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It’s Official: Sohu, Tencent, and Qiyi Team Up to Buy Content Rights

China's 'three giants' all together on the same stage. This picture is a metaphor.

Yesterday, we passed along rumblings from the Chinese media that Sohu, Tencent, and Baidu’s Qiyi were planning to band together to purchase expensive video content that could help them better compete with Youku-Tudou. Now that news is official.

An official statement from the companies says they hope the partnership will help reduce the cost of video content, which has skyrocketed in part because of the massive bidding wars that have emerged in China’s fragmented video market. But the partnership isn’t just about buying cheaper TV soaps to stream; apparently, the three will also share their existing content libraries and may collaborate in other ways.

The team-up certainly makes sense, as the Youku-Tudou merger put everyone else in the industry even further behind in terms of market share. In the following chart, I’ve used EnfoDesk data from Q4 2011 (the most recent I could find) to show an approximation of what the market looks like now by combining Youku and Tudou’s market shares.

One thing to note from this chart is that while Sohu and Qiyi are now the number two and number three players in the online video business (I made them the same color so it’s easier to picture what they hold together), Tencent is nowhere to be found because its market share is too small (i.e., below 2.9 percent). So why is Tencent being included in this deal instead of, say, PPTV or Xunlei, which hold much more significant positions in the online video market? Probably because Tencent has such strong holdings outside the world of online video. Or, as Sohu CEO Deng Ye put it:

Sohu, Tencent and Baidu [which owns Qiyi] are all iconic Internet giants in China. We will integrate our capabilities in online video, portals, search engines and social networks to better service online video consumers.

Clearly, these guys are thinking well beyond lowering the prices of short-term content acquisition. And even with its big lead in market share, Youku-Tudou ought to be a little worried. Three giants just decided to quit fighting with each other and make friends, and it’s no secret who they’ll be gunning for now.

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