(Beijing, Hong Kong, Shanghai) — Bilibili (NASDAQ: BILI, 9626.HK) celebrated the 15th anniversary of the establishment of China’s largest UGC video website in Shanghai on June 26. Bilibili also announced that the ID display of all users in the first year of the website’s establishment (June 26, 2009 – June 25, 2010) will turn gold and a commemorative coin will be issued.

This bilibili was established in 2009, IPOed on Nasdaq in March 2018, and was secondary listed in Hong Kong in March 2021. Its revenue has increased from 4.1 billion yuan (US$564Million) a year at the time of first IPO to 5.66billion yuan a quarter at the end of Q1 2024. The MAU (monthly Active Users) and DAU (Daily Active Users) reached 341 million and 102 million respectively in Q1 of 2024.

(the DAU and MAU tend of Bilibili source:Bilibili's report)

However, until now, Bilibili is still unprofitable, and Bilibili’s stock price has fallen by 90% from its highest point. Compared with its secondary listing on the Hong Kong Stock Exchange in March 2021, the stock price has also fallen by 85%. What’s blocking Bilibili from making profits? Why is the stock price valuation so high?

Bili’s history

When Bili was first established in 2009, it was completely modeled after the Japanese ACG video website Niconico. At the time it first established, it was called Mikufans and it was a niche personal website. Its webmaster said that mukufans was the back garden of Acfun(an ACG enthusiast video community at that time). The establishment of such a website by niche enthusiasts also determines that the community of Bilibili is very close and united. Users need to pass a question-answering test when registering to become a formal member. This also laid a delayed fuse for the subsequent expansion of Bilibili’s territory and advertising revenue.

Bili’s community culture

Since its establishment, Bili has had a community culture that is different from other video websites. Bili, which started with ACG culture and related peripherals and re-creations, was a small but tight-knit community before it went public. People have niches here but have similar hobbies. It is a collection of countless small circles and niche hobbies. Some cultures that were not mainstream at the time (such as cosplay, railway enthusiasts, house dancing, etc.). Most bili users at that time are Otaku.

Chinese Youtube?

Bili started its A Round financing in 2013 and completed 4 rounds of public financing until its IPO on Nasdaq in 2018. The reason why capital is so optimistic about Bili is because of its unique ecosystem.

Victor Zhang, an analyst who has been following China’s online entertainment and bili for eight years, said that capital is interested in the growth prospects within GFW(The Great Firewall). (In Chinese)“People generally believe that bilibili will be China’s YouTube” because at this time, bili is the only large-scale UGC. (User-generated content) video community. Additionally, the unique close-knit community culture delights capital. “Bili uses hobbies to unite users closely, which gives Bili a community stickiness that surpasses YouTube.”

Fast and huge community vs. angry old users

In order to impact the IPO and post-IPO valuations, Bili has accelerated the pace of expanding its user base. In 2020, Bili began to “break the circle” strategy, which will soon break the bubble of the original small circle and lower the threshold for the public to use Bili. Combined with the epidemic, the number of users has increased significantly, and it has truly transformed from a small circle into a mass website.

However, this move has attracted complaints from old users. They think their “back garden” has been “invaded”.

Jingzhan Jiang, an old user of Bili for 10 years, said: (in Chinese)“New users criticize things they don’t understand. The site welcomes them for traffic, but we who have really been with this community to this day are abandoned. ”

Old users are dissatisfied with the decrease in the “concentration” (that is, the proportion of AGC content in the entire site) of site b, dissatisfied with the ease of entry exams, and dissatisfied with the Bilibili Dance Festival that has been held since 2015. After 2020, dance The songs are no longer related to ACG.

Jiang said: When I joined Bili, there were 100 questions in the inbound exam, and most of the questions could not be answered through Baidu (chinese’s biggest search engine). But now the number of inbound questions has been greatly reduced, and there is no difference in the content ethics exam. , the user added in this way no longer has “concentration”.

“Uploader” that supplies content – “Stop New Video Wave”

In April 2023, along with the falling stock price, another news that made the market uneasy came out, letting everyone see the struggle of this leader in Chinese video websites.

According to 21Caijing report. April 2023. Several Bili uploaders have announced that they will stop publishing new videos. Relevant content quickly appeared on Weibo (Chinese Twitter) trending. Although most uploaders claim that the reason for stopping updates is personal reasons, there is still speculation that the reason for stopping new food products is closely related to Bili’s reduction in video sharing incentives. From April 2023 to early 2024, Bili’s share price fell by about half of its share price.

However, this article also pointed out that based on the timing, the “Stop New Video Wave” was not an organized protest, but a coincidence.

According to uploader’s internal group chat records obtained by Caixin Weekly, although no one initiated the Stop New Video Wave, it quickly heated up in the group chat, with everyone sharing their reduced revenue data, studio layoffs, and the number of advertisers. reduce.

The inability to make money may be one of the reasons why the uploader decided to disband the team and close the account. The uploader’s main income comes from two parts, including advertising in his videos and traffic incentives from bili. When advertising revenue and incentive revenue both declined, some people chose to quit.

Reduced creative incentives

Bili gives creators a share based on the popularity of the food. Since 2022, creative incentives have been reduced every year until this year Bili announced that it would no longer provide incentives to uploaders above a certain size. This may be understandable for large uploaders, but for those uploaders less than 100K followers, it can be described as a disaster, and they are unlikely to gain the favor of advertisers. All the money that Bili can distribute to uploaders needs to come out of its own pocket, so reducing creative incentives can indeed save costs for Bili.

Reduced advertising

Advertising is a source of income that both Bili and the uploader need. As part of Bili’s CEO Chen Rui’s promise, Bili has no pre-roll ads so far. Therefore, this win-win mode that YouTube is proud of cannot be run on Bili. Uploader can only obtain advertising revenue through advertiser’s embedded ads.

