Ep. 68: Entertainment Livestreaming Outside of China with Shang Koo of M17.asia
Transcript
[0:00] Hey everyone! Ying here. On April 30, about a month ago, Tech Buzz hosted our second Investor Webinar, which was also our third ever online event. We featured Shang Koo, the CFO of M17 Entertainment Group, or M17.asia, a livestreaming company popular in Taiwan and Japan. What follows is an edited re-play of Shang’s presentation, which took the form of a fireside chat with Rui.
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As background, we’ve done four episodes on livestreaming here on Tech Buzz. In order, some of these episodes are: 7, which was cheekily titled How to Win Fans and Influence Losers, Episode 43 on Gaming Livestreaming,and Episode 54which had a lot on ecommerce livestreaming. Please go check those out!
[2:18] Hi everyone! We are TechBuzz China by Pandaily, powered by the Sinica Podcast Network by SupChina! We are a biweekly podcast focused on giving you a peek into what’s buzzing within the tech community in China. We uncover and contextualize unique insights, perspectives and takeaways on headline tech news that don’t always make it into English language coverage. So you can be smarter about the world of China tech. TechBuzz China is a part of Pandaily.com, an English language site that tells you “everything about China’s innovation.” I’m one of your two co-hosts, Rui Ma.
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So hey guys, today we’re here to talk about livestreaming. We’ll be focusing on 秀场直播, which I’m gonna translate as entertainment livestreaming, so as to be distinct from esports livestreaming or ecommerce livestreaming. Like we said in the introduction, you’ve definitely heard us talk about this concept before. Attentive listeners probably remember us talking about the Chinese company that is best known for this business model, that’s YY. It’s now called JOYY (that’s spelled with 2 Y’s), and it’s been a publicly listed company on the NASDAQ since November 2012, it’s just under $6Bn in market cap. It was actually founded in 2005 as a gaming portal and eventually had a hit video communication tool that was the precursor to the entertainment livestreaming it is widely known for today. Most recently, we talked about its success internationalizing in our Episode 56: Not Just TikTok: A Short History of Chinese Short Video Abroad, although to be fair, YY’s mostly popular in developing countries like India and the Middle East. But anyway, a lot of YY’s revenues come from virtual gifting that happens during livestreaming.
And also to shape the conversation for today, we do want to point out that entertainment livestreaming as we know it has actually been around for a while in China. The industry experienced a huge growth spurt in 2016, during which the so-called “Thousand Live Streams War” took place. It wasn’t quite that many companies, more like 300 or so, but 2016 is when a lot of stuff got started, like Taobao Live, and Huya, the gaming livestreaming company.
[5:19] We have an episode in the works on livestreaming ecommerce and we just did an offline event with our community on esports, the recording to which you can find on our YouTube channel, but today’s episode is mostly on entertainment livestreaming and how it is different in developed Asia, versus China.
Joining us today, Shang Koo, who grew up in the US but has been living in China for the past almost two decades. He is the CFO of M17 Entertainment, which recently raised a Series D of $26.5mm led by Vertex Growth Fund. So Congratulations to M17. Prior to that, he was the CFO of Jiayuan, which was the largest dating site in China and a publicly listed company in the US before being taken private in 2015. He has also worked in equity research at Piper Jaffray and Oppenheimer covering online games and entertainment media in China, and he was also a VP of Research at CapitalVue. I met him 15 years ago when he was the Head of Research Sales at Pacific Epoch, and I was a still tech investment banking analyst at Merrill Lynch in Palo Alto, reading about Chinese consumer internet, and I was like, oh wow, all this stuff happening in China tech! I was very lucky to meet Shang on my trip to China. So thank you Shang, and also Paul, who founded Pacific Epoch, for giving me the opportunity to learn about stuff way back then.
[6:58] Thank you very much for having me, Rui. 17 Entertainment, we are the largest livestreaming platform in developed Asia. And what we mean by “developed Asia” is mainly Japan, Taiwan, Hong Kong. We’re number one in all three of these markets. In Japan, we have about 60 percent of market share by revenue in the livestreaming market. In Taiwan, we have about 60 percent as well.
