Youku is seeing users go mobile – but so are the web pirates.

After merging into one company last year, Youku Tudou (NYSE:YOKU) further established itself as China’s top online video business with its two sites. Combining user-generated videos and licensed movies and TV shows, Youku and Tudou collectively spent over US$100 million last year on securing the rights to an array of Chinese and overseas streaming content. It’s a significant investment (with studios like Sony Pictures and Warner Bros) in capturing the attention of China’s web users – and it’s a treasure they need to protect from web pirates.

In this battle against piracy, Youku Tudou is up against illegal downloading sites that rip licensed content from the company’s sites, and rogue video streaming sites that seek to profit from uploading these rips. And not to forget the ample number of rival Hulu-like services in the nation, like the fast-growing Tencent Video, Sohu TV, and Baidu’s iQiyi (which recently made a major acquisition to expand even further). Yes, they also pay for the rights to content – thereby pushing up the price of licensing – but I get the feeling that they all keep a keen eye on each other.

Overseeing all this for Youku Tudou is Carl Lu, the company’s legal supervisor and leader of the anti-piracy team. Carl tells us that as the site has grown to 150 million daily views from mobile devices, the pirates are going mobile as well. That’s a phenomenon we’ve also seen with Chinese authorities struggling to take down mobile-only porn sites. He explains:

Ever since the establishment of our anti-piracy team in early 2012, […] we have seen a quick expansion for anti-piracy fronts from mainly PC to include mobile devices. Additionally, the fast growth in small piracy video sites is astonishing. The team in July and August 2012 recorded around 500 to 600 such video sites, yet the latest monitoring – now we have to outsource to a third-party agency – in mid-April reported as many as 1,995 such sites, many of them not registered [in China], or with their servers overseas.

The pirates are going mobile

The company’s apps for Tudou (left) and Youku.

Carl points out that Youku Tudou’s “content cost in 2012 was $118.3 million, representing 41 percent of our consolidated net revenues.” The anti-piracy team is there to protect those assets. That team, we’re told, expands as needed, and also loops in outside agencies for added support. Exclusive licensed content is inevitably the most closely guarded:

As a standard procedure, the team will issue warning letters to our contacts, to inform them the upcoming exclusive copyrighted content we carry. Once we detect any [copyright] infringement, we will send them take-down notices. Attorney letters if no response. If we need to prepare for more serious steps, we will take notarized evidence. The last resort is an official lawsuit.

The Youku and Tudou sites have to monitor what their own users are up to because an individual uploading, say, another site’s licensed content in bite-sized chunks will cause problems. Carl says, “For that, we have an in-house fingerprinting system, and another third-party system to detect pirated content in addition to our team’s manual review.”

Despite China’s top web companies pushing forward licensed content – like Baidu’s revamped music streaming portal, and many of China’s top video streaming sites converting their movie and TV serials content into kosher copies – there’s still plenty of offline and online piracy in mainland China. From the country’s notorious DVD shops, to P2P platforms like Xunlei, to blatant direct download pirates, there are still plenty of dodgy ways of watching a new movie or an entire season of a popular TV show.

Last month, authorities took down two of China’s biggest media piracy sites, conveniently enough on World Intellectual Property Day. But one of then, YYeTs, is now back online.

Chinese TV dramas make up 60% of traffic

Despite the challenges, it’s clear that web video is now a crucial draw for major web companies in China. A total of 4.1 billion hours of online videos were watched in one month last summer, and that number has plenty of room for growth as smartphones gradually become more ubiquitous across broader swathes of China.

Of all the licensed content on Youku and Tudou right now, 60 percent of total traffic on the sites stem from Chinese TV serials. US dramas – I see that The Vampire Diaries is the hottest right now on Tudou – represent, Carl says, “one of the fast growing categories” but still only account for three percent of traffic.

While much of the streaming is free, some require a fee as part of the Youku Premium package. That service has seen two million transactions since its beta launch, but that’s a figure which hasn’t been updated by the company since last year. While the transition to mobile seems to be going well for Youku Tudou and a few other such sites, it’ll be tougher to get consumers to pay for the latest movies or TV shows. In order to capture the fast-growing mobile user-ship, Youku is launching mobile ads this month.

Youku Tudou plans to ramp up its battle with the web pirates even more this year, so we’ve not heard the last of this fight.

