YOU on Demand plans to offer VOD and pay-per-view to 11 million Chinese households by the end of the year
With its listing on the Nasdaq this month and the backing of the first family of professional wrestling behind it, YOU on Demand is on its way to bringing pay-per-view and video on demand to China's masses.
“It’s a significant milestone,” YOU On Demand Chairman and CEO Shane McMahon told TheWrap after ringing the Nasdaq opening bell last Friday. “To really position the company correctly for the growth that we’re going to have and what we have planned, we need to be on the Nasdaq.”
YOU on Demand’s stock closed at $5.45 on Thursday, up 1.87 percent.
McMahon certainly has a colorful background for a media executive. He is a former professional wrestler and son of World Wrestling Entertainment Chairman and CEO Vince McMahon. Not your typical corporate CV, but colleagues say that wrestling’s success on cable makes him perfectly positioned to export the growing VOD business to China.
McMahon became involved in the company two years ago when it was still christened China Broadband. He said what attracted him to the project was not the possibilities of internet technology but China Broadband’s governmental license to operate the first national video on demand and pay-per-view platform in China. It has since abandoned both the old name and the broadband side of the business.
“When we morphed into YOU on Demand we changed the entire business model,” McMahon said. “We needed a name, we needed a logo, we did so much work, that’s why we all treat it as a startup.”
YOU on Demand launched in 3 million homes last winter. It plans to be in 11 million homes by the end of the year, which would make its customer base the size of Time Warner Cable.
Like many foreign media companies operating in China, YOU On Demand operates as a joint venture with a local partner — allying itself with China Home Cinema (CHC), a division of the Chinese broadcaster CCTV-6. The contract it has to operate in China runs for 20 years.
Although its ambitions are grand and the population it caters to in China grander still, like many startups, YOU on Demand still has some ground to cover before it is profitable. The company reported a net loss of approximately $4.8 million for the first quarter of the year and generated revenue of just over $2 million in that time span.
McMahon loaned YOU on Demand $3 million to cover expenses in May, filings with the Securities and Exchange Commission show.
It may not be making money yet, but the company has lined up an impressive roster of studio partners and is offering films from the likes of Lionsgate, Disney, Warner Bros. and Miramax.
Lionsgate spokesman Peter Wilkes told TheWrap that China has historically represented a small source of revenue for the Company, but recent content licensing deals with YOU On Demand and other leading VOD and Internet providers in China, as well as Thursday's launch of "The Hunger Games" nationwide in China, are making the territory increasingly important.
"We are always looking for entrepreneurial partners who are innovative and forward-looking, and You On Demand fits the mold," Wilkes said.
YOU On Demand is not stopping with the current batch of major studios, claiming that more deals are in the works.
“You can expect all the majors to be announced and the good thing is all the studios are rooting for us,” McMahon said. “That’s why a lot of these deals are happening so quickly because there has never been a place on earth that needs a super-aggregator more than China.”
That means introducing the Chinese to VOD and pay-per-view, two concepts that are almost completely foreign to them.
“You have to train everyone,” McMahon said. “In China, you have to go back to where the United States was 15 years ago, when [VOD] adoption was low, because people didn’t know about it. We are pioneering video on demand and pay-per-view in this space.”
To that end, McMahon plans on using much of the capital raised from trading on the Nasdaq for advertising and marketing the service in China.
McMahon describes the launch last winter as a “soft” one that is allowing the company to test out its technology. He said that he has been heartened by the response and the willingness among Chinese consumers to pay for content — no small feat given that the country routinely ranks among the worst piracy offenders. Part of that, he acknowledges, may be the pricing.
VOD titles sell for $1 to $3, about the price of a pirated DVD in China, McMahon said.
“Why are you going to go outside, get wet and go to the corner where they sell pirated movies when for roughly the same price you can buy the latest Hollywood hot title or Chinese hot title from your couch?” McMahon asked rhetorically.