We are getting into all types of livestreaming entertainment. And the business model for the main part is a gifting model. Which is very similar to the YY type of business model that you described before. The reason we are focused on developed Asia is because, one, it’s very difficult for us to get into China. But at the same time, I think if you look at our product and if you look at our vision and mission it is a fairly Western-centric type of product. It’s weird because I’m seeing Japan as more Western-centric but in many ways, Japan is much more Western than the rest of Asia.
It has influences from the U.S., from Europe. In terms of cultural development, in terms of how our entertainers, how our artists see the platform in Asia. They see M17, 17 Live as a platform to allow them to express themselves, to entertain their fans and it’s much more of a Western-centric type of entertainment, very similar to how influencers in the U.S. do it.
Because for most of our entertainers, the amount of money they make from gifting, from 17 Live is very similar to the amount that they will make minimum wage as an entertainer, or a minimum wage working at a 7-Eleven waitressing at a local restaurant.
[8:55] You make a good point here that basically the influencer economy in China is quite professionalized. It’s not like something that people are doing for the sake of their art or out of pure interest like we might think of here in the US, but it’s a whole ecosystem where you can go to school to learn the tricks of the trade and there are effectively large agencies you can sign with who will help promote you and groom you. To understand how this all works, really recommend listeners to watch Hao Wu’s People’s Republic of Desire, a documentary that follows two top YY influencers and which really opened my eyes into the entire industry. And by the way, 工会 is basically like an agency for livestreamers and without going into too much detail, a lot of them are now either owned by or also operate MCNs or multi-channel networks, but basically, these are both businesses that influencers sign with, who will then represent the influencers and sign the partnerships with the various livestreaming or short video platforms. You get a lot more functionality on these platforms after you’re signed with an MCN. Anyway, Shang, that’s not how it’s like outside of China though, right?
Yes. I would say in China, because so much of the business is driven by the 工会s, by the MCNs in China. They have a much more of a factory setting to just bring thousands of entertainers in, train them, sponsor them in terms of gifting inside the platform to get their ranking up higher. It’s like self-spending. The platforms build up the influencers themselves. That’s why the economy, the livestreaming economy in China is so developed.
But at the same time, these MCNs really control the market. Whereas in the West, in Japan, in Taiwan to some extent, and in the U.S., I would say the entertainers are much more free and are much more independent in many ways.
Got it. Speaking of differences between the West and China, one of the main things that I keep on hearing over and over, whether it be for general entertainment livestreaming or for music livestreaming or whatever, is that the tipping mechanism that’s so popular in Asia is a cultural thing, possible within a specific ecosystem, and can never work in the West. What’s your take on that? Do you think something like M17, or a competitor, could work in the West?
[11:19] You know, the only place where they tip restaurants is the U.S. So, tipping is not a Chinese phenomenon. If you think of entertainment, entertainers, artists. Artists, from the beginning, have been sponsored by the nobility.
Michelangelo when he’s painting. He was a starving artist until some noble gave him a lot of money to paint the Sistine Chapel… Mozart, Beethoven, they’ve all had sponsors. That is tipping 200, 300 years ago. Now you see the same thing on Twitch. You see it on M17, you see it on all the Chinese platforms. Tipping is just appreciation for art. If you go to the street corner, there’s a performer that is doing the magic show, playing the guitar, and people are tipping.
What a livestreaming platform allows is very similar to the street corner tipping in that it’s right there, but also there’s the interaction that you get. So if you’re in front of a street performer and the street performer comes directly to you and interacts with you, you’re much more likely to tip the street
performer.
The personal interaction works, and that’s why people tip. But, once you have the livestreaming platform, you’re just not seeing the street performer for the first time. You’re seeing him again and again, you see him every day. And if you see him for months straight, you’re much more likely to tip him a much larger amount than if you saw him for the first time.
It’s appreciation for the work and it’s also social interaction over time. In many ways, I would say a lot of our entertainers, a lot of our artists on our platform, they would make great salespeople because they remember everything about their gifters…
They have to have a really good memory. They have to remember all their fans who came in the last couple of days, who sent them what gift, what their favorite song is, when their birthday is, when their wife’s birthday is, when their kid’s birthday. They remember everything about the family so that there’s that personal interaction. And that really increases the gifting.
It works everywhere. But, at the same time, you can think of livestreaming as a high school popularity contest. The live streamer, our artist is streaming, but for the fans watching there’s this popularity contest going on and people compete to give a bigger gift.
