25% Expedia ad-to-sales percentage
While Americans shell out for Netflix subscriptions to see the second season of "House of Cards," Chinese audiences watch it for free on Sohu.com's online video platform. In China, people just have to view 20 seconds of commercials for Infiniti and Crest before the opening credits roll.
Episodes of the political thriller's second season have had 14 million total views since Sohu put them online a week ago, simultaneously with the U.S. Other U.S. shows are even more popular in China: Zombie drama "The Walking Dead," airing on another platform, Youku, averaged more than 13 million views per single episode in the third season.
Though there's plenty of pirated content floating around the Chinese internet, Sohu and Youku Tudou have paid for the Chinese rights to dozens of foreign shows. They bet that viewers would choose non-pirated options if they were convenient, and that platforms could draw in advertisers if viewership was good.
And they were right: Watch an episode of "Downton Abbey" online on Youku, and you see pre-roll commercials for everything from Maybelline mascara to Dior Homme cologne to KFC chicken meals.
Online TV advertising is considered the fastest-growing segment in China's digital channel. Chris Maier, head of media and digital solutions for Millward Brown in Greater China, noted that JPMorgan estimated 2013 online TV ad revenue in China at over $1.6 billion, up 40% from the previous year.
"A lot of brand advertisers are shifting budgets over to online TV, primarily because of the shift stating to take place from television to online in China," Mr. Maier said.
As online video platforms put better, more diverse programming online, TV content faces more restrictions -- Chinese regulators recently cut the number of popular singing competitions allowed on television and asked remaining shows to tone down the glamour and glitz, part of an austerity push.
There's a quota on foreign movies in theaters too, to Hollywood's chagrin – Beijing only permits 34 to be screened each year.
Online TV is a much freer sector. "House of Cards" airs apparently uncensored despite its plotlines about China -- and its twisted tales of political intrigue are popular among the ranks of China's Communist officials, according to state news service Xinhua.
Watching foreign shows "connects people to what's outside the Great Wall," said Ker Loon Ang, digital director for Starcom MediaVest Group in Shanghai. "TV culture is usually depicting things happening now, so Chinese audiences feel they know more about Western culture after watching them. For them, it's as much about information as about entertainment."
Those consumers also happen to be attractive to brands: They're young and well-educated, with disposable income.
Youku says about 60% of its viewers of U.S. dramas have a 4-year university degree or more. Their average income is $1,315 a month, higher than other viewers', and they typically work in fields like finance, information technology, media and advertising.
They're big sharers on social media, too. One young employee of Wieden & Kennedy in Shanghai used mobile social app WeChat to send friends a still-life snapshot of "Sherlock" on her computer, a glass of whisky and a bag of Ghirardelli chocolates -- treats for a winter holiday afternoon.
("Sherlock" debuted on Youku just two hours after it did in Britain, and well before U.S. airtime – that's a tactic to discourage pirates.)
Youku started buying rights for U.S. shows in 2010, and viewership numbers ballooned last year. The company doubled its investment in U.S. dramas in 2013 compared to 2012, said Jean Shao, Youku Tudou Inc.'s director of international communications. Market leader Youku Tudou, the product of a merger between two big video platforms, has predicted it will turn profitable when fourth-quarter 2013 results are announced.
Advertisers can target their buy to programs popular with women or men, or they can buy ads on just one show. They can purchase banners or commercial time. And they can get specific – a company with an upscale product might target their buy to Shanghai and Beijing viewers using mobile devices such as iPads.
Brands are narrowing in on shows whose viewers fit their campaigns. This summer, computer maker Lenovo ran an ad featuring a well-known magician playing with its Yoga tablet, targeting it to the mostly young male viewers of sci-fi show "Under the Dome" on Youku.
A study showed 96.5% of viewers recalled the product, a result 2.5 times better than a control brand, Ms. Shao said.
In general, watching a TV show online in China is a more user-friendly experience than watching one on, say, Hulu. Commercials mostly air before or after programs, not during them. Binge-watching is easy, too – anyone who hasn't seen "Breaking Bad" can find all five seasons in the same place.
But there's disappointing news for Americans who want to cut out Netflix by watching "House of Cards" on China's Sohu. Unless you're tricky enough to set up a virtual private network, you'll get a message saying the video can't be viewed outside mainland China.