While multinationals and large Chinese corporates from Apple to Alibaba have rushed to warn about their plummeting revenues as a result of the coronavirus outbreak in China – which has left more than 2,000 dead and shops and factories deserted across the country – the relatively young business of short video streaming apps has never fared better.

For the first time ever, a highly anticipated movie blockbuster primed for release this Chinese New Year (CNY) holiday premiered on short video apps, instead of in the movie theaters, breaking with tradition.

On January 25, viewers logged in to the Chinese short video platforms of ByteDance – which also owns the wildly popular TikTok – to enjoy Lost in Russia, directed by comedy hitmaker Xu Zheng and produced by Hong Kong-listed Huanxi Media. 

In recent years, a trip to the cinema to watch a CNY movie has become a new holiday tradition in China. Last year, the combined box office revenue from seven CNY movies reached nearly RMB 58.4bn during the week-long holiday, and the figure was expected to exceed RMB 60bn this year. 

However, as the unexpected coronavirus outbreak escalated just before Lunar New Year in January, local authorities in most cities across China ordered the cinemas closed, upsetting both theater operators and moviegoers. On January 23, all seven CNY movies, including Lost in Russia, said they were canceling their theatrical releases. 

The next day, however, Huanxi said in a post on ByteDance’s news aggregator platform Jinri Toutiao: “The film [Lost in Russia] will keep its appointment to meet everyone on January 25, but via your smartphone or television, instead of in cinemas.”

ByteDance's long-form content ambition

It turned out that Huanxi and ByteDance had become partners. Under the first phase of the deal, which runs for six months, Lost in Russia would be streamed on Jinri Toutiao, as well as ByteDance’s short video platforms Douyin, Huoshan Video and Xigua Video. In return, ByteDance paid Huanxi RMB 630m for the movie’s copyright and credits as co-producer. Both parties would also co-promote Lost in Russia and share its advertising revenue. In addition, Huanxi’s own video platform will stream the movie simultaneously.

For ByteDance and Huanxi, it's a win-win deal. Lost in Russia drew 180m viewers across the online platforms within the first three days. Huanxi's stock price jumped by 43% on the day the decision was announced. Both companies also received widespread praise for providing a new and free choice of entertainment for the tens of millions stuck at home because of the coronavirus quarantine. 

And it will be a long-term cooperation. The deal has a second phase that will run until the end of 2022, during which Huanxi and ByteDance will launch a new online cinema channel and co-invest and co-produce film and TV projects.

This is also ByteDance's latest attempt at expanding into the long-form video content market segment. Its Douyin platform is China's most popular destination for short videos with over 320m daily active users. Not content with this, ByteDance has also begun to vie for a share in the long-form video market currently dominated by Tencent Video, Alibaba-backed Youku and Baidu-backed iQiy, by adding a section for film and TV content to Xigua Video, another ByteDance short video platform. With its huge user base, ByteDance, despite being a latecomer, still has a winning chance as long as it offers quality content. 

Mixed responses

Millions of Chinese are stranded at home because of the outbreak and quarantine, cut off from their usual pastimes. Many are turning to short video platforms to relieve their boredom. Besides bingeing on the usual funny clips, they can now also watch a two-hour-long, high-quality movie on the apps – and even better still, for free.

But theaters in China aren't quite as pleased; in fact, they are fuming. The current temporary closures and ticket refunds already dealt them a big blow. With Huanxi now screening Lost in Russia online, the money theater operators had spent on marketing the film would go to waste, too. According to the income model currently in place in the industry, movie theaters are supposed to get 57% of a movie's box office receipts. 

Seeing that Huanxi's move had broken long-established rules in the movie industry, the Zhejiang Film Industry Association issued a statement on the same day after the Huanxi-ByteDance announcement, saying the province's film industry would boycott future films produced by Huanxi if the film production company didn't withdraw its decision. Later that same day, 23 theater chains and films studios across the country jointly issued a similar letter of boycott.

Players are more concerned about the possible long-term impact on the movie industry. “This goes against the payment and revenue model that the movie industry has cultivated over many years. It's trampling on and intentionally destroying the movie industry and its premiere models,” the joint letter of boycott said.

It turned out that the industry's protests and unease were justified. Only several days later, another comedy, Enter the Fat Dragon, which had been scheduled to open in mainland China theaters on Valentine's Day, launched online on February 1 on two streaming platforms, Tencent Video and iQiyi, for premium users.

While theaters still have their advantages in being able to offer much bigger screens, realistic sound effects and an immersive movie-watching experience, this new option of premiering movies on video streaming platforms is here to stay – yet another blow against the old school film industry.