Well, the rumors are true. Chinese search company Baidu (NASDAQ:BIDU) announced today that it has acquired PPS.tv’s streaming video service for $370 million. The acquisition bolsters Baidu’s video offerings (it already owns iQiyi) and puts it in a position to challenge market leader Youku-Tudou (NYSE:YOKU) for a bigger share of China’s web video marketplace. By some user counts, this acquisition makes Baidu the proud new owner of China’s biggest video platform. (UPDATE: Unsurprisingly, representatives from Youku-Tudou dispute the claim that Baidu is now China’s largest video platform. Baidu’s official press release states that the acquisition “create[s] China’s largest online video platform” but does not cite specific numbers; however, Tech in Asia believes this claim to be based on data collected by a domestic market research firm.)

PPS.tv will continue to operate as a sub-brand of iQiyi, according to the release, but current iQiyi CEO Gong Yu will also be CEO of the new PPS sub-brand. Current PPS president Xu Weifeng and CEO Zhang Hongyu will remain onboard as co-presidents.

In a TechWeb poll from before the news became official, respondents were split on whether Baidu’s newest acquisition could help it win the video market, but the massive move to mobile is complicating the question further. Chinese net users watch billions of hours of video each month, but increasingly they’re doing it from mobile devices, and on that front Baidu’s iQiyi is already closing in on Youku-Tudou. (iQiyi claims 200 million monthly mobile users to Youku-Tudou’s 150 million daily users).

Even so, Youku-Tudou president Dele Liu says he welcomes the competition. Responding to rumors of the merger two weeks ago, Liu told reporters:

After the success and synergy created by the Youku-Tudou merger, increasing consolidation was inevitable throughout the video industry. We are happy to see this purchase go forward; we expect this acquisition will further rationalize the industry and help reduce piracy in the sector.

Nevertheless, the news poses serious questions for Youku-Tudou, and puts Baidu in a better position than ever to challenge for dominance of the streaming video market, especially on mobile devices.

UPDATE: Updated 11:38 to add “monthly” and “daily” to better clarify the Youku and iQiyi mobile numbers.

We know that Chinese netizens watch billions of hours worth of online videos each month, but how many of them are doing so from a mobile device? Now we have the answer. China’s top two mobile sites (in terms of time spent viewing) have recently revealed their mobile user-base. The leading company, Youku Tudou (NYSE:YOKU) says it has 150 million million daily mobile users, while Baidu’s (NASDAQ:BIDU) iQiyi has 200 million monthly mobile viewers.

Youku Tudou, whose data covers both of its standalone sites after the corporate merger last year, says it sees 50 percent quarter-to-quarter growth in mobile users. iQiyi, meanwhile, explains that mobile traffic now accounts for 37 percent of its total.

With such fast-growing mobile engagement, both companies are rushing to implement mobile-based ads so as to monetize all those views. To that end, iQiyi has a new cross-platform ad service that was launched last week, covering its website and apps for Windows, iOS, and Android. Youku Tudou is also offering mobile ads starting from this month.

Though the figures don’t give a perfectly analogous picture – daily views vs monthly, etc. – it stresses that these companies need to translate their desktop advertising prowess to smaller screens without ruining the viewing experience – especially for the big draw, which is their licensed (but mostly free) TV series and movies.

Baidu is rumored to be acquiring another video site, PPS, for a substantial sum so as to bolster its Hulu-like iQiyi site even further.

IDC says that smartphones represent 73.2 percent of all mobiles sold in China right now, but feature phones are still more numerous in the country as a whole. So mobile viewership of video-streaming sites has a lot more growth to come.

(Source: Technode (1) and (2))

It’s worth pointing out that for some reason TechWeb didn’t offer a straight-up “no” option, but even so, it seems pretty clear readers are split on this. Frankly, I agree with them — it’s very hard to say. On the one hand, Youku-Tudou has been holding the number one spot for a while and even with PPS’s market share in hand, Baidu’s services wouldn’t surpass it. On the other hand, though, Baidu has a lot more money, and a much more diverse platform it can use to integrate video in a number of ways that might tempt viewers away from Youku-Tudou, assuming that it can match that site for quality of content.

This is one where I think we’re all just going to have to wait and see.

(via TechWeb)

Tomorrow, as 8:30pm rolls around the globe, lots of landmark buildings will turn off their lights to observe Earth Hour and remind the world to not waste our vital resources. Many households will likely join in. And so will six Chinese social media sites, who have vowed to turn off the lights on Saturday evening. As pictured above on Renren, the sites will illuminate their pages only with a single virtual light (1) that follows a user’s cursor.

