BEIJING: Online video viewing levels are set to rise dramatically in China over the period to 2015, McKinsey has predicted.
The consultancy interviewed 22 senior executives at online video companies, advertising agencies and content providers, alongside soliciting the opinions of leading academics and government regulators.
It combined the findings with a survey of 1,500 web users, a telephone poll of 100 adults, and eight home visits.
As a result, it reported that 394m people streamed this form of material in 2010, a figure due to reach 712m in 2015.
Currently, the average Chinese web user spends four hours a week watching internet video like films, TV programmes or live sports.
This total doubles the amount of time dedicated by their US counterparts to the same pastime, according to McKinsey.
Another difference is that while 74% of China's web audience mostly watch television shows and movies via the net, user-generated content was much lower down the list of ten formats than in the US.
Despite the overall potential of the sector, many of the Chinese industry specialists questioned by McKinsey were "cautious" about the outlook, given revenues do not yet match the growth in consumer uptake.
"Our research suggests that profits will indeed materialise, but only players with the deepest pockets will survive to enjoy them," McKinsey said.
The core objective for companies will be expanding bandwith, hiring experienced advertising sales staff, of which there is a notable absence, and buying the high-quality content capable of attracting brand owners as clients.
"The best-funded sites are therefore likely to pull steadily ahead, in what could be a winner-takes-all phase of the market," McKinsey said.
Firms which are first to raise capital through stock market flotations stand to cement their position, such as Youku, boasting 200m users, which has already opted for this approach. Tudou, possessing 180m users, is widely-expected to follow.
"These players, having built their brands, content libraries, and easy-to-use interfaces, will be in the best position to tap into new revenue pools," said McKinsey.
A benefit for web companies is that while China's pay-TV services reach 40% of homes, or 200m residences, low monthly charges of 15 yuan to 20 yuan mean they have not been able to invest in superior content.
Only 80m households have thus switched to digital television, which is twice as expensive, despite efforts by the government, as they are unconvinced about the possible advantages.
"This lack of imminent competition gives online sites some breathing space to strengthen their business models," McKinsey said.
Advertising revenues for web video sites stood at 3bn yuan, or 8.8% of internet spending, in 2010, but should hit 6bn yuan this year, and top 13bn yuan in 2013, a 16% share.
Data sourced from McKinsey; additional content by Warc staff