Youku Tudou enters a critical moment, organizational structure, revenue structure, and changes

Youku Tudou's plan for change does not begin now. Since the first half of 2014, Youku Tudou has gone through three stages: introducing external funds, adjusting organizational structure, and changing income structure. Now it has entered a critical moment. If Youku Tudou can finally change its revenue structure in the future, it will become the most promising company in the video field; otherwise, it will be surpassed by competitors.

After ten years of development in China's video industry, the leader Heyi Group (formerly Youku Tudou Group) has still not escaped the situation of revenue growth and expanding losses.

On August 20, Heyi Group announced its unaudited financial report for the second quarter of fiscal year 2015. According to U.S. General Accounting Standards, Heyi Group's net revenue for the second quarter was 1.61 billion yuan (approximately US$259.6 million), a year-on-year increase of 57%. This is the fifth consecutive quarter that Youku Tudou's revenue has increased by more than 50%; However, the net loss was 342 million yuan (approximately US$55.2 million), an increase of 140% from the net loss of 142.3 million yuan (approximately US$23 million) in the same period last year.

Losses are not accidental. For all video companies in China, the continued growth in content investment, operating and bandwidth costs have not been offset by revenue growth. A reasonable explanation is that for Internet companies, rapid growth in revenue and market share is far more important than the expansion of losses.

Many investment institutions are cautiously optimistic about the performance of Heyi Group in the second quarter of this year.

Merrill Lynch said that Unity Group has shared the pressure of content costs by increasing the growth of its non-advertising business and rapidly growing user businesses, including membership, intermodal games and online interactive entertainment. As revenue diversification continues, the company's losses are forecast to narrow in the second half of 2015.

Gu Yongqiang, chairman of Heyi Group, said at an analyst meeting after announcing the earnings report: "This is the result of a series of measures such as restructuring the group's structure, introducing new executives, and stimulating organizational vitality at the beginning of this year."

Youku Tudou's plan for change does not begin now. Since the first half of 2014, Youku Tudou has gone through three stages: introducing external funds, adjusting organizational structure, and seeking changes in income structure. If Youku Tudou can finally change its revenue structure in the future, it will become the most promising company in the video field; otherwise, it will be surpassed by competitors.

It

is not without precedent for Youku Tudou to prepare ammunition for a single quarter of profit. In the fourth quarter of 2013, Youku Tudou achieved quarterly profit for the first time, with a net profit of 44.2 million yuan, which was the only time Youku Tudou made a profit in a single quarter.

But it is precisely because of this that Youku Tudou's competitor iQiyi has won more market space. In November 2013, iQiyi purchased the copyright to "You from the Stars" from an agent, in exchange for a cumulative number of views of more than 800 million. On April 18, 2014, Gao Xiaosong announced that he would leave Youku Tudou and join iQiyi. This is regarded by the industry as a landmark event for iQiyi to accelerate its pursuit of Youku Tudou.

At that time, Youku Tudou insiders told reporters that it allowed competitors to seize market share and also challenged Youku Tudou's industry status. These were unacceptable to Gu Yongqiang. So Gu Yongqiang decided to adopt a more "radical" attitude to counterattack. "The so-called radicalization means introducing more funds and resources to purchase high-quality copyrighted content, expand homemade dramas, and build a new video ecosystem." The person told reporters.

The specific manifestation of introducing external funds is that Alibaba first invested in Youku Tudou Group. In April 2014, Alibaba and Yunfeng Fund acquired Youku Tudou A-share common shares for US$1.22 billion, of which Alibaba held 16.5%, and Yunfeng Fund held 2%.

Since then, Xiaomi announced that it will invest "tens of millions" of yuan in Youku Tudou, the specific amount is unknown.

Sources familiar with the matter told reporters that Gu Yongqiang also contacted Tencent before choosing to introduce Alibaba funds. "The reason why Gu Yongqiang chose to cooperate with Jack Ma was that in addition to the funds Alibaba brought to Youku Tudou, he valued the possibility of getting through to e-commerce platforms." The person said.

Everything is in Gu Yongqiang's plan. Two months after Ali invested in Youku Tudou, Ali's Mom advertising exchange began to support online video sites, including Youku Tudou. Through Ali Mom, Taobao stores and Tmall merchants can bid for Youku Tudou video ads. Four months later, Alibaba and Youku Tudou opened up e-commerce and video products.

In October 2014, Ali and Youtu announced the launch of video shopping products such as Youku's "Buy while Watching" and Tudou's "Play Goods". Taking "buying while watching" as an example, consumers can purchase by clicking on the products appearing in the video when watching TV dramas, movies and anime.