According to CampaignAsia, the six sites backing this environmental movement, alongside Renren, are Youku, QQ, Ushi, 139, and Kaixin. It’ll probably be seen by most people on Youku, which is the nation’s top YouTube-like site; overall, this support could be seen by as many as 200 million Chinese netizens. Unless everyone’s out eating dinner.

The annual campaign is run by the World Wildlife Foundation (WWF), and the theme this year is challenging people to do positive things in return for some karmic reward. For example, these two mischief-making Singaporeans will run down Orchard Road in lingerie if 5,000 people will use reusable shopping bags (2).

Of course, to engage Chinese netizens, the WWF has also taken to Chinese social media rather than YouTube, and there’s a localized Earth Hour page as well.

The seventh annual Earth Hour is 8:30 to 9:30pm and will likely be observed by lots of global sites as well. Of course, in terms of pure technicalities, most gadget displays do not actually use less power to show darker hues than lighter ones – AMOLED with its pure blacks might be an exception – so there won’t be a net saving in global electricity usage from the ‘lights off’ websites. Instead, it’s more about raising awareness of real-world savings that can be made in our communities.

(Source: CampaignAsia)

The company’s apps for Tudou (left) and Youku.

It’s over six months since the merger between China’s top two video-streaming sites was approved by shareholders, so the newest financial report for Q4 and full-year 2012 is the first one ever from the merged entity that has the rather awkward name Youku Tudou (NYSE:YOKU). The financials reveal narrowing losses for the company, which retains its two separately-branded video sites.

Q4 revenues were US$102.1 million, up 30 percent from the final quarter of 2011. But it all amounted to a net loss of $18.2 million for the final three months of last year – though that was at least down 43 percent from 2011 Q4. Chairman and CEO Victor Koo looked on the bright side, highlighting that the losses had “narrowed materially despite sales disruption brought on by the reorganization of our sales team after the merger.” He added that the company is “optimistic that the second half of 2013 will see more revenue growth momentum and cost synergies” as the Youku and Tudou sites look to cut down on overlap, especially on things like pricey licensed video content.

Before then, Youku Tudou is aiming at “between RMB 480 million and RMB 520 million” ($76.5 million to $82.8 million) in revenues for 2013 Q1.

Focusing on the sites and their content, Dele Liu, Youku Tudou’s president, hailed a growing mobile user-base as well as “ongoing growth in traffic” in general.

The merged company, across its two sites, sees as many as 310 million unique viewers each week who generate 1.6 billion hours of video each month. Comscore reckons that Chinese netizens watched a total of 4.1 billion hours of videos, TV shows, and movies in just one month last summer.

Youku and Tudou are up against a number of strong rivals from major Chinese web companies, such as Baidu’s iQiyi, Tencent Video, and SohuTV.

Coming soon to a Chinese website near you.

Last week, we learned of a ban on TV advertising luxury goods in China issued by SARFT that is preventing luxury goods advertisers from reaching their consumers through television (and billboards) during one of the most lucrative times of year (with Spring Festival and Valentine’s Day both traditional drivers of luxury sales). So what’s a luxury advertiser to do? Turn to the internet.

As this Seeking Alpha report suggests, the luxury goods ad ban could be great news for Baidu (NASDAQ:BIDU), as luxury brands may turn to the web to get their messages out. Baidu is one of the Chinese web’s biggest advertising providers, and it certainly stands to benefit both in the short term and the long term from this TV ad ban, as vendors who buy successful ad campaigns online will be more likely to stick with web ads in the future instead of returning to TV when and if SARFT’s ban is retracted.

But Baidu is far from the only company that could benefit from a luxury advertising influx. Video streaming sites like Youku (NYSE:YOKU) could also see big bumps as luxury advertisers whose TV spots now can’t be aired move their money into digital video ads. And of course, many of China’s other web portals offer more traditional advertising solutions that luxury advertisers may be interested in. Ads on popular e-commerce sites could see a price spike. Even Baidu nemesis Qihoo could see an influx of cash via ad buys in its search results.

Of course, until we see this quarter’s financial results, it will be impossible to tell just how much of an impact SARFT’s ban has actually had, and who has gotten the biggest advantage out of it. I wouldn’t be at all surprised to see a lot of Chinese internet companies, and especially Youku and Baidu, see a numbers bump as a result of the ban. I expect that Youku and other streaming video sites may end up getting the best of this new ad influx, but of course I’m just speculating.

