China's big three services — Tencent Holdings Ltd.'s Tencent Video, iQIYI Inc. and Alibaba Group Holding Ltd.'s Youku — make up 95% of China's subscription over-the-top market in terms of paid subscribers. Competition in this segment continues to drive investment in original and exclusive content despite regulatory headwinds in the local production market. We estimate paid subscribers and content spend will continue to grow at a quick rate.
Connectivity in the Chinese market has played a significant role in creating a user experience for which consumers are willing to pay. Chinese broadband penetration is on par with developed Western markets and is expected to surpass the U.S. in 2020. We estimate mobile penetration has been above 100% since 2017 and continues to grow. These conditions fueled advancements in mobile payments and streaming quality that have helped nurture the subscription OTT market.
An improved regulatory environment also played a key role in legitimizing the OTT market and ensuing consumer confidence in the medium. However, China's blend of communist and capitalist philosophies can result in regulations that appear counterproductive. After years of fostering local content production through protectionist content quotas and censorship on foreign content, government regulators have become more aggressive in controlling local productions. Caps on celebrity pay have been put in place as the result of a wide-ranging tax evasion investigation within the Chinese media industry. Additionally, regulators have been more assertive in ensuring local productions promote themes that align with Communist Party ideology.
These efforts have already caused a slowdown in local productions. For subscription OTT services, we do not estimate there will be a significant slowdown in local content spend, but it may take longer for content to make it to services. The market forces of competition require the need for original and exclusive content. Likewise, regulators and politicians have a greater interest in facilitating a growth-oriented local media environment. We estimate current policies represent a temporary overcorrection characteristic of balancing China's unique economic and political agendas.
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Asia-Pacific Subscription Online Video 5-Year Outlook
State Of Taiwan Online Video Subscriptions