Obviously, Gu Yongqiang had prepared sufficient funds, ammunition and resources in 2014 for the subsequent changes in Youku Tudou, and changes were about to happen. As of June 30, 2015, Youku Tudou's total cash, cash equivalents, restricted funds or short-term investments reached RMB 8.33 billion (US$1.34 billion).

Adequate financial reserves and Alibaba's huge resource support have also become the backing for Youku Tudou to change.

Organizational structure adjustment

The first step in changing Youku Tudou starts with management.

At the beginning of this year, Youku Tudou Group carried out a round of organizational structure adjustments. The group has expanded from the original only two business units of Youku and Tudou to six business units of Youku, Tudou, Heyi Pictures, Cloud Entertainment, Heyi Culture, and Innovative Marketing.

At that time, Youku Tudou insiders told reporters that the original intention of this change was that Gu Yongqiang needed to prevent large companies from getting sick and make the company more flexible in terms of reporting mechanisms. In terms of business, this approach can also be "decentralized", extending the original business to vertical areas.

Dong Yawei, the former chief marketing officer of Youku Tudou, is now the CMO and president of the innovative marketing business unit of Heyi Group; Zhu Xiangyang, the former chief content officer of the group, is now the CEO of Heyi Culture. In addition, including Yao Jian, CEO of Cloud Entertainment, and Zhu Huilong, CEO of Heyi Pictures, who went out alone in 2014, in this reform of Youku Tudou, a total of four former group vice presidents were given independent and greater decision-making power.

These four people were all members of Gu Yongqiang's early entrepreneurial team. Among them, Dong Yawei, Yao Jian and Zhu Huilong rarely appeared in public before 2014.

As the former chief marketing officer, Dong Yawei previously held huge sales tasks at Youku Tudou. Dong Yawei personally participated in all major marketing contracts. For example, in 2013, Qualcomm launched a tens of millions of Snapdragon advertisements on Youku Tudou, which was negotiated by Dong Yawei personally. Although I don't know how much of Youku Tudou Group's revenue of 4 billion yuan last year came from Dong Yawei, you can imagine his importance to the group.

Yao Jian was once the chief technology officer of Youku Tudou Group and is a typical technical talent. In 2014, his "Cloud Entertainment" business unit was just established and launched three hardware products: Youku Router, Youku Box and Tudou Pie. Yao Jian once told reporters that from technical support to operating the entire business unit, he was not good at management. Operations and management were the biggest obstacles after he became independent.

Zhu Huilong is in charge of Heyi Pictures, which is regarded by the outside world as Gu Yongqiang's most valued department. So far, Unity Pictures has participated in the production of "Junior Class","Gardenia Blooms","Paris Holiday", etc. Among them,"Demon Hunt", which was produced by Unity Pictures, set the latest record for the No. 1 box office of a Chinese film. So far, Heyi Pictures has participated in the production of 24 films, contributing a total of 7.3 billion yuan to the box office.

These practices all prove that Gu Yongqiang is "streamlining administration and delegating power": the six business units are in parallel relationships, and the business partner structure is gradually promoted, thereby weakening the "pyramid hierarchical model" management structure of traditional organizations and accelerating the transformation to a "mesh interconnected" organizational structure.

Gu Yongqiang's plan is to fully empower the front-line team with strategic resources and decision-making mechanisms to flexibly respond to external changes and improve decision-making and execution speed. At the same time, through the organizational design of different independent business directions, each business unit is built into an independently authorized and independently developed business entity similar to the "internal entrepreneurship model", releasing internal entrepreneurial passion and making each business unit become a benchmark in its respective business field.

Changes in income structure

After completing the introduction of external funds and organizational structure adjustments, Gu Yongqiang began to pursue changes in income structure.

Gong Yu, founder of iQiyi, once told reporters that the value of the entire video industry is underestimated. He predicts that the video advertising market will reach 20 billion yuan in 2015. The entire China video market still has growth potential.

For now, advertising is still the main source of revenue for Unity Group. The financial report shows that in the second quarter, Heyi Group's advertising business revenue was 1.28 billion yuan, accounting for approximately 84% of total revenue. A year-on-year increase of 40%, and a month-on-month increase of 43%.

However, Gu Yongqiang told reporters that in the future, the proportion of traditional hard and broad revenue will gradually decline, while user revenue and content marketing revenue will increase significantly, and these two will exceed traditional advertising revenue within three years. The so-called content marketing revenue means such as oral advertising in videos, soft product placement advertising, etc.

This judgment is not without basis. "In terms of traffic, more than 50% comes from our web-native content, which is the company's original content, UGC(user-uploaded content) and PGC(professionally produced content)." Gu Yongqiang said that there will be more ways to monetize these two parts.

The major premise for the change in revenue structure is that the content structure of video companies is changing: video companies have gone through the stage of purely relying on copyright purchase, and now more online content is generated.