Whatever happens, it’s got to be good news for China’s web ecosystem, and that’s a happy surprise. Usually SARFT busies itself with trying to ruin the internet, so it’s nice to see that for once a SARFT regulation could actually be helping out Chinese web companies.

(via Seeking Alpha, image source)

Last year this Digital IQ report ranked three global companies as having “genius”-level marketing chops: Audi, Burberry, and BMW. This time around, four luxury brands get this accolade, led by cosmetics firm Estée Lauder (see the top ten table below).

So how is this calculated? To make the grade, brands need to do a lot of optimization, social outreach, and clever online marketing. For this report, the grading structure is 30 percent each for doing social media and localizing your site, and 20 percent each for digital marketing and mobile compatibility:

With all that factored in, here’s the top ten. Note that Audi once again appears as a “genius” brand when it comes to its online work in China:

As for the winner, the L2 Think Tank team notes that Estée Lauder has a web “presence on six social platforms [which] yields a social universe of more than 1.6 million fans.” Not the biggest number among these global companies, but the report states that its strategy is very social and well integrated.

Being social in China

Aside from things like search engine optimization for Baidu, luxury brands in China need to get themselves on the right social platforms. The report finds that social media adoption is up on every site, with Twitter-esque Sina Weibo still number one. A big winner this year is the video site Youku (NYSE:YOKU) where 60 percent of the analyzed brands in this report now have a social media presence:

That sure has been a long time building up, as we reported on brands like Cartier and Burberry opening brand video channels on Youku way back in the summer of 2011. Once again we see luxury automakers doing especially well, this time exploding their number of channel video views on Youku in 2012:

Of course, there are new platforms emerging, and brands need to be aware of reaching out via the messaging app WeChat (as we’ve seen Starbucks do so well this year), or on the Pinterest-like Meilishuo. Plus, the Baidu (NASDAQ:BIDU) owned video site iQiyi is aiming to challenge Youku for classy brand video channels, so that outlet needs to be considered as well.

Keeping the conversation flowing on Sina Weibo

Car makers again make a strong showing on China’s most important social service – Sina Weibo. Cadillac is top in terms of fans/followers on Weibo in this luxury segment, and fashion labels Dior and Coach are playing catch-up this year:

For more information about these brands and their strategies, catch the full report here. Plus, L2 has made a nice video overview that runs to three minutes:

(Mobile readers: Digital IQ Index®: China 2012 from L2 Think Tank, on Vimeo).

This time last year I was raving, I was gushing, all over startups making video-sharing apps. I named one such venture as one of my standout Chinese startups of 2011, and compiled a list of 10 Chinese-made social video apps. Over in the US, there are ones such as SocialCam and Viddy.

But I was wrong.

On neither Twitter [1] nor Weibo have I seen anyone post a short video clip of their own among the 1,500+ people that I collectively follow. I made three videos myself. But that’s far fewer than the hundreds of photos that I shared socially.

So what went wrong exactly? Before looking at six reasons behind this social video anticlimax – both in China and overseas – it’s worth pointing out that the “standout” video app that I highlighted last year has pivoted away from doing this. Yes, iShehui app, despite over $1.5 million in backing from CyberAgent Ventures in the very early stages, gave up on this sector a few months ago and is now a cloud file backup service. It’s just as dire in the US, with BusinessInsider (showing remarkable restarint in not using all-CAPS for the headline) recently also holding up its hands to say, “Nope, that whole ‘Instagram of video’ thing was bullshit.” Indeed, Viddy was supposedly valued at $370 million from its series B funding, but now limps along with a mere 660,000 users. I think my local noodle shop has fed more people than that.

Here are the things holding back these video apps, both in China and in general:

Time constraint

When a friend shares a photo, your eyes and brain can immediately decide how much time and energy to invest in that image. Perhaps glance over it for barely a second, or pore over it and opt to ‘like’ it and leave a comment. Video content, however, inherently takes more time, and is much more likely to be a let-down. From one preview image in the video player window (usually a blurry or badly-lit one) you have to decide whether it’s worth 10 seconds – or three minutes or whatever – of your time and attention. Usually it’s not. Social videos are 98 percent let-downs, so it’s little wonder that few people are either making them or watching them. To quote one of this year’s top viral video stars, “Ain’t nobody got time fo dat.”

