Chinese short video app Douyin, known as TikTok outside of China, threw a boat party on the Seine river in Paris, on September 4, 2018.

China's live-streaming sensation fueled an unprecedented boom since 2016 for some Chinese social media platforms, turning young millennials into millionaires by broadcasting their daily lives, while helping companies like YY, Huya, Momo and Bilibili cash in billions of dollars. That party appears to be coming to an end. "I used to spend one or two hours every day watching people live streaming," said 33-year old Zeng Hu, a project manager for an asset management company based in Jinan, China. "But now, I rarely watch them anymore." The reason for his changing viewing habits: Short videos are taking China by storm. "On a weekday, I would often spend two to three hours watching those 15-second short videos. Over the weekend, I can watch up to five hours a day," Zeng told CNBC in a phone interview conducted in Mandarin. He is not the only one who has been spending hours on short video apps. His viewing habits are shared by millions in China today.

The biggest players

Since last year, short videos — typically lasting between 15 seconds to a few minutes — have become one of the fastest-growing trends in China. Packed with music and special effects, they are usually fun and quirky for both their makers and viewers. Douyin, one of the most popular Chinese short video apps, said its platform had more than 300 million domestic monthly active users and more than 150 million daily active users as of June. That's about one in every 10 Chinese people. The app is owned by Beijing-based tech company Bytedance, which also owns news aggregator app Jinri Toutiao. Here's an example of a short video originally made on the app by this reporter:

Known as TikTok in markets outside of China, Douyin has begun to gain international popularity: The app's global monthly active user count reached 500 million across over 150 countries and regions, it said in June. For comparison, Instagram announced in June that it had reached one billion monthly active users. The Facebook-owned platform also said its Instagram Stories feature, launched in August 2016, reached 400 million daily active users in the second quarter this year. Meanwhile, Snapchat reported 188 million daily active users for the second quarter this year, but did not release its monthly active user figures. TikTok was downloaded more than 104 million times on Apple's App store during the full first half of 2018, according to data provided to CNBC by Sensor Tower, a leading app analytics platform based in San Francisco. That means it surpassed Facebook, YouTube and Instagram to become the world's most downloaded iOS app for that time period, Sensor Tower data indicate. Meanwhile, Douyin rival Kuaishou — meaning "fast hand" in Mandarin — is backed by Chinese internet giant Tencent. The app has gained popularity among users from China's less-developed areas, garnering more than 234 million monthly active users and about 130 million daily active users, according to the company. According to app analytics and market data firm App Annie, since mid-March 2018, Kuaishou has beaten other apps and topped the rankings by number of downloads in eight countries and regions outside mainland China, including Russia, Vietnam, Indonesia, Turkey and Taiwan.

Shorter videos and stronger obsessions

"Watching people live streaming is too time-consuming," complained Zeng over the phone — although he acknowledged the fact that he now spends more time on short videos. "Live streaming versus short videos is like TV series versus movies," he explained. "Shorter ones are more compact and engaging, while live streaming could get relatively boring as you are watching the same person all the time." Some key factors contributing to the rise of short video apps include Chinese users' growing demand for more accessible and easier entertainment content, according to a market analyst.

"Short video is rich in content while short in time, it's very suitable to kill your fragmented spare time," Jiang Yige, a Singapore-based analyst at FengHe Fund Management, wrote to CNBC in an email note. "In the past few years, all Chinese app developers were doing their best to spoil the users. We have tens of examples, like food delivery services, like Weibo's initial constraint of 140 words, like the audio apps summarizing a book so that users don't spend one weeks' time reading," said Jiang. "Short video is just a new example of the app developers spoiling the internet users." According to a report published by California-based venture capital company Kleiner Perkins, Douyin has enjoyed an incredibly strong loyalty among users, with viewers on average spending about 52 minutes on the app each day. Part of the reason for that is the personalized content based on users' browsing history and preferences, with the help of artificial intelligence technology and algorithms, according to Jiang.

Government regulation and morality concerns

In China, whenever businesses are gaining popularity, government regulation starts to kick in. The short video industry is no exception. In late March, Chinese state broadcaster CCTV criticized Kuaishou for videos depicting adolescent pregnancies, which showed images of teenage girls with bare baby bumps. A few days later, China's State Administration of Press, Publication, Radio, Film and Television ordered all short video platforms to shut down accounts that "deviated from social moralities." In the meantime, regulators have also warned that some attention-seeking and offensive videos can lead to social security concerns, such as those showing drunk people fighting, smashing cars, challenging police officers and lighting firecrackers under crotches. Last month, two tourists aged 17 and 20 years old, turned themselves into the local police station after their videos on Douyin went viral and triggered widespread social media outrage. Douyin has deleted related video clips, which showed them damaging a historical landform, known as Zhangye National Geopark in China's Gansu province, along with one of them bragging to the camera saying, "I damaged the landform which was formed 6,000 years ago. We sneaked into this area and it feels awesome." Chinese parents have also raised concerns about the social media trend. An increasing number of parents have complained to local media outlets that their children, mostly preteens, are picking up too-mature behaviors from short video apps.

Market outlook and opportunities

While many are calling for stricter regulation, the short video market still has a lot of potential to grow, according to Jiang. "We can't precisely predict how long the short video cycle can last, but I think the peak is yet to come," he said. "It is still quite difficult to shoot a good short video. This is the challenge but also the opportunity right now, not only for normal users, but also for advertisers."

Unlike live-streaming platforms, which generate revenue by selling "virtual gifts" to viewers and sharing income with streamers, short video platforms are still trying to find ways to monetize the traffic to their apps. So far, advertising still accounts for most of all online video revenue, but not every advertiser is ready for the short video boom. "Even professional advertisers are working hard to find out how to shoot a good commercial in 15 seconds, to reach the deep heart of the young and fashion generation," Jiang wrote in a note. Still, Jiang expressed little doubt about the industry's future profitability. "(Short video platforms') advertisement potentials are much bigger than streaming apps, because of larger user base and longer time spent," added Jiang. "We heard from ads agents that their clients are very interested in this type of ads and are actively exploring." According to IHS Markit, China's short video market is expected to hit around 96.2 billion yuan (about $14.08 billion) by 2020, with Kuaishou valued at about $18 billion and Douyin between $8 billion and $10 billion.

Is the party really over for live streaming?

Just as discussions about initial public offerings for Kuaishou and Douyin course through the market, live streaming companies are facing slowdowns in user growth and weak earnings guidance, According to a report released by big data research institute QuestMobile, in June 2018, the number of monthly active users in the live streaming industry declined by 10.8 percent to 91.28 million from 104.1 million in January 2017. Such a user decline has also hit stock valuations. YY, a leading live streaming company in China, enjoyed a 186.8 percent surge in the company's share price last year, but its seen its stock decline by more than a third of its value so far this year.

However, the party might not be over yet, at least for e-sports streamers. "The entertainment-driven live streaming platforms are indeed facing difficulties of growing because the total internet population in China almost stops growing and they face the direct competition from short video apps on user time," said Jiang. "For them, the peak has already passed." "But we are more optimistic on gaming streaming because as China's e-sports industry is growing rapidly, different genres of games can attract more players as well as audience, and more professional e-sports competitions or leagues are organized by game developers like Tencent as well as streaming platforms like Huya and Douyu," he added. Not everyone has given into the trend of short videos, however. "One day, I found myself doing nothing for the entire morning but watching funny short videos. I decided to remove the app," said 26-year-old Yang Yaru. "But in China, many people need such entertainment apps because they are facing too much pressure from work. This is an era of civil entertaining carnival," she added. —CNBC's Xiang Xue contributed to this report.

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