Image source @ Visual China
Text | Old iron
How the short video industry will be in the future can be described as a hot topic in the tmt industry. In 2021, due to the increase in industry supervision and uncertainty in the capital market, especially Kuaishou's stock price has also experienced a sharp decline in the past year, which is also shaking investor confidence.
As an industry analyst, I often wonder whether we should look for profit opportunities by reversing the fundamentals from the trend of stock prices or by looking for a reasonable expectation of stock prices from a forward-looking perspective. Naturally, many people verbally agree to be forward-looking, but once the stock price of a company falls, its psychological changes will naturally become "the market has not recognized the company", and they will begin to use the stock price to reverse the market value.
In the analysis of this article, we try to hope that we can avoid the above inertial thinking, that is, from the perspective of pure industry development, we have a clearer judgment on the future of the short video industry.
In the general understanding, China's short video industry is with the help of the mobile Internet express, especially the popularity of smart phones has greatly reduced the cost and threshold of shooting and editing, resulting in the influx of creators to have today's scene.
Of course, this has a certain truth, but there are still the following questions: then why the outbreak of the short video industry is just around 2019, before this short video this form has long existed, why the outbreak at this time, and at that time smart phones have long been popular, if any new things are applied to the relationship theory of smart phones, it is inevitable that there will be some sloppiness.
In order to give a reasonable conclusion to this problem, we have made a variety of assumptions that have been overturned one by one, until we put short videos in the category of "pan-entertainment" and answer them one after another with the elements of this category, which feels close to the truth.
Pan-entertainment in the broad sense includes film and television dramas, short videos and games, network literature, etc., of which film and television dramas as the oldest entertainment products have occupied the largest proportion, so we have since broken through, so we have sorted out the production capacity of TV dramas in recent years, see the following figure:
Slightly different from most of the subjective views that "the industry's production capacity has declined due to the epidemic", in the past nearly a decade, China's film and television dramas have actually encountered a relatively ups and downs process, in which the production capacity of the TV drama industry has plummeted, while the production capacity of the film is facing strong correction pressure after 2018.
There are many reasons for this, and public opinion has been interpreted from the perspective of such as the high salary limit of the film, "one drama and two stars", and there is also a certain reason, but I personally think there should be other reasons:
First, in the years of development with the growth of the film and television industry, financialization has become an inevitable phenomenon, and the production funds of film and television dramas have also changed from the early self-owned funds to the financing of financial institutions, including the introduction of venture capital models. This makes the film and television industry actually grow in the leverage, which is also one of the reasons for the widely criticized high-pay model, but the leverage model is affected by the inherent laws of the financial industry, that is, the macro deleveraging work.
China began to deleverage from 2016, and the results showed in 2018, and the cost of the film and television industry increased in the process, which is an important reason for the de-capacity.
Subsequently, with the high remuneration limit and the rectification of bad artists, the risk of the industry increased, and the industry's de-capacity accelerated, resulting in an accelerated downturn in the supply of the film and television industry.
Second, the main buyers of TV series have undergone major changes, in short, the strength of the main TV stations that used to buy films has shrunk significantly;
In the above figure, I can see very clearly that the advertising revenue of the radio and television industry is showing a continuous downward trend, especially in 2018, the speed reduction has accelerated significantly, which once again verifies that the changes in the film and television industry occurred before the epidemic.
The decrease in advertising revenue of TV stations will reduce the motivation to purchase TV series, which will also make some film and television companies that used to regard TV stations as the main buyers speed up the pace of liquidation, combined with the financial deleveraging mentioned above, and accelerate the reduction of the supply side of the film and television industry.
Assuming that the entertainment and leisure time of the people's life is fixed, when the supply of film and television content is reduced, it will make the user behavior gradually migrate to other places, we can use data for intuitive performance, in 2020, the total production time of China's TV series is 95,400 hours, the total length of the broadcast of film and television dramas in that year is 8.7312 million hours, assuming that all TV dramas are screened, and its proportion is only 1.1%, which is a new low in the past year, when film and television dramas cannot bring new drama surprises to the audience, users naturally have to find new entertainment methods.
So we can summarize this part as follows: from the perspective of "pan-entertainment", the traditional film and television industry has encountered obvious de-capacity work in 2018, which has led to people's entertainment behavior began to migrate to third parties, which provides soil for the growth of the short video industry.