Also, if you look at the Socialcam homepage, you might get the feeling that most of the videos are not only ones you don’t have the inclination/time to watch, but also enough to make you wish for some sort of zombie apocalypse that only affects stupid people – perhaps zombies that are on a diet and can only eat tiny brains.

Photo apps are more fun and rewarding

As I touched upon in the first point, photos give a much higher emotional return-on-investment, so to speak, and never leave people feeling robbed of their time. Even a GIF that takes a while to load, but then turns out to be lame, can be a disappointment. But a dull photo is, thankfully, easy to pass over.

Little traction

With social videos so likely to rub people up the wrong way, there’s not much viral traction. And when a smartphone-made video does actually go viral, you’ll likely see it on YouTube. For Chinese web users, the same applies to Youku, the nation’s biggest YouTube-esque site.

Buggy apps

When I first used the Chinese-made iSheHui app, it was very crashy, but it slowly got better. The same for Weiku and YiXia. And Weipai. Even today, I noticed an update to YiXia that took it up to v3.0; but when I go try to upload a Path-like background image for my profile page, it doesn’t even work. Weipai, when I tried it at first, wouldn’t even upload a damn video, which was its sole purpose. All the startup video apps felt rushed, as if running headlong to some imaginary finishing line that had the words “Congratulations, you’re the ‘Instagram of video’ and the founder is going to be a billionaire” on it. But, in reality, people just deleted your rushed, flakey, half-assed app and never gave it a second thought.

No video embeds

On both Twitter and Sina Weibo, there’s no support for smaller video services to be embedded in the apps or webpages, which severely limited the social aspect of these supposedly very social services. And so viewing a Socialcam or Weiku video that’s shared by someone on Twitter or Weibo requires an extra click through to another site.

Eating up 3G

In China in particular, 3G data plans are miserly, and you won’t get far on a 300MB per month deal with even basic stuff like emailing and browsing. Though sites like iShehui initially promises very clever data compression to save you your 3G data plan, not enough people were convinced.

How many smartphone video apps did you share this year? Tell us in the comments.

Ctrip told TechWeb that the issue was a problem with procedures that was being adjusted, and as of this writing the app appears to be back online. But Youku told TechWeb they were communicating with Apple to figure out what had happened, and as of right now, the Youku app still appears to be missing from the app store. MapBar is also still missing, and while the company hasn’t commented, it’s possible that Apple has removed the app for providing a service similar to its own much-hated Apple Maps. Given the unpopularity of that service and its utter uselessness in Asia, that would be a pretty spiteful move, but until MapBar or Apple make a statement about what has happened here, there’s no way to be sure.

It seems likely that Youku’s app, and probably MapBar’s app too, will be returned before long, and the whole thing may have just been a technical glitch. It’s also worth noting that users with these apps already installed on their phones didn’t experience any interruptions of service, so if the apps return soon, the damage done will be minimal. Still, it has got to hurt to search for your own app and see you competitors pop up in the spot where yours is supposed to be.

[via TechWeb]

Chinese web users racked up over 4.1 billion hours of collective streaming of web videos in August, according to a new report from ComScore. That time was spent watching 29.75 billion internet videos in total, seeing a mix of user-generated content, licensed TV serials and movies, and perhaps some pirated stuff thrown in there as well.

The summer’s stickiest video streaming sites in China were:

• 1st: Youku (NYSE:YOKU) used for 698 million hours of web video viewing
• 2nd: Baidu’s (NASDAQ:BIDU) iQiyi for 569 million hours
• 3rd: Tencent’s (HKG:0700) V.QQ.com for 474 million hours
• 4th: Sohu’s (NASDAQ:SOHU) TV.sohu.com for 406 million hours
• 5th: Tudou (NYSE:YOKU after its merger with Youku) for 291 million hours

And then a gaggle of smaller competing sites took up the rest of the viewership, such as Xunlei in 6th and PPLive in 7th.

Compared to the same metrics from ComScore for January 2012, we see the total viewing time for one major sites dropping a lot – yes, you, Tudou. But nearly all the other sites grew their audience time in this period, notably Qiyi, Tencent’s video site, Sohu TV, and Xunlei’s web vid offerings.