At present, Youku and Tudou's online content traffic accounts for more than 50%, and the number of self-channel broadcasts has exceeded 10 billion times per month. It can generate 30 hours of online content per minute. In the past year, the number of self-channels that released content exceeded 10 million, and these data are refreshed and improved at multiple speeds, which also means that the development of self-channel has entered an explosive stage.

More importantly, these data made Gu Yongqiang realize that video companies no longer need growth without user stickiness. In the past ten years, most of the competition among video companies has stayed at the level of purchasing copyrighted content, that is, whoever has high-quality copyright will have high traffic and high income. But this is a kind of high traffic without user stickiness, and it also causes the fact that copyright prices are inflated.

Therefore, Gu Yongqiang plans to invest 10 billion yuan in cash and resources in the next three years to establish a new video ecosystem: the self-channel ecosystem. In this way, users will increase their stickiness to the Youku Tudou platform.

Gu Sibin, chief product officer of Heyi Group, told reporters that Heyi is an online platform. Self-channels are networked. Users will not be interested in only one Self-channel. Self-channels maintain users 'attachment to Youku Tudou platform by crossing. stickiness.

Gu Yongqiang said that compared with purchased copyright content, PGC(professionally produced content) from self-channel is very different in monetization methods. First of all, purchased copyrighted content can only be realized through video patch advertisements similar to TV advertisements. For content produced on online platforms, especially PGC content, Youku Tudou used to only have advertising revenue. Now Youku Tudou has started to monetize it at the consumer level, such as charging through paid subscriptions, content game IP, program live broadcast platforms, etc.

From an advertising perspective, online content such as PGC can provide content marketing solutions for advertisers because it can have built-in advertisements. Therefore, overall, the monetization scope of content produced on online platforms is wider and has greater potential. For example, Wang Laoji participated in the large-scale homemade movie "Unexpectedly". From stills, MV, posters to end eggs, the content of the big movie was bundled in 360 degrees, achieving brand customization and integrated communication.

Building a self-channel ecosystem can also reduce the cost pressure on Youku Tudou content. If you purchase copyrighted content, Youku Tudou must pay when signing the purchase contract, while the native content produced for online platforms such as PGC is divided by both parties based on actual income and traffic obtained. This will undoubtedly reduce the content cost pressure on Youku Tudou.

Gu Yongqiang also hopes to increase user revenue. "Youku Tudou's annual revenue of billions of yuan cannot be compared with companies such as Alibaba and Tencent. Their ARPU(Average Revenue per User) value is much higher than ours. With such a large user base as ours, the ARPU value is so poor, I have to reflect on it." Gu Yongqiang told reporters that changes must be made in the income method.

At present, Youku Tudou's user business revenue mainly comes from revenue from member services, online interactive entertainment business and intermodal transportation of mobile games. In the second quarter of fiscal 2015, this revenue was RMB 174.5 million (US$28.1 million), an increase of 596% compared with the same period in fiscal 2014.

In terms of revenue structure, Youku Tudou Group's user business revenue accounted for 12% from 3% last year. Including other business income, Heyi Group's non-advertising business revenue in the second quarter accounted for 16%. Gu Yongqiang told reporters that in the second half of the year, this figure will likely reach 20%. As long as it is realized, it means that user business revenue is not only an important contributor to the company's business growth, but also an important part of Youku Tudou's total revenue.

"We have upgraded both the front-end and back-end, adding some new features to help our self-channel PGC partners directly gain traffic and fans, and realize them through user fees. So our strategy at the PGC level of self-channel is becoming more and more similar to YouTube in the United States, monetizing it through users and traffic." Gu Yongqiang said that in the future, Youku Tudou will also try user charging in some new areas, such as video e-commerce, user-paid subscription models for PGC, etc., to help PGC partners obtain more monetization methods.

Heyi Group and competitor iQiyi are heading for different development paths: iQiyi is devoting more energy to homemade variety shows and homemade dramas. The total number of broadcasts in 14 episodes of its ace homemade variety show "Qi Qi Shuo 2" has exceeded 420 million; although its homemade drama "Tomb Robbing Notes" has been criticized, the number of broadcasts has exceeded 2.3 billion; Youxin Used Car has recently also been named iQiyi's "Running Brothers 3" at a sky-high price of 180 million yuan, setting a new record for Internet variety shows. It is foreseeable that the content of video companies has become favored by advertisers.

"From traditional advertising sharing to member income, rewards, live broadcasts, self-channel stores, etc., all these sources of income are open. I think these changes are more strategic upgrades than transformations. Including our capture of many user products and revenue, which determines the strategy. We have seen changes in Unity Group's strategy this year, including the appointment of new executives and changes in the responsibilities of different executives, in order to cope with the new era." Gu Yongqiang said.

Editor: vian