According to the Data of the State Administration of Radio and Television, in 2018, China's video UGC created content was 1.053 billion, and by 2019, the number soared to 1.673 billion, with a growth rate of 67.64%, of which mainly contributed to short videos. In other words, the scale of short video users and the tendency of content are developed with the changes in the film and television drama industry, and there is a relatively clear correlation between the two. ：
But when we deduce the above model, a new problem arises: why is it not the long-term video industry that undertakes the transformation, after all, Netflix has become a star enterprise in the world, and I once hoped that China could have the potential to give birth to a Chinese-style Netflix, that is, the model of copyright purchase and self-made content, the United States is feasible, china should be feasible in theory.
But when I recently revisited the industry, I was very cautious about that view.
The reason why the Netflix model can be successful is that there are many opinions, such as the content quality of the self-made drama, the radiation of the whole world, etc., we all agree, but we still want to supplement the above views.
In our view, Netflix's very important ability lies in its financing ability, and we have deliberately sorted out the financing cash flow of Netflix in recent years, as shown in the following figure:
As an industry that had to "burn money" by hoarding copyright in the early stage, financing ability was a top priority, and Netflix has raised $14 billion from the capital market in the past five years alone, mainly through the issuance of additional common stock.
Netflix sketched a picture of the industry's cash flow turnover chart for us: with financing capacity to promote the reserve of self-made dramas and copyright content, and then in the form of membership fees to attract consumers to pay, when the user growth reaches a critical value, the marginal cost is reduced to the minimum, the operating cash flow continues to grow, and the profit margin continues to decline.
The key lies in financing capabilities and user growth capabilities.
With the growth of Netflix's profits, its price-earnings ratio has also dropped from more than 100 times to about 50 times today, and the bubble growth has been squeezed out to improve the safety of corporate operations and promote its financing capabilities.
But Netflix can, why China's long video platform model is similar, but it is difficult to become Netflix, we think its main reasons are:
First, after the early copyright investment and user growth reached a certain scale, Netflix entered the profit channel, and the profitability continued to rise, such as as as 2021 Q3 its ROE (ttm) reached 39.39%, but at the same time, China's mainstream long video platform is still in the loss cycle.
Due to the early reliance on equity financing, the continuous issuance of additional common shares, and the dilution of earnings per share, if the profits fail to synchronize with Netflix, this may trigger the capital market's value expectations for enterprises.
Second, why is it difficult to make a profit for China's long videos, and some people in public opinion think that they have the ability to manage, and there are also those who think that China has no soil for copyright payment, etc. What is that?
We can summarize in one sentence: under the highly competitive pattern, the ceiling of corporate income capacity has peaked early, and it is facing regulatory pressure in 2021 (such as the cancellation of early screening fees), which has increased the difficulty of turning losses.
Once the capital market information is lost, the stock price falls and loses most of the ability to raise funds, which is quite frightening.
The monthly fee of Netflix membership is around 10 US dollars, and the monthly fee of long video in China is generally around 20 yuan, and each round of rise must risk user loss.
So we also outlined some of the basic dilemmas of the long video industry: too much competition, low willingness of users to pay, and excessive reliance on high-input copyright hoarding, resulting in cash flow and profit pressure amplified, when the market realizes that the valuation is too high, financing ability disappears, it will trigger a stampede on business operations. As stock prices fall, the financing capacity of enterprises is bound to weaken, which strengthens the expectation of tightening downwards.
At this point, we can comprehensively review the reasons for the rise of short videos from the perspective of "pan-entertainment":
At the critical moment of the film and television industry to reduce production capacity, the traditional film and television entertainment channels can not meet the needs of users, there is a process of accelerated online migration of behavior, and because China's long video industry and the United States have many differences, making it difficult for the long-term long video industry to fully undertake this part of the demand, in short, that is, long video in the long-term contribution of excellent content, reserve copyright is not the right side, so it accelerates the development of short video.
When we look back at the various hot spots in China's entertainment industry after 2020, most of them are closely related to short videos, such as live broadcasting with goods, such as online celebrity concerts and so on.
So this raises a new point of interest for our industry observations: long video platforms are in trouble, and TV stations in the midst of a sharp decline in advertising revenue have difficulty in being able to afford to buy and produce huge quality content, so as an entertainment industry, will short video become the focus of the industry to occupy?