This solid amount of online time indicates why brands must effectively target China’s web video sites so as to catch the attention of the nation’s young, upwardly mobile, middle-class consumers; they’re more likely to watch, say, a Korean romantic drama on Youku than spend his/her evening watching rather dull state TV which permits very little overseas or challenging programming. Little wonder that the past year or so has been marked by an explosion in the cost of licensed TV and movie content, seeing the rights to a Chinese serial drama hit almost $100,000 per episode.

Looking at the movie pages for both Youku and Tudou, we can see that there is now no trace of Japan among the listed countries. You can see a screenshot of Youku’s movie page listed below, comparing the country list for today with what was on site before [1]. We’ve reached out to Youku to find out more, and we’ll update if we get any comment.

Baidu-owned Qiyi did the same, as you can see below. The left is the country listing on Qiyi’s movie page today, and the right is a cached copy from before.

As for the other big players in the Chinese online video space, PPS.tv has also removed Japan from its country listing on its movie page, and Xunlei looks like it might have as well, although I can’t obtain a cached copy to check if Japan was previously listed.

Among the major video sites, Sohu appears to be the only one (let me know if I’ve missed any) which still has Japan listed.

Despite the fact that anti-Japanese sentiment has always been strong in China, Japanese video content has always been extremely popular on these online video sites. It’s my guess that none of them wants to remove Japanese content from their sites, and that this category removal has been done to appease national censors.

But does it mean anything?

You can still find Japanese movies on Youku, just not as easily

I realize that removing the ‘Japan’ category from a few video websites isn’t really of any consequence. As far as I can see, there isn’t any mass removal of Japanese content on these video sites (see Youku, for example), it just appears to have been pushed out of view. But if you consider the other reports of Japanese book bans and newspaper seizures (news of the latter coming today as well), it makes you wonder what could come next.

Could we begin to see Japanese web content soon fall victim to China’s Great Firewall? Earlier this summer we saw Japanese ‘co.jp’ domains briefly blocked in China. Was that outage a test of something to come later?

Let’s hope not.

In a teleconference with international media which I called into earlier, the recently merged Youku Tudou’s (NYSE:YOKU) company president Liu Dele said that mobile is a key area for growth on the firm’s two sites, Youku and Tudou. Liu revealed that mobile-based visits account for 15 percent of Youku.com’s traffic, stating that mobile will be a major part of growth in the future. The Youku Tudou team expects mobile users to grow “very quickly.”

It’s a logical move, given that the mobile web is indeed gaining steam, surpassing PC internet users in China. And I bet a lot of folks, like myself, love watching online videos on tablets.

To position itself for the mobile wave, CEO Victor Koo said that Youku Tudou has ensured an ubiquitous experience for viewers, from smart TVs, tablets, to smartphones. Koo made the point that Youku’s iOS app is a good example of doing things well on the mobile front.

The latest Youku iOS app is able to sync and “know” the videos you watched on your smartphone, tablet, and desktop. So if you start watching a video on your tablet, you can watch it while on the move on your smartphone and then finish watching it at home on your PC, all without losing your place. Let’s not forget that Youku also has Youku Paike, a mobile app launched earlier this year that makes it easy for users to shoot and upload self-made videos of newsy or fun events.

At this stage, the Youku Tudou mobile strategy is as simple as providing a seamless mobile experience for users. One that doesn’t leave a gap between desktop and mobile devices. And as a whole, Koo remarked that maintaining a high quality of content is still the key to keeping and attracting new users. That means licensing more good content, like movies and TV series, for users to enjoy, and also producing more original content. Koo also shared that Youku Tudou did acquire a small production studio to enhance its production team, but that the news wasn’t announced publicly.

On international expansion, Koo said:

[We have] lots of overseas Chinese coming to Youku Tudou […] But at this point of time, we’re still very much focused on the China local market.

Unless you have been living in the jungle, by now you should know that Youku (NYSE:YOKU) and Tudou have already merged as…eh…Youku Tudou (it’s not the most creative name ever). And that merger should give the sites more impact as an advertising platform because the traffic numbers are bigger and the effort to monetize is also more concerted. There isn’t a need to fight for ad dollars between Tudou or Youku now because all the clients will go under one roof.

Plus, according to a release sent to us (citing iResearch data), there is little overlap between Youku and Tudou with only 14 percent daily overlap and 18 percent weekly overlap in users. As a combined entity, Youku Tudou could reach as many as 310 million unique viewers each week and generate 1.6 billion hours of video each month.