In addition, as mentioned above, the community atmosphere that Bili was previously proud of has also become a stumbling block for the commercialization of Bilibili and the increase in advertising revenue. Because this community atmosphere is anti-commercial, people require Chen Rui to keep his promises (bili once In 2016, at the request of the copyright owner Tokyo Animation, skippable ads were added to some titles, but it still caused a lot of controversy and doubts), and it is very demanding on capital, so that marketing plans that are common in other places may not be adapted to Bili. It may even cause a public relations crisis.

Therefore, many advertisers choose to stay away from communities that have low conversion rates, weak spending power, poor promotion effects and do not welcome advertising.

Zhang said: “In 2019, some advertisers believed that bili was the largest gen Z community in China. This is a consumer group that many brands and platforms hope to attract. In the end, the data told them that they were wrong.”

Advertising placement, the mainstay of uploader income, has also declined with the withdrawal of advertising. According to the statistics and introduction of the uploader “老蔣巨靠譜“, the price of bili’s uploader ad placement is basically proportional to the number of followers. The price of a single ad placement below 1M followers is basically equivalent to 1/10 to half of the number of followers. However, this year, with the withdrawal of advertising, the decline in advertising budget has caused uploaders to lower their prices to obtain placement and revenue.

Zhang said: “It’s like a bank is being run. Uploaders are competing to lower their prices in order to receive advertisements, and then everyone lowers their prices together. Uploaders with 50k followers have reached the point where they accept advertisements without asking the price.“

Bili’s breakthrough and failure

With the fast-paced popularity of short videos such as Douyin (tik tok original edition), the traffic of the 10min+ medium and long video track that bili adheres to is declining day by day. In order to introduce short videos, bili has added a Story dedicated to vertical screen short video waterfall flow. Mode. Once launched, it caused a backlash. People criticized Bili for betraying those uploaders who insisted on producing on Bili. People were worried that short videos would crowd out the traffic that should belong to uploaders.

In response to this, in the bili 14th anniversary keynote speech 1 year ago, Chen Rui announced that Video Time (the time a user watches a video, that is, if a user watches a 10-minute video, is marked as 10) will replace the existing Views. “The larger the number, the higher the probability of good content quality.” We hope to balance the impact of short videos.

Bilibili’s CEO Chen Rui announced bili will change from VV to VT (Video: bilibili)

However, advertisers do not recognize the logic “invented” by bili. Because this subverted their previous understanding, they didn’t know how to calculate conversion rate, ROE and other data, how to deliver and the delivery effect, and they couldn’t issue additional bonuses to uploaders.

It’s not just advertisers who are worried. Among the applauded uploaders, there are also many uploaders who are confused and worried. Originally, the number of views was a simple number. A high number meant that more people watched it, and a low number meant that it was not popular. However, after the introduction of a new calculation system, it is more difficult for the uploader to know from the data whether people like a video. “I don’t know.” Maybe every video should be done according to a fixed schedule, which is too difficult for me,” said Daniel Dian.

Eleven months after the CEO’s speech, and one month ago on May 22, the general manager of Bili Platform and Community Products Department issued a post on Bili, officially announcing the cancellation of the revision of the playback duration indicator. This reform experiment initiated by the CEO has reached its final chapter after 11 months of silent internal testing.

Short of membership income

In addition to UGC content, Bili also has resources such as dramas and movies. Compared with other video websites that focus on streaming media, Bilibili’s membership subscription revenue is slightly lower. Data shows that for similar video websites such as Iqiyi, subscription membership revenue accounts for more than half of the total revenue, while for Bili, it is about 40%. At the same time, since Bili also has live broadcast business (such as Twitch), the actual subscription membership income will only be lower.

Subscribers of Bili mainly need to watch Japanese animations. In addition, Bili does not have the “national-level” dramas owned by competitors Youku, Iqiyi, and Tencent. Therefore, Bili’s membership business is not attractive to ordinary users.

Are pre-roll ads the only way out?

Many people believe that adding pre-roll ads before each video will help Bili turn around its losses. It is even the only way for Bili to turn around its losses. Some users believe that Bili has abandoned many of the promises made by Chen Rui, so there is no need to stick to this one. Compared to Bili’s bankruptcy and liquidation, Jiang still hopes that Bili can make a profit. Bili is already too big to fall in his mind. “I have members who subscribe to Bili. What if Bili adds pre-roll ads? Since the decision to IPO, the community has changed.” I’ve made countless promises and been forgotten, but what’s the point? I’m still an active user of Bili.”

However, Zhang points out that pre-roll ads may not be so easy to add. There are too many users on bili, and a large number of videos are watched every day. The crux of the problem that bili cannot add pre-roll ads now is that bili does not have enough ads to be placed: “If you look at the ads that uploaders have received recently, most of them are Homogeneous ones, such as Pinduoduo (NASDAQ: PDD) and mengyajia, these advertisers are already very capable in advertising, but Bili currently has too many videos and too many users, with 100 million daily active users per day, averaging 100 minutes per day. This requires How much advertising can be supported, but the current number of ads on bili simply cannot meet the requirements. “In addition, he also pointed out that bili does not have an advertising push algorithm like YouTube, and rashly adding pre-roll ads will be counterproductive. “But I still think Bili should make plans to add pre-roll ads. Pre-roll ads are a powerful medicine, and good medicine is bitter. Although it will lead to user loss in the short term, it is better to stop bleeding quickly than to continue bleeding. Long-term pain is better than short-term pain. “Zhang said.

 Disclosure: I own less than 200 share long position in the shares of Bili either through stock ownership, options, or other derivatives at the time I write this article. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.