China

Why China’s falling in love with virtual idols

They are reliable assets with no political risks. They could also hold the key to the country's metaverse future.

A virtual idol on a desktop.

China's virtual idols have already entered real life so thoroughly and so quickly that it's easy to miss.

Photo: Greg Baker/AFP via Getty Images

On her birthday on Aug. 8, Chinese celebrity Eileen hosted a glitzy live-streaming concert via the video-sharing platform Bilibili. Tens of thousands of her fans tuned into her livestream channel to share her special day. By the end of the 2.5-hour show, Eileen raked in nearly 1.5 million yuan ($230,000) from paying fans, topping Bilibili's virtual streamer daily revenue chart.

By the end of the show, Eileen wasn't tired. Or happy. Or sad. "Eileen" doesn't actually exist; she's a virtual idol, and a member of China's most popular virtual girls' band, A-SOUL. China's virtual idol economy is fast becoming a piping hot sector that tech companies big and small are racing to exploit.

Chinese companies have been developing virtual singers and video streamers for the past decade. But the virtual idol sector is taking off in 2021 because of technological advances, in AR, VR, and AI, as well as the recent slew of human Chinese celebrities who fell abruptly from stardom — due to everything from tax evasion to sexual assault to having opinions out of step with Party ideology. This has made virtual idols, who never make mistakes and have no human failings at all, more appealing and investable.

Big tech is quickly getting in on the action. For example, Beijing-based Yuehua Entertainment manages Eileen's one-year-old band, A-SOUL. And Yuehua is backed by TikTok's parent company ByteDance. In the past few months, the five A-SOUL members have routinely snagged top-earning virtual streamer spots on Bilibili. If ByteDance's endorsement of virtual idols is any indication, China's virtual idols have already entered real life so thoroughly and so quickly that it's easy to miss. At least 10 tech startups that specialize in virtual idol motion capture, image synthesis, AI action processing and image processing technologies have received early rounds of financing up to $5 million since mid-year 2020, according to Chinese tech site 36kr. Tech giants such as Alibaba, Tencent and ByteDance have all made investments in developing their own virtual idol IPs or technologies to enrich their existing ecommerce, gaming and short video businesses.

The virtual idol industry is evolving — and growing — fast. The size of China's core virtual idol market reached $540 million in 2020, up 70.3% from 2019, and is expected to reach nearly $1 billion in 2021, according to Chinese market consultancy iiMedia. Analysts anticipate the entire economy driven by virtual idols to rise to $17 billion in 2021 from 2020's $10 billion.

China is a perfect virtual idol incubator. It's home to 400 million anime, comics and game (ACG) fans, known as the "two dimensional space" (二次元). Bilibili, the home base for ACG subculture fans, is naturally the biggest platform for virtual celebrities, currently home to over 10,000 virtual idols. But cutting-edge technologies like AI, AR and VR have enabled virtual idols to become even more real. In the past three years, tech and entertainment companies have developed hyper-realistic digitized 3D celebrities who appeal to a wider audience than ACG fans. The one-year-old, AI-powered Ling, for instance, with the appearance of a stylish young Chinese woman, has already booked Tesla and Vogue as her clients.

Developing and promoting virtual idols can be as costly as managing real stars. For example, it can cost millions of yuan to make a 3D virtual idol. Insiders told Protocol that the profit margin for most tech companies providing virtual idol solutions is thin.

But it's a worthy investment nevertheless. Virtual celebrities can exist anywhere at any time, and they are under total control of the companies they belong to. In theory, they could attend a fashion show in New York while simultaneously appearing in an ad campaign in Beijing. In a political environment where the presence of a given celebrity can be wiped from the internet and real life overnight for speeches or behaviors deemed inappropriate by authorities, virtual idols are investors' safer bets — they are reliable assets without the liabilities. Fans prefer virtuous celebrities as well. A 2020 industry report showed that 63% of the surveyed said they liked virtual idols because they didn't generate negative news.

What truly excites investors and tech providers is the global popularity of the metaverse, which is a set of virtual spaces where residents can live, socialize and communicate through VR and AR technologies. In the metaverse, everyone — famous or not — will be represented through a virtual avatar. And as in the real world, the metaverse will have its own KOLs.

"The popularity of metaverse as a concept will increase the advertisers' acceptance of virtual idols,'' Chen Jian, CEO of Guangzhou-based AR/VR company Dreamland Maker Technology told Protocol. "We are expecting more endorsement opportunities and event sponsorships for idols."

Chen founded Dreamland Maker Technology in 2015. The company forayed into the virtual livestreaming business in 2017, and is now a full virtual idol service provider, covering the tech, commercialization and production aspects of the business. One of the early players in the virtual idol sector, Chen's company achieved profitability in 2019, and the profit margin in 2020 reached 25%, he said. With the metaverse gaining more traction in China, Chen expects that Dreamland Maker Technology's revenue from its consumer business will exceed that of the corporate business in the future.

"The metaverse opens up a lot of new revenue possibilities for virtual idols and for us," Chen said.

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