This social element is really what drives the monetization, what drives the spending much higher. Because these people all know each other as well. That’s the added element that you don’t get in the street corner.
We’re also seeing that a lot of our streamers become gifters as well. Because they’re in the community, and there’s the mutual gifting, and mutual appreciation. Because they go watch other streamers and they give to them.
A lot of our big spenders also start streaming as well, because they’ve become known in the community and they think they want to share their life.
It’s definitely going to work in the U.S. It worked really well in Japan. And we’re bringing the same kind of social interactive element, all the same features to the U.S.
[14:16] I’d have to agree with you, I don’t think the habit of tipping money for entertainment is specifically Asian at all. What else can you think of, Shang, that people generally get wrong about this business? Is there anything you find yourself having to explain over and over?I think in our business, because it’s gifting, a lot of people tend to think we’re a whale driven business, and they think that’s bad.
Whales, as in big spenders.
They think the high ARPU is very bad. I would say yes, to some extent. We do have a higher concentration of revenue than other business models, but I don’t think that’s a bad thing. And I don’t think that’s abnormal actually.
The 80/20 rule is pretty common for almost everything. I would say even traditional businesses have a lot of the 80/20 rules. Repeat customers, or there’s just one vendor, one buyer that’s responsible for 5 to 10 percent of your overall business.
A lot of people look at the revenue concentration and they get a little bit scared.
But, for us, it’s more of, yes, the revenue is concentrated in the top, let’s say, 500,000 spenders and streamers, but as long as we make sure that the top 1 percent of our streamers and spenders—as long as that pool is growing larger and larger, that naturally reduces the concentration. So, As our platform’s growing bigger and as we get into more regions, so now we’re in Japan and Taiwan and we’re moving into the U.S. and MENA markets. As we move into more markets, we are regionally less concentrated and that naturally gives us much more of the decentralization. But, we actually don’t think concentration within the top 1 percent of spenders is a bad thing. It’s just the natural way things work.
If you watch The People’s Republic of Desire, you definitely get a good sense for how much the whales can spend. It’s a scary amount of money! And it’s entertainment actually for the rest of the people watching, the gifting itself is almost part of the show.
[16:21] COVID19 has boosted a ton of digital businesses, and in China, in terms of entertainment at least, we saw gaming and short video get big spikes in usage. How has it affected M17’s business? I assume positively?
Yeah. We’ve definitely gotten a lot more users and a lot more revenue. Japan’s doing amazing right now. We have a lot of traditional artists. Before, maybe they were a little too good for 17. Their popularity level is alittle bit above where people would start on 17. They would already have gigs at local bars and nightclubs. They’re spending the prime time, 9pm to 12am, performing at the bars and nightclubs. But now, they are bringing their performances to 17 instead. So we’re getting a lot better content, a lot more content that traditionally we might not get. And that’s definitely helping a lot with our revenues and user growth.
Do you think that’s something that’s going to be permanent? Or is it too early to tell?
It’s too early to tell. We’re cautious. We want to make sure that we don’t overinvest. And we’re, of course, always worried that six months from now if the economy gets worse, the spenders won’t have the money. So, the performers will still be there, the users will still be there, uh, but the ARPU will drop as spenders start spending less. We’re very cautious, but we’re seeing good things so far.
Is there anything else that has happened that those of us who’re outside of the industry would find unintuitive or unexpected?
I wouldn’t say it’s unintuitive, but we are definitely seeing a lot more, just new entertainers coming to our platform because some of the agencies that we work with, before, they would send their models to the runway fashion shows. They would find other jobs for them. But now, they’re all sitting at home, nothing to do. And 17 offers them additional income sources. We’re the gig economy that’s not affected by the lockdown. So, we’re seeing a lot more new artists giving our platform to try.
Previously, we did a lot of offline events as well because we try to do a lot of mini online events that culminate in a big offline event. We’re doing none of that right now. And I would say in February, in early March, that’s actually affected our business quite a bit, so without the big offline event to cap off the entire event campaign. You can think of our events as missions in the big raids in World of Warcraft. I guess you can tell how old I am now. So, without the big final, big offline events, that actually affected our revenue early on.
But over the last two months, we’ve successfully moved our offline events online. We’re using other technologies, we’re using other ways to host our traditionally offline events online. That actually saves us money as well.
Is that going to be a permanent change for your platform?
