This is the second in a series of posts on developments in China’s digital ancillaries market. Part 1 is here. In this post I consider the potential for growth in ancillary revenues from handheld devices.
With around 380 million Internet shoppers expected by 2016, China is leading the world in online consumption. As Alibaba founder, Jack Ma, puts it, “in other countries, e-commerce is a way to shop, in China it is a lifestyle.” The sheer volume of online transactions in China is causing a proliferation of online payment applications. Internet finance is therefore evolving rapidly to challenge traditional banking as a means of making payments in the O2O (online to offline) space.
This challenge is possible because China’s financial system is still relatively underdeveloped. Capital reserve requirements and interest rate restrictions are not yet applied as rigorously to the providers of new online financial products. The substantial cash reserves these providers control to guarantee settlements on their platforms gives them leverage against the banks that hold the funds at call. As a result, Chinese Internet and tech companies, not the banks, are leading innovations in online payment.
Mobile is now the preferred means of online consumption in China; China’s consumers spend more time shopping online using smartphones and tablets than they do using desktops and laptops.
PWC says that 75% of internet access in China now occurs on mobile devices. According to Dr. Chen Long, in The Rise of E-Finance in China, 55% of China’s Internet users have made a mobile payment but only 19% of US Internet users can say the same. Basically, online consumption and online payments are converging in handheld devices. This is penetrating all areas of consumption in daily life — everything from restaurant and bar checks to taxi fares and even movie tickets. The Hollywood Reporter’s Clifford Coonan recently noted a massive increase in the purchasing of movie tickets online in China.
For reasons which I will explore in subsequent posts in this series, there is every reason to expect that this trend toward online payments will take off in digital home entertainment as well. The predominance of handheld devices in online consumption might also influence the content, duration and format of movies and other audiovisual programs. Programs will tend to become shorter and more mobile-friendly. Microfilms (short, low-budget amateur movies) could emerge to challenge the popularity or profitability of feature length films and TV series in China. Whatever the effect on program content, mobile is where substantial growth in ancillaries will be seen.
In my next post I will comment on a parallel trend with equal potential to turbocharge digital ancillaries: the convergence of film production and online film distribution in China.