People look at a video website at an international copyright expo in Beijing in June this year. Photo: CFP

Watching videos online is becoming ever more popular in China, even if people feel frustrated with the preloaded adverts that they have to sit through before their video begins.

A number of online video firms offer a solution to this - charging viewers 10-20 yuan ($1.6-$3.2) per month for various packages, which allow them to avoid all the ads as well as getting access to the latest movies, TV dramas and other popular video content.

But so far, these packages have not proved that popular. "Most Chinese netizens remain reluctant to pay for online videos," Shi Yu, CEO of ku6.com, a major online video company, said in an exclusive interview with the Global Times on December 7.

"Users basically are interested in content, and don't care about which platform they use to get it," Shi said, pointing to a lack of loyalty among users toward any particular video websites. This is one of the obstacles standing in the way of developing the market for paid video content, Shi noted, despite the increasing demand for online videos.

No easy transition

China's online video audience now numbers 450 million, which is more than 70 percent of the nation's total number of Internet users, said Luo Jianhui, director of the department for online video and audio management at the State Administration of Radio, Film and Television (SARFT), while delivering a speech at a forum in Shanghai on December 6.

This compares to a total of 325 million online video users at the end of 2011, which was over 63 percent of the country's total Internet users by then, according to SARFT.

The total ad sales revenue for domestic online video firms is expected to exceed 9 billion yuan this year, according to Luo, who said online video has already gained the crown as the most popular Internet service in the country in terms of time spent using it, ahead of social networking sites.

However, the firms have been hoping for some time to diversify their revenue streams, instead of just relying on advertising, leading them to develop fee-paying services. Unfortunately, mass acceptance of the idea still seems some way off, industry insiders said.

"Paid services offered by tv.sohu.com include most of the latest domestic movies and foreign movies imported over the past 12 months, but given the fact that China's paid content market remains in its infancy, the number of users who opt for paid content is far smaller than those (who watch videos) free of charge," tv.sohu.com said in a statement sent to the Global Times. The company started offering paid content at the end of 2010.

"Users who pay for our services remain a very small portion of the total user base," Gao Jin, editor-in-chief of iQiyi.com, a domestic Chinese video site invested in by Baidu Inc, also told the Global Times, without disclosing the exact figures.

Gao said that about 95 percent of the website's revenue is still driven by advertisements. Paying for content will become popular in the future, Gao noted, but "it won't be any time soon."

Li Nan, a public relations manager at pptv.com, another Chinese video site, told the Global Times that only a small percentage of the website's users have signed up to be VIP members who pay to get extra services.

In this respect, China's online video industry lags far behind markets such as the US, where paying for online content is well established.

"The year 2012 will be the final nail in the coffin of the old idea that consumers won't accept premium content distribution over the Internet," Dan Cryan, a senior analyst for broadband and digital media at US-based market research firm IHS iSuppli said in a research note earlier this year.

US consumers are even expected to spend more on online video content in 2012 than for physical video formats, "marking the first year that legal, Internet-delivered movies will outstrip those of DVDs and Blu-ray discs combined," said the research note.

Change the model

Despite the lack of enthusiasm for fee-paying services, a lot of domestic online video websites are continuing to invest heavily in purchasing copyrights to movie and TV series in the belief that they will someday gain wider recognition in the local market.

Youku Tudou Inc, the nation's top online video platform in terms of audience, signed a five-year deal with Sony Pictures Television in early November to introduce over 300 films, both new releases and classic movies, to Youku's paid content platform. The firm has also signed licensing deals with seven other major Hollywood studios, including DreamWorks and Paramount.

It spent $19.5 million to buy video content in the third quarter of 2012, Youku said in its quarterly financial report in late November.

Video sites including tv.sohu.com, iQiyi.com and pptv.com also told the Global Times they would continue investing in paid content and exploring ways to improve their VIP systems over the next year.

"Paying for video content will definitely become the future trend in China, although it will take three to five years before there is mass acceptance of the idea," Xiao Mingchao, vice president of Beijing-based market research firm Sinomonitor International Co, told the Global Times.

Some firms are taking a different approach. NASDAQ-listed ku6.com, which has stopped buying pricey content since the second half of 2011, is one of several online video companies steering away from the model of offering TV shows and movies.

The company has focused on user-generated content instead, and now has 200,000 users who create original videos, according to CEO Shi Yu. These users can get up to half the revenue earned from the videos they create and that are hosted on ku6.com.

Many of them produce high-quality and entertaining content, Shi said. "This is much more affordable than purchasing copyrights for premium video content, and above all it involves unique content that is unavailable elsewhere," Shi noted.

"The industry will be further consolidated in years to come as competition ramps up, and there will only be a few players left," Shi said. "By focusing on a different model, I believe we could be one of the final winners."