While ads usually just mean banner ads in Western or Youtube terms, ads could well mean an awesome/entertaining video on Tudou or Youku. Unknowingly, I recently caught one video which talks about how a handsome dude was rejecting girls in the office for lunches just because he hates girls with lots of make up. Only one girl stood out because she looked the most natural. I wouldn’t have guessed that it was even an ad until the ending. But I didn’t mind as that video was seriously quite entertaining.

Victor Koo, image via TechWeb

Youku-Tudou (hereafter, we’ll just call it Youku) has kept things pretty quiet since the merger went official and former Tudou CEO Gary Wang announced his resignation. Now, in an interview with Caijing, Youku (NYSE:YOKU) CEO Victor Koo has spoken out about the merger and Youku’s future:

Actually, the merger went more smoothly than we had imagined, and the user overlap between the two companies turns out to be fewer than we thought. However, the effects of this merger agreement will become more obvious in 2013 and 2014.

One of the biggest concerns has been the price of copyrighted content, which had skyrocketed over the past few years as the result of a bidding war as China’s video sites moved away from piracy. But Youku CFO Liu Dele now says content prices are coming down, some by nearly fifty percent already.

Of course, none of that has made Youku a profitable company; the firm still reported a net loss for Q2 2012. But with content prices dropping and the merger jitters out of the way, things seem to be looking good. Caijing wrote that Victor Koo seemed more relaxed, and that he didn’t feel the need to make comparisons to Hulu or Netflix or any other Western services anymore.

Youku and Tudou continue to operate as separate sites from a user’s perspective, and it doesn’t seem likely that will change anytime soon. But now that they’re under the same management, and with content prices apparently dropping, could Koo’s implication be that Youku will see profitability sometime in the next couple years? We’ll have to wait and see.

Full disclosure: I have previously worked for Youku. However, I currently do not (obviously) and have no stocks or other interests in it or any other tech company.

On his Sina Weibo account, Wang posted the following message at 12:34 A.M.:

On the eve of the double-sevens festival, after seven years at Tudou, I officially announce tonight that I am retiring. Thanks to all my brothers and sisters, and thats to everyone I met along the road who left a splash of color in my story. I’ll see you all the the next interesting dream.

If that sounds weird, rest assured that it’s slightly less so in Chinese. That last line has caught the attention of a lot of Wang’s fans on Weibo, who are already wondering what the “next interesting dream” will be. Does Wang have plans for another internet startup, or he will be counting his money on a private beach somewhere from here on out? I guess we’ll just have to wait and see.

Meanwhile it will be interesting to see how Youku’s (NYSE:YOKU) stock reacts to the news of Wang’s departure. On the one hand, Tudou’s CEO leaving right at this moment probably doesn’t look great. On the other, Wang and Youku’s leadership were not always on the friendliest of terms if some rumors are to be believed, so the loss of Wang could be something of a blessing. Either way, two things are for sure: Tudou is leaving the NASDAQ, and Gary Wang is leaving Tudou.

This is not the first high profile exec to leave Tudou since the merger; Tudou COO Evelyn Wang left the company back in early July.

[via Sina Tech]

Disclosure: Well before the merger was announced, I once worked for Youku. However, I have no stocks or other interests in that or any other Chinese internet company.

Tudou’s Gary Wang (left) and Youku’s Victor Koo, pictured today after shareholders of both companies approved the proposed merger.

China’s biggest-ever tech deal was revealed back in March of this year when Youku (NYSE:YOKU) and Tudou (NASDAQ:TUDO) shocked the nation’s netizens, proposing that the two largest video-streaming sites should merge. And now that’s closer than ever to being finalized after shareholders of both Youku and Tudou have agreed to the terms of the deal.

It’s a major step forward, but there’s still some way to go yet. So long as regulators don’t intervene, the careful legal process will stretch on for the rest of the year.

Aside from the new photo of Tudou’s Gary Wang (left) and Youku’s Victor Koo, nothing much changes immediately in the ongoing merger, which will ultimately form a new company called Youku Tudou Inc. Unless they think of a better name. The two brands and sites, Youku.com and Tudou.com, will go on largely unchanged even after the merger is complete. We believe that a thorough legal laundry list is the next thing to plough through, then Tudou will be very close to being de-listed from NASDAQ and merged into the $YOKU ticker.