I think a lot of users still want an offline event because it’s just a lot of times, they still want to meet the artist in person. So, eventually, we will have it, but we’ll probably decrease our dependence on the offline events.
[19:11] And now we have some questions from the audience. Eric, you’re first.
Hi Shang. Hi Rui. Shang, it’s nice to see you. You mentioned earlier that a lot of your performers are, making minimum wage type of revenue off of your platform. I guess one difference I would note about YY from what I understand is that they face concentration on two different sides of their platform. Not only from the whales on the paying user side, but also from the performers, you know, making a lot of money off the platform. And so there’s a bargaining situation that happens there as well. For your platform, it sounds like from the paying side, you also have whales, but how do you prevent a concentration of revenue generation from the performer’s side? Because in my head, I almost think that the two sides being concentrated go hand in hand. So how is that dynamic different for you versus some of the livestreaming platforms domestically inside China?
We still have some concentration with the entertainers, the artists as well. So, you are correct that they go hand in hand, but the difference between our platform and the Chinese platforms is that the Chinese platforms depend much more on MCNs. And the MCNs, because they control so much of the ecosystem, actually have more bargaining power. Because the MCN can say, “I can bring in a thousand streamers with 10,000 viewers to your platform, 10,000 paying viewers to your platform, a nd you have to give me X percentage revenue share. Else, I’ll take it to Momo instead.”
Whereas for 17, because most of our top entertainers tend to be independent as well, they have less bargaining power. And, they’re not going to push our margins to zero like,the MCNs would in China. I think part of that could also be stages of development, whereas YY’s been around for much longer, and also because YY, had existing MCNs, or had a lot of unions, 工会s, from the very beginning. Whereas for M17, we’ve actually had a lot of artist development and artist management experience prior to starting out as a live entertainment platform.
Great, thanks.
You’re welcome.
Paul, you have a question. Paul, do you want to unmute yourself and ask?
[21:38] Thanks for the great presentations, was really interesting. I’m wondering, you’re saying that the influencers in developed Asia, do you have a process to manage them and to either groom them into influencers, or you know how to manage their expectations? What are those expectations in particular and how do they compare to the Western influencers? Thanks.
I would say the influencers in developed Asia, in Japan and Taiwan are very similar to the Western, to the U.S. influencers. It’s the glory and the fame that they’re seeking. They get a high from audiences watching and applauding them. So whether it’s a gift that’s a dollar or a hundred dollars, they get a high from the acknowledgement. And that’s something that’s a little bit different from developing Asia, where they much more care about making the money, because for them, it’s purely a job. Whereas for our artists, it’s more about developing their careers.
Yes. In Taiwan and Japan, we do give them a lot of opportunities to shine. In Taiwan, for example, we have partnerships with some of the top TV stations. We co-produce TV shows, live TV shows, where our artists, our top streamers, can go on the television shows. We also produce our own live shows, where our artists can come up and be a host, or be a participant on our shows. We’re finding that yes, fame and acknowledgement is much more of an incentive in developed markets than purely monetary rewards.
Alright, one last question from me. What are some of the trends or products you think Western companies should be watching closely from Asia, for inspiration?
Well, livestreaming definitely, because in the U.S. it’s nonexistent. I think Twitch is making very big waves right now, but the entertainment livestreaming business in the U.S. is still very fresh. It’s still a greenfield market. So if you think of Netflix as replacement for television, for the TV series, for the movies, then livestreaming is the replacement for the reality shows, for the talk shows that you would see on traditional TV.
And similarly, live radio would replace the podcasts that the radio shows. Instead of Howard Stern taking questions from listeners, you would have a livestreaming version of Howard Stern receiving virtual roses and virtual yachts as appreciation. So, we are seeing livestreaming as a replacement for not just entertainment, but also in some ways, social interaction. And actually for Taiwan, for the election earlier this year, we actually had all the top candidates from all parties coming onto 17 and livestreaming to their fans as well and to their supporters.
I could definitely use some virtual yachts. Well, we’re seeing some innovation around live audio right now in Silicon Valley, what with the invite-only Clubhouse making waves a few weeks ago and getting funded at $100mm. Anyway that’s all our time for today! Thank you so much Shang for joining us, even though it’s a holiday for you!
Thank you, Rui. Thanks everyone.
[24:45] Well, that’s the end of our recording. What did you think? Send us your feedback!
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