Internet & Tech

Just sing along

An internet firm with a profit margin higher than Alibaba cheers investors

9158 w

I see you: this live social video platform is worth $1 billion

In Chinese culture, 8 is the luckiest number, while 4 is the unluckiest (8 sounds like the word for prosperity, while 4 means death). But 9 is also pretty auspicious because the word nine, or jiu, can mean ‘everlasting’ too.

So when a young man in Hangzhou wanted to propose to his girlfriend in February, he decided to present her with a bouquet of 999 roses. To make sure she didn’t say no, he even wrapped them with Rmb100 banknotes. The entire bouquet was reportedly worth Rmb200,000 (or $32,000).

In case you wondered, she said yes.

Another suitor also decided to express his affection by sending 999 roses to his sweetheart – but this time in the form of a virtual prop. According to Fu Zhengjun, the chief executive of Tian Ge Interactive, a farm worker once spent Rmb999 – probably more than half of his monthly salary – to purchase the virtual bouquet for a show hostess on 9158.com, a real-time broadcasting site that’s operated by Fu’s company.

“I call it the ‘admirer economy’,” Fu told China Economic Times. “We understand human nature. Human nature is driven by idol worship and also love.”

Founded in 2008, Tian Ge’s business model became the centre of attention last week when the company launched its IPO in Hong Kong, raising over $207 million. The listing was so popular among retail investors it was oversubscribed 75 times. Its shares then jumped 8.3% on the first day of trading and its market value is now worth about $1 billion, against a negative equity of $13 million as of last year.

Investors are excited because 9158.com shares a business model with online show platform YY. The latter has seen its share price soar over 500% since listing on Nasdaq in late 2012.

By the end of 2013 there were over 20 million registered users on 9158.com with sales reaching Rmb548 million, up 20% from a year ago. Operating profit also jumped 41% to Rmb226 million during the same period.

While YY has been trying to switch focus into education (see WiC231), the majority of the channels on Tian Ge are dedicated to entertainment activities like concerts and karaoke (in the latter case a person sings while others follow along and chat in private cyber rooms).

How can this be profitable then? Tian Ge sells digital currencies, which fans use to purchase virtual gifts like roses, chocolates and even cars, to be given to the performers they admire most. The performers are then able to cash in the gifts for real money. One tycoon even spent Rmb500,000 on a virtual private jet for a show hostess on the platform.

Not only do men shower their favourite singers and hostesses with gifts, many organise fan clubs to encourage others to splurge on the performers. The prettier the star, the more their fans want to impress them, according to commentary from Analysys International.

Of course, the most admired performers on 9158.com tend to be women. Many of the private rooms house scantily clad hostesses (some don costumes of schoolgirls and nurses) offering private sessions with users in an effort to lure more gifts, says 21CN Business Herald.

But who would spend so much money on people they have never even met? The target customers of 9158.com are typically not the white-collar urban workers living in larger cities like Shanghai and Shenzhen. Instead, they tend to be single men in third-and-fourth-tier cities with limited entertainment options but enough disposable income to spend online, says 21CN.

Becoming friends with real-life celebrities is highly unlikely, but these men can live out their fantasies in the virtual world. (Of course, some of the women may choose to extend the hand of friendships to fans in the real world too…)

“In the past many people mistakenly assumed that the biggest paying viewers of 9158.com are the diaosi [which means ‘losers’] who are addicted to the internet. But in reality, the biggest contributor of revenue is the tuhao (nouveau riche) in second-and-third-tier cities,” says internet commentator Ding Daoshi.

Critics say the platform is no different from an “online nightclub”, Beijing Times notes, while others have complained that 9158.com encourages lewd behaviour. Tian Ge admitted in its IPO prospectus that indecent content on its platform could result in legal sanction (in one much-publicised incident in 2011, a performer was shown taking drugs, and police were called to investigate). But Tian Ge insists it abides by the law and says it has installed software to censor “sexually suggestive content through body and skin features”.

Even so, perhaps it shouldn’t come as a surprise that Tian Ge says it will gradually shift focus from entertainment to less controversial arenas, launching channels that are dedicated to healthcare and fitness.

Tian Ge’s gross profit margin was close to 90% last year, higher than internet giant Alibaba. That kind of potential has alerted some of the other Chinese internet giants. Sina, which is Tian Ge’s second largest shareholder, invested $10 million in the company back in 2010 (Tian Ge also runs Sina’s real-time broadcasting platform Sina Show on behalf of the portal). Qihoo 360, the anti-virus software provider, also invested $5 million during Tian Ge’s IPO.


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