However, a number of expenses have also jumped significantly compared to Q2 2011. Operating expenses have nearly doubled, sales expenses have increased, product development expenses have more than doubled, and general and administrative expenses have tripled. Youku stressed in a separate communication with media that the Q2 numbers look better when compared to Q1 2012, though: “Sales costs increased by only 6 percent quarter-on-quarter in Q2, while operating expenses increased by 11 percent and revenues grew by 43 percent.” Youku says it expects this trend to continue into Q3 as its merger with Tudou goes into effect and content prices drop.

Youku’s announcement also reports that the merger is going forward smoothly, with the next step being annual general meetings for each company on August 20. In a communication with media, Youku representatives wrote:

We have completed integration planning efforts with Tudou and have agreed on the new organizational structure, and on the roles and responsibilities of core executives in the new company. The new organizational structure will be implemented immediately after closing, and we are on track for the integrated management team to be fully effective in Q4 2012.

In the conference call following the announcement, Youku executives also addressed the recent SARFT announcement that some have suggested (OK, I have suggested) could have a big impact on Youku’s business. The company is apparently not worried, though, saying the regulation will “not have a material impact” on Youku’s traffic.

Full disclosure: I used to work for Youku. I don’t now, and I don’t have any stock or any other interests in the company.

Chinese video-streaming site Tudou (NASDAQ:TUDO) has just revealed the next steps in its proposed merger with larger rival Youku (NYSE:YOKU). That merger plan, first made public in March of this year, will require being voted upon by Tudou shareholders, and then if approved will eventually see Tudou delisted from NASDAQ and fully merged into Youku Tudou Inc. – presumably under the $YOKU ticker that the larger company already has.

That Tudou vote will take place at its 2012 annual general meeting of shareholders in Hong Kong on August 20th. The announcement from Tudou today, shortly after American markets opened for Wednesday trading, points out:

[Tudou’s] board of directors has unanimously approved the Merger Agreement and recommends that holders of its ordinary shares and ADSs vote “FOR” the resolution.

In tandem with all this, Youku has filed a “preliminary joint proxy statement” with the US SEC (see it here), that outlines the details. Amongst a barrage of whats and ifs, the prospectus points out that Youku shareholders will need to vote on this issue at some point, as well as on the legal name change to Youku Tudou Inc. Youku’s AGM date has not yet been set.

Jumping to page 62 of the mammoth SEC filing, we see a list of “risk factors” involved in the merger, such as prohibitive “transaction and integration costs.” This being China, there’s always a fear of government clampdowns and other new regulations, which the Youku prospectus does allude to with reference to SARFT, China’s media regulator:

Tudou may be unable to renew its SARFT license in 2014 and may be unable to conduct its business if its SARFT license is revoked or not renewed. […] If the PRC government determines that the contractual arrangements that establish the structure for operating Tudou’s businesses do not comply with applicable PRC laws and regulations or if Tudou is found to be in violation of any existing or future PRC laws or regulations, Tudou could be subject to severe penalties and may be forced to discontinue all or a portion of its business.

Indeed, we know that SARFT will soon move to regulate – and probably outlaw certain elements of – online video content, which will pose a big risk to all of China’s numerous video-streaming sites which have previously enjoyed relative freedom in their screening of entertainment shows and movies.

Evelyn Wang, image via Sina Tech

Chinese media is reporting today that according to “inside sources,” Tudou COO Evelyn Wang (no relation to Tudou CEO Gary Wang) has resigned. This makes her the first high-level executive to leave Tudou since that company’s high-profile merger with Youku.

Both Tudou and Youku have been very quiet since the announcement of their merger, mostly because they have to be quiet while the deal is being approved by the SEC. Perhaps needless to say, a Youku-Tudou rep declined to comment on this story. But actually, the lack of scandalous leaks and high-profile departures (Wang’s is the first) would seem to indicate that things are running rather smoothly at Youku-Tudou Inc. A change this big resulting in so little management-level turnover would seem to be, if anything, a sign of health.

That makes sense, as Sina Tech is also reporting its sources say that overall the merger is going well and the two companies are integrating quite smoothly with each other. That’s good news since the video giant still faces some still competition from competitors in the same market as well as government regulation that threatens to injure its business.

Full disclosure: A year ago, I briefly worked for Youku. However, I currently have no professional connection to, or interests in, the company or any of its competitors.

[via Sina Tech, h/t to @niubi]

Here come the fun police.

Grab another drink, everyone, because it sounds like the party is nearly over. SARFT, China’s fun police film censorship bureau is finally extending its black, dead hand warm embrace to online video sites, wrapping up their heretofