Last year was tough for China’s entertainment industry, with professionals calling 2018 “a cold winter.” The winter didn’t end in 2019, and some people are blaming video streaming platforms.

This year alone, 1,884 film and television production companies shut down, according to a report by China’s state-run Securities Daily based on data by Tianyancha, an enterprise information and data provider. The newspaper singles out China’s three dominant streaming platforms as one reason production companies are having a tough time.

An anonymous broker-dealer quoted in the report said Alibaba’s Youku, Baidu’s iQiyi and Tencent Video still aren’t profitable, so they’re “jointly restraining” actor wages and production costs.

(Abacus is a unit of the South China Morning Post, which is owned by Alibaba.)

The Story of Yanxi Palace, a 70-episode drama set during the reign of Qing dynasty emperor Qianlong, is a show produced by iQiyi that took China by storm last year. (Picture: Handout)

The concern isn’t new. The claim echoes one made earlier this year by Yu Dong, chairman of leading Chinese film distributor Bona Film Group.

“I said something at the 2014 Shanghai International Film Festival and it’s still lingering in my ears,” Yu said. “[I said] in the future, film production companies will all work for BAT (Baidu, Tencent and Alibaba). It’s almost like that now.”

Yu also said that it’s become very common to produce original shows for streaming sites, which own the rights to the content.

“If Chinese film [production companies] can’t make technical breakthroughs,” Yu said, “we will become suppliers and manufacturers for the next batch of BAT.”

It's not necessarily all Big Tech's fault, though. PwC’s Wilson Chow, who heads technology, media and telecommunications, said streaming platforms relying less on production companies for more original series produced in-house could be having an effect. But a large part of the entertainment industry’s downturn is tightening government regulations, he said.

In 2018, actress Fan Bingbing’s tax evasion scandal set off government probes of shady tax practices, which sent shockwaves through the industry. Production companies either postponed or shut down projects while they audited their books, and financing dried up because investors were trying to stay away from scandals, Bloomberg reported.

Aggressive competition among the streaming platforms is also having an effect. Another anonymous CEO of a television production company cited by the Securities Daily report said that video streaming platforms have cut their purchasing budgets this year and that prices are set at just above production costs, leaving thin profit margins for producers.

iQiyi declined to comment for this story. Alibaba and Tencent didn’t respond to requests for comment.

Whatever the cause of the downturn, the result is that people have less to watch. The number of shows registered for production from January to October fell 25% this year to 729, down from 967 during the same period last year, according to the National Radio and Television Administration.

Michael Yan, an independent film and TV industry consultant who has worked in Hollywood and China, told us that video streaming platforms are still willing to spend a lot of money to snatch up hot TV series despite not being profitable. The more diversified tech giants behind the platforms can afford to eat the losses.

But less original film and television projects are first to become casualties of the streaming wars.

“I’ve seen a lot of projects lately, and most of them are very generic and follow the trends,” Yan said. “So if they happen to find a buyer among the streaming sites, I don’t think the production companies have much leverage to create a competitive situation or negotiate for better margins.”

But some people see light at the end of the tunnel for China’s entertainment industry. 

PwC’s Chow said that after a year of ongoing probes, government investigations into the industry are almost over. The past year has been short-term “periodic pain,” he said, and he’s optimistic about the industry’s long-term development.

Chow added that 5G could enable production companies to utilize new technologies like VR and AR in future projects, helping them to eventually raise prices.