In the past few weeks, we have seen the short video platform on the West Side Boys Concert, the Mayday New Year's Eve concert, and so on, which also indicates that short videos may or are getting more high-quality content, comprehensively enhance the value and influence of the platform, and from a financial point of view, it is the improvement of the value of unit users.
Therefore, we can also make the following summary of the past, present and future of the short video industry: in the past, we started with grassroots Internet celebrities, and now professional film and television entertainment content is synchronized in short videos, and the short video creation of high-quality content of professional front-line teams in the future may be an important point of view, which is also the main framework of our short video 3.0 theory.
This will also amplify the imagination of the industry.
In the past turning time, is the industry following this route again?
Since there is only one separate listed company in the industry, we may wish to use it as a sample to verify our above views.
In the past long time of tracking, I personally care about kuaishou's data as:
1. The embodiment of commercial value, mainly reflected in the profitability of the unit duration;
2. Assuming that Kuaishou is a traffic operation company, and the main goal of market expenses is to obtain traffic, then the unit cost of market expense dilution in unit time can be regarded as the ability to control costs.
In the business model, Kuaishou has also made great adjustments in recent years, mainly in the early live broadcast, gradually enlarged the proportion of marketing revenue, due to the change in operational focus, our description of user value (that is, marketing value) can not be expressed by the normal ARPU, but will be divided by the total marketing revenue (DAU * current user daily time * total number of days), to see the unit of time marketing conversion, see the following figure:
In the previous article, we have assumed that after the entry of professional film and television content, the commercial value of short videos will jump, if kuaishou is a case, the above assumptions are basically objective, since 2019, the marketing revenue of the enterprise unit duration has been steadily improved, if the high-quality content can continue to enter the industry, we think that the above figure is still promising to continue to rise.
Let's move on to the issue of spending on marketing expenses.
Market fees have always been a major sensitive topic in the industry, pessimists of the industry believe that the industry is actually relying on financing capabilities to exchange cash, and then buy flow, if the market fee stops or decreases, the growth rate will inevitably slow down, in other words, if you leave the market fee shelter enterprises it is difficult to get long-term development.
The absolute value of Kuaishou's market expenses has indeed increased significantly from previous years, and it is also the largest piece of its operating expenses, but in the above figure, we also see that the market expenses apportioned per unit of time are actually reduced, and the marketing revenue of the unit duration is increasing, and the erosion ability of market expenses on profits is actually reduced.
In the above analysis, we have no intention of maintaining an optimistic or conservative attitude towards Kuaishou, but taking this as a specimen, in fact, the data is combined with the logical deduction of the previous article, in the past few years, the growth of short video is actually very inevitable, here is both the development law of the industry and the evolution of the capital market, and if the next market is really as we predicted, professional entertainment content to accelerate short video, is obviously more beneficial to the industry.
But there are also voices that believe that the copyright issue of long videos may repeat itself in short videos, and we think the situation is much better at the moment: unlike the entertainment industry in the capital bubble, the pricing power has quietly shifted to the buyer when the de-capacity and the downward pressure on the industry have declined.
In recent years, the entertainment industry has suffered tremendous changes, some companies imposed leverage in the last cycle, and now face difficult debt problems (such as Huayi Brothers), which not only makes the production cost of the industry compressed, but also the industry is reducing the demand for return on assets.
Of course, there are also public opinions with kuaishou's stock price trend has produced a clear pessimistic mentality on the industry, thinking that the market may be examining the short video track, which naturally has some truth, and it is common for capital prices to deviate and return when capital is fanatically pursued, but as stated in the opening paragraph, if the assets are priced after the stock price, it may also be unfair.
With the marketing rate as a reference, Kuaishou ttm data is 4.2%, Netflix is 9.73%, around 2020 iQiyi, the value has been around 5%, if the industry stabilizes the growth rate, I personally prefer that the industry market value still has room for repair, may just need an opportunity, or a leap in the evolution of 3.0 and so on.
Finally summarize this article:
First, the short video industry still has obvious growth in the short and medium term, and the main argument is the content migration process of the entertainment industry;
Second, the valuation or market value of the short video industry, in the long run, we are more optimistic, in the short term, there may be interest rate hikes and various impacts of supervision, but if the time is used to iron out the fluctuations, if the content migration is carried out normally as we deduce, there is still a lot of confidence in the future, and the same applies to listed and unlisted companies.