China online: Charles Zhang talks about Sohu

8 December 2014: China's Sohu courts foreign right holders while ramping up original content production.Like many in Asia, China's online platform Sohu has in-house original production at the top of its programming priority list in 2015. Three TV-quality drama series are being planned along with a lot more short-form programming, says Sohu.com founder, chairman and chief executive, Charles Zhang.This follows a year during which the platform premiered its first local 16-episode TV-quality drama and one in which The Simpsons, The Strain (approx 1.3 billion views) and House of Cards topped the list of significant content achievements along with local titles such as Indelible Designation (Yong Bu Mo Mie De Fan Hao), which had a total of 1.4 billion views, and A Happy Life, which was viewed 768 times.Focusing on original production also comes on top of a content agenda that may add European/French titles to acquisitions from the U.S., says head of international business, Yi Wang.If tomorrow's challenges include the high cost of international content and endless pressure to boost advertising revenue, some of last year's problems have gone away.Zhang says major obstacles to monetisation of China's online video have been resolved, and the mainland industry is on the brink of another explosion in usage.Speaking at this year's Mipcom market in Cannes, Zhang said China's piracy problem had, largely, been eliminated, and although determined pirates could still find illegal content online, the process was difficult. This, along with advances in micro-payment infrastructure, removed the two biggest obstacles to online pay content in China. "So you will see another explosion in online video usage", Zhang says.He adds that Chinese consumers will pay for content. "It's not that Chinese people don't want to pay. It's just that it used to be very inconvenient. Now this is resolved, Chinese consumers are able to pay online, even in a taxi. It's so easy," Zhang says, adding that Sohu will expand acquisitions to feature films based on the new payment solutions.He says the online advertising model meant TV series made the most sense in the past. "Now that the payment systems are cleared, next we are going to buy movies. You will see another business model start to arrive and it will explode," he says.Meanwhile, revenue models remain heavily advertising-based. Sohu.com's total revenues for the three months to end September 2014 were US$430 million, up 17% year on year. Brand advertising revenues increased 19% to US$149 million. Total online advertising revenues were US$247 million, a 40% increase on the previous year. The company attributed the growth to online video advertising.Sohu.com serves three billion video views a day. Content driving this level of audience includes Hollywood and Korean programming, along with domestic television drama. About 80% of Sohu's content is local, and 20% is acquired from other markets.New regulations capping foreign content online at 30% of total content from April 2015 will not impact Sohu, Zhang says, adding that the local content environment is booming. This boom follows a decade of production development across China after an official ruling that separated broadcast and production operations. Zhang talks about the rise of stand-alone studios and higher quality "market-driven content"."There are huge movements of entrepreneurial start ups to make content because people see they have outlets for it," he says, highlighting online video's advantage in an environment of tightly controlled state-owned traditional TV stations and no market-driven pay-TV cable. "There are a lot of things we can do to provide an alternative to state-owned stations," he adds.One of this year's trends is the rise of user-generated content; "We need to catch up with the world on user-generated content," Zhang says. Another trend is direct-to-online drama. "Suddenly studios realised that they were making all these shows in a rush for TV stations but that content online could be viable. They are starting to make shows for online platforms alone," he says. Zhang also says that Sohu adopts internationally accepted update schedules online, with weekly up- dates "just like American TV series".At the same time, Sohu relies heavily on the domestic drama populating traditional TV schedules. The sweetener, Zhang says, is that "we pay much more than TV stations. Companies can double their income by selling to us as well". Reporting by Janine Stein and CJ YongContentAsia Issue 6, 2014