How can Hengten Networks and HMVOD catch up with Netflix with increasing competition of streaming video platforms in Asia-Pacific?

How can Hengten Networks and HMVOD catch up with Netflix with increasing competition of streaming video platforms in Asia-Pacific?

Aiming to be "The Netflix of China", the market value of Hengten Networks (HKSE:136) is moving towards to that of Netflix. The stock price has recently rocketed for 11 consecutive trading days, representing a three-fold increase over the last month. Its latest market value has reached HKD140 billion. The stock price of HMVOD (HKSE:8103), "The Netflix of Hong Kong" on the other hand, has also increased by 4.21 times in the past six months. How do these OTT service providers portray their "stories of growth" on their canvas?

Based in Guangzhou, Hengten Networks is co-founded by the Chinese real estate leader Evergrande (HKSE:3333) and the tech giant Tencent (HKSE:700).

The company mainly operates an internet community service online platform in Mainland China, providing O2O one-stop services such as ordering, logistics arrangements, and product or service delivery to community users.

Talking about the flash point of Hengten Networks, it undoubtedly refers to the acquisition of Pumpkin Films APP. According to the announcement dated 7 February 2021, Pumpkin Films APP recorded 915,000 paid members in January and accumulated 5.927 million paid subscribers. Chinese media stated that since Hengten Networks announced the acquisition in October last year, the number of Pumpkin Flims APP users has continued to rocket, and it has become one of the most popular streaming media platforms in China.

As of the end of 2020, the number of Netflix subscribers worldwide has reached 204 million, which is, for sure, much higher than that of Hengten Networks. Nevertheless, Netflix has yet to launch services in China, resulting its rivals in China such as Hengten Networks etc have obtained a "Blue Ocean Market". This is mainly due to the fact that the Chinese Government has established a strict film and TV inspections and classification - the "film censorship system". Under this censorship system, it remains rare that some foreign films or dramas which stir up much controversy can pass the censorship.

On the other hand, the Hong Kong market is in a state of freedom and openness. How does HMVOD, commonly known as the "Netflix of Hong Kong", stand out from the strong competitors overseas and in mainland China?

Statistics indicated that among Netflix's 200 million users, about 2 million users are in Hong Kong. HMVOD did not disclose the latest customer figures in the business performance announcement though, the company's management revealed that it had 500,000 users in an interview, this latest data can be interpreted in two ways. First of all, the company stated that as COVID-19 prompted more people to seek for home entertainment, the OTT ratings in the fourth quarter of last year increased by about 50% compared to the same period in 2019, and so as the user loyalty. Secondly, the company mentioned that its profits increased mainly due to a number of factors, including the increase in the number of users, especially from the 5G plan portfolio provided by China Mobile.

According to the promotion materials from China Mobile Hong Kong, the telecommunications company has sent out HMVOD standard movie sets for 3 months and other promotions for new customers of its 5G plan. Another Hong Kong telecommunications company, 3 Hong Kong, has also launched a HMVOD movie portfolio plan, attracting its customers to watch movies with an average monthly fee of about HKD39 to HKD49.

To watch movies of high-definition means that customers' demand for more data usage. HMVOD said in its business performance announcement, "We are currently in a transitional period and are expected to benefit from the 5G plan discount package with a rise in number of users."

On a quarter-by-quarter comparison, the ratings of HMVOD increased by about 50% Y-O-Y. In a recent Company's announcement, its own production Chinese New Year film "Hong Kong West Side Stories SP" has reached a record-breaking number of hits on the first day of release, the HMVOD OTT viewership increase by 70% Y-O-Y, and hence user loyalty also boosted.

In terms of market value and number of users, Netflix ranks first, with a market value totaling US$246.48 billion and more than 200 million users. Catching up is Hengten Networks, with a total market value of HKD140.74 billion (approximately USD18.09 billion) and has about 6 million users. In terms of market value, HMVOD is falling behind, with a market value of only HKD330 million (about 42 million US dollars), but the number of company users is experiencing a high double-digit rise. Through the cooperation with various platforms to attract users, the potential growth of HMVOD remains positive.