Chapter 314: Deriving the Advertising Profit Model

"In the future, short videos will replace text and images. This will change how people obtain information — people won't just get information from text and images, but more and more from video."

Fang Hong wrote these words on the whiteboard.

The handwriting was casual and free-flowing, quite pleasing to look at — his writing had always been excellent.???? "Video platforms have very high costs and are very hard to make a profit on. General Manager Fang, what's your vision for making a profit in the future — through games?" Zhang Lidong said.

No matter how great a company is, if it keeps losing money for a long time, it can't grow. Persistent losses will tie its hands and feet — it has to find a way to turn a profit.

And the bandwidth costs and data costs for video are too high — it's not like text and images where one picture is just a few words.

The storage and computing that video requires is extremely high.

"Traffic distribution, getting conversion rates through ad click-through rates, the unit price per click, user tags after conversion, CPC, CPM." Fang Hong wrote as he spoke, laying out his theory.

Zhang Lidong, Zhang Nan, and the others stood with their mouths slightly open, looking at the whiteboard filled with professional terms like "user volume, click-through rate, conversion rate, unit price, CPM, CPC."

They sort of understood, sort of didn't — they hadn't expected the Principal, a filmmaker, to actually know all this.

They didn't really understand what they were seeing, but they knew this was a complete traffic-advertising profit model that the Principal had derived for them.

How to monetize traffic in the future, how to run the company long-term — it would all have to be supported by this theory.

This set of Douyin monetization theories wasn't much of a secret later on, but looking at it now, it still seemed quite ahead of its time, quite fresh.

Zhang Nan had graduated from a second-tier university and didn't have that much knowledge — she was still in a growth phase, so she didn't really understand.

Zhang Lidong wasn't originally an internet operator — he came from print media.

But the reason he was so capable was precisely his print media experience, which gave ByteDance the logic and thinking behind ad traffic distribution.

Now Fang Hong was just bringing it forward ahead of time, and he spoke in very general terms — none of the details.

But Fang Hong wasn't afraid of others copying it either. This wasn't something that could be achieved just by scribbling a few words on a whiteboard — it required both technical support and theoretical backing.

And distribution came in many types: traffic distribution, algorithm distribution, social distribution, manual distribution, paid distribution — very complex.

When theoretical concepts from reality are paired with technology, a lot of things will change.

This seminar was Fang Hong conveying his ideas, letting them get familiar in advance. As for development, it would depend on the people present — though he would also need to make corrections.

After all, he knew what the product should look like — you could say he was the best product experience officer.

As for the organizational structure, it would naturally be designed by these professionals; the development path would follow Fang Hong's strategy.

Funding source — every month, Hero Glory would allocate twenty million US dollars for development, which is 240 million dollars a year.

That meant roughly 1.6 billion would have to be burned through this year alone.

But that was far from enough. Right now there weren't many staff — only two or three thousand people. Expanding to ten thousand, several tens of thousands, administrative costs would rise sharply.

Programmers' salaries were certainly not low.

And taking long-video platform iQiyi as an example, they burn through several billion a year.

They buy new film and TV copyrights, all kinds of purchases, just to grab market share — they have capital backing them to withstand it.

Chang'e Video wouldn't buy those copyrights — only old movies and old TV dramas, which were cheap. A few million could buy a huge pile, all sold in bulk.

New film and TV content would be provided by Yutu at cost — supplied to Chang'e Video at neither a profit nor a loss, and whatever ad revenue was earned would be split with Yutu according to the rules.

Additionally, they would work with Yutu to support the web-drama market, invest in web-drama production, help them develop, and buy traffic for them.

Filling content through multiple approaches.

Of course, the focus was still on developing Bilibili — once it took off, user stickiness would be very high. After all, users created the content themselves; those who loved it really loved it, and even those who didn't love it still watched.

Bilibili would take a loss of one billion this year first, slowly building up the ecosystem, followed by promotion and marketing.

With long video being spun off, traffic was bound to drop significantly. Without traffic, those Up Masters couldn't make money, and if they couldn't make money, they'd have no motivation to create content — so it had to be stabilized.

Next year they'd take losses depending on the situation — they were prepared for long-term losses.

Exploring short videos didn't cost much at this stage.

Only twenty million dollars was allocated — the gaming division also needed expenses: mobile games had to be developed, Fortnite had to be developed, and a game engine had to be developed too.

For the latter two, Fang Hong had initially allocated three hundred million, but that wasn't quite enough either — mainly because once Fortnite entered deep development, it burned through money.

And hosting tournaments was also very expensive.

And right now Hero Glory wasn't at its peak revenue yet, so funds were stretched thin.

The Yutu meetings plus the Chang'e meetings — Fang Hong held them for a full half month. During this half month, there were meetings of all kinds every day.

The main goal was to convey his thinking, convey his goals, and straighten out the organizational structure.

What came next would depend on subsequent development — though of course there would still be struggles; he was the new guy barging in, after all.

That day, Monday, March 18, Fang Hong went to Beijing Film Academy as invited to exchange with the students.

This had been agreed upon before the new year — sharing his success story with the students. They called it an exchange, but really it was just showing off.

And since Fang Hong was coming to speak, Beijing Film Academy had given notice a week in advance, and the students had spread the word among themselves.

Anyone paying attention to the school basically knew — people like Nazha, Zhou Dongyu, Zhang Yishan, Yang Zi, Yang Caiyu, Wu Jinyan were still enrolled.

Some were excited, some were in awe, some were melancholy — Yang Zi, for example.

She had offended the Principal before — that was back in 2009, when she had just entered Beijing Film Academy. Now she was about to graduate.

(End of this chapter)