.4bn) was the other Chinese firm in the world's top six, behind Apple's iTunes ($5.2bn).

Among the 44, the fastest growing business was Chinese internet security software firm Qihoo, which reported revenues up 123% year on year to $582m.

Baidu (+56%), Tencent (+43%) and online media Sina (+36%) were the other Chinese companies to threaten US ascendency.

“A red-hot Chinese internet market is challenging the historical dominance of US companies,” said Michael Goodman, Director, Digital Media for Strategy Analytics. “The fact that there are about 2.5x more Chinese than Americans online is a big factor so they've been able to hit such heights solely in a domestic market. The big question, and the key threat to US global dominance, is whether they can translate this success outside China.”

Advertising dominates revenues but the revenue splits between the companies differ dramatically. All of Baidu's and Microsoft's Online Services revenue comes from advertising, compared to 91% for Facebook, 90% for Google, 80% for Yahoo and 60% for Yahoo Japan.

In contrast, 100% of Netflix revenue is from online video while 90% of Tencent's is from online games.

“The Chinese companies have been particularly adept at generating revenues across a variety of services,” Goodman noted. “The fastest mover, Qihoo, for example has done well in both advertising and internet value-added services, driven by expansion into search and mobile. Ultimately, this increases revenue per customer, a vital component of sustained growth – Baidu, for instance, has upped ARPU 50% over the last year.”

Data sourced from Strategy Analytics, additional content by Warc staff