Asian Online Video Market Projected to Hit $48 Billion by 2023, Driven by China

As global video giants like Netflix and Amazon increasingly look overseas to drive subscriber growth, the surging markets of Asia-Pacific are poised to become a central battleground during the next half decade.

The region's online video market, including advertising revenue and subscription fees, is projected to more than double during the next five years, surging from approximately $21 billion in revenue in 2018 to more than $48 billion in 2023.

The forecasts were released Tuesday by leading regional research group Media Partners Asia in a study titled "Asia Pacific Online Video and Broadband Distribution."

The strong growth forecasts out of Asia show the region nearly closing the gap with the U.S. market, where online video is expected to be worth approximately $30 billion in 2018, with total revenue expected to climb to $51 billion by 2023.

Consumer habits and technological infrastructure are wildly diverse across the Asia and Pacific (APAC) region, so growth rates are expected to be far from consistent despite a general upward trajectory. The massive China market — where foreign operators like Netflix are blocked from operating — is expected to comprise the lion’s share of industry value, accounting for more than 60 percent of the region's online video revenue and more than 75 percent of direct-to-consumer subscription VOD customers by 2023.

“Online video monetization is starting to scale, supported by rising investment in premium entertainment and sports as well as the growth of broadband and digital payments," said MPA's executive director Vivek Couto, who authored the report. "Strong digital ecosystems are emerging, especially in China, while telcos are also becoming important aggregators of video services in markets such as Australia, India and Southeast Asia," he added.

As the value of Asian markets climbs, content costs — especially for original productions, licensing fees for local and Hollywood movies and television and sports rights — are expected to grow almost in lockstep.

Online video content costs across APAC grew by 27 percent in 2017 to reach $13 billion, with China contributing 85 percent. According to the MPA's models, such costs will grow from $16.6 billion in 2018 to $31.5 billion by 2023, a compound annual growth rate of 14 percent.

"We are in the early innings of an industry evolution which will require high levels of investment and strong balance sheets," said Couto. "For stand-alone players, there is no clear path to significant free cash generation in any market over the medium term, while integrated digital giants and large-scale TV players are subsidizing losses for their online video services, although operational breakeven is likely in the near-to-medium term for local platforms in Australia, China, India and Japan.”

Originally slow to take hold, subscription video has seen strong growth across the region — again, especially in China. Fees from subscription video in the Middle Kingdom have grown from less than $850 million in 2015 to a projected total of nearly $5 billion in 2018.

Baidu-controlled iQiyi is currently estimated to lead the pack in China, with total revenue forecast to hit around $2.7 billion this year, ahead of Tencent Video with $2.4 billion, and Alibaba's Youku at $1.9 billion.

"The growth of online video subscription fees has also been strong and increasingly scalable in Australia and Japan," the MPA report said, "while meaningful opportunities are opening up in India, driven by the growth of payment infrastructure as well as investment in sports rights, local movies and series."

The MPA projects advertising spending for video on YouTube and Facebook in Asia to total just shy of $4 billion in 2018, with YouTube the majority player.

Net online video advertising spending in Asia Pacific will grow from $13 billion in 2018 to $30 billion in five years. Excluding China, ad spend in the region will be $11 billion by 2023, versus $5 billion this year. Youtube and Facebook are expected to maintain their dominant position, with a shared 73 slice of online video ad spend market outside of China in 2023, versus 78 percent this year.

"Advertising is a major revenue stream for online video across the region, while subscription is also key, especially in Australia, China and Japan, and growing from a low base in India, Southeast Asia, Korea and Taiwan," Cuoto added.