While independent creators lose money amid a flood of AI-generated shows, TikTok parent ByteDance profits at every step amid growing regulatory scrutiny.
By Brent Li
These days, when I take a taxi in China and we stop at a red light, I notice drivers are glued to their phones. But they aren’t messaging friends on WeChat or scrolling through short videos on Douyin, the Chinese sister app of TikTok, they are watching AI-generated micro-dramas — serialized, vertical-screen shows where episodes last just one to three minutes and end on relentless cliffhangers.
This phenomenon isn’t limited to taxi drivers. A colleague recently told me that binge-watching AI micro-dramas has become his biggest hobby — to the point that he has stopped playing video games and scrolling Douyin altogether. For me, that’s a sure sign the AI micro-drama craze has truly swept across China.
And the biggest beneficiary is TikTok parent ByteDance, which appears to have found a highly lucrative formula — combining low-cost AI video generation with addictive algorithmic distribution. In the process, it has triggered an unprecedented explosion of content.
In the first 10 months of 2026, nearly 550,000 micro-dramas were released in China — almost 17 times the total output for all of 2025 — and more than 94% were produced using AI, Cao Shumin, head of the National Radio and Television Administration (NRTA), said at an industry conference on Nov. 4.
Yet this production boom has created an ecosystem that’s sharply divided in terms of returns. Independent creators are trapped in a brutal profitability crisis, while ByteDance collects tolls at every stage of the supply chain. Its dominance so pronounced that the company is now scrambling to downplay its own market power to avoid Beijing’s antitrust crosshairs.
The house always wins in the AI gold rush
For content studios, generative AI initially looked like a miracle cost-cutter. Traditional live-action micro-dramas require dozens of cast and crew members working for 25 to 40 days, with budgets starting at 400,000 to 500,000 yuan ($60,000 to $75,000) and premium productions exceeding 1 million yuan.
AI rewrote that math. By using large language models to draft scripts, reusable digital character assets, and video-generation tools to render scenes, studios have compressed production cycles to just 7 to 15 days. A 100-minute AI micro-drama costs roughly 100,000 yuan — or 800 to 1,500 yuan per minute — slashing production expenses by up to 90%. Viral stories fueled a gold rush: one creator in Yunnan province spent just 10 days and 3,000 yuan in computing power to produce an AI zombie short at home that went became a global hit.
The low barriers to entry led to a flood of micro-dramas. On Douyin alone, more than 221,900 native AI micro-dramas launched in the first half of 2026, according to analytics firm DataEye, with a new title going live every 36 seconds. But although China’s micro-drama audience as measured by deduplicated users — where the same person using different platforms is merged into a single profile — now numbers 851 million users, they have a finite time available to watch.
The resulting oversupply has crushed the returns for creators. Payments from platforms to creators are based on how many views a drama receives. Those payouts have plunged from a range of 30 to 100 yuan per 10,000 views in 2025 to just 5 to 10 yuan in 2026. One producer told Chinese financial outlet Yicai that uploading 11 animated AI series of 16 episodes each yielded a total payout of 9.6 yuan. Assuming a break-even threshold of 50 million views, fewer than 1.3% of new AI dramas recoup their costs; for animated AI shorts, the hit rate is below 0.1%.
Instead of pocketing the production savings, creators are handing the money over to tech platforms to pay for computing power and user acquisition. While AI eliminates live actors, crews must pay for “gacha-style” video rendering — a term borrowed from slot-machine-like mobile games where prompt engineers repeatedly pay to generate the same shot until the AI produces usable footage without visual glitches.
ByteDance dominates this toolset. Its Seedance 2.0 video model charges about 1 yuan per second of 720p video, while the newer Seedance 2.5 costs about 2.1 yuan per second. Because teams typically regenerate each shot three to five times — and up to 20 to 30 times for high-end shows like the hit AI drama The Laid-off Girl — computing bills for a single series regularly jump to 18,000 to 30,000 yuan. In the first half of 2026, China’s Model-as-a-Service (MaaS) market — where cloud providers rent out AI models by usage — grew nearly ninefold year-over-year to 10.63 billion yuan, according data compiled by research firm IDC cited by Caixin. Video-generation calls accounted for 32.7% of that revenue, and ByteDance’s cloud unit, Volcano Engine, captured a leading 45.1% market share, far outpacing rivals Kuaishou, Alibaba (9988.HK), MiniMax (1011.HK), and Tencent (0700.HK).
Even more punishing is the cost of traffic acquisition — paying platforms to promote shows in user feeds. Marketing now consumes roughly 70% of an AI drama’s total budget. AI micro-drama production costs have dropped by about 90%, but traffic costs have risen by more than 100% year-over-year, while revenue has slid by over 50%, Lin Qiwen, vice president at DataEye was quoted as saying in Qing Cheng Finance.
This dynamic has handed ByteDance a closed-loop profit engine: its Tomato Novel platform supplies over 60% of the web-fiction intellectual property adapted into top micro-dramas; its Seedance models charge creators per second of AI rendering; and its Douyin and Hongguo (Red Fruit) apps capture the ad budgets studios spend to reach viewers.
The rise of ‘ByteDance Time’ and antitrust jitters
Hongguo lies at the center of ByteDance’s distribution machine. The standalone app launched in August 2023 has disrupted traditional pay-per-episode micro-drama platforms by offering shows for free in exchange for watching ads.
The app’s growth has reshaped China’s internet hierarchy. In July 2026, its daily active users (DAU) reached 168 million, up 107% year-over-year, surpassing the combined daily users of China’s four largest traditional long-form streaming platforms — Tencent Video, iQiyi, Youku, and Mango TV (roughly 155 million combined, without deduplication) — according to a September Nomura report citing QuestMobile data. By November, Caixin cited a QuestMobile report showing that Hongguo’s total deduplicated user base had climbed to 430 million.
More striking is how long viewers stay. Active users spent an average of 125 minutes per day on Hongguo as of February 2026, outstripping both Douyin and Tencent’s ubiquitous WeChat super-app. Across China’s top 50 mobile apps in July 2026, Douyin overtook WeChat in share of total user time for the first time (19.4% versus 18.8%), pushing ByteDance’s overall corporate share of Chinese mobile screen time to 40.9%, while Tencent’s share slipped to 29.1%.
Prominent Chinese business scholar and journalist Qin Shuo dubbed this phenomenon the “ByteDance Time” era, arguing in a widely read commentary that its unified algorithmic architecture — which treats user attention like an industrial assembly line — is siphoning time away from Tencent’s social-network-based ecosystem. In response to Hongguo’s surge, Tencent recently launched a competing mini-program called Lüpaopao (Green Bubble) inside WeChat, relying on social recommendations to keep viewers within its walls.
Yet rather than celebrating its lead, ByteDance reacted with alarm. In late October, after unverified industry estimates claimed Hongguo’s annualized revenue was approaching as high as 45 billion yuan, the platform issued a formal statement claiming the figures were unofficial and emphasizing that most of its revenue goes toward creator payouts and copyright support.
The next day, Li Liang, Douyin vice president and communications chief, publicly attacked Qin’s “ByteDance Time” thesis, calling it “extremely unrigorous and pure nonsense.” Li argued that short video and micro-dramas are fiercely competitive sectors with rapidly shifting market shares. “The growth rate of Tencent’s micro-dramas and short videos far exceeds that of Douyin and Hongguo, and among internet applications, instant messaging, gaming, e-commerce, and music all occupy a vast amount of user time,” Li wrote.
In China, dominating user screen time without delivering a clear, state-endorsed social value is a perilous position. When Qin responded to Li by citing China’s Anti-Monopoly Law and its definitions of market dominance, he touched directly on the tech industry’s deepest anxiety. Precedents are fresh: regulators previously fined Alibaba 18.23 billion yuan and Meituan 3.44 billion yuan for monopolistic practices, and in early 2026, online travel giant Ctrip was fined 5.18 billion yuan following an antitrust probe.
Algorithmic addiction
Beyond antitrust scrutiny, micro-dramas are facing growing cultural and regulatory pushback over screen addiction. On Chinese social media, users have shared screenshots of 10-hour daily Hongguo binges, pushing hashtags about micro-dramas lowering IQ levels to the top of trending charts. Clinical psychologists cited by Qin note that while the shows do not actually reduce intelligence, their constant narrative reversals trigger continuous dopamine spikes that exhaust viewers’ capacity for sustained focus.
Regulators are already stepping in to curb excess. On Sept. 1, China implemented new micro-drama management rules requiring categorized content filings, mandatory labels for AI-generated footage, and a ban on algorithmic models designed to induce addiction or excessive spending. On Oct. 21, Hongguo announced it would phase out its “watch-to-earn” coin rewards — a gamified feature that paid users small cash incentives for daily check-ins and prolonged viewing. It halted the program for new users on Nov. 1 and will shut it down completely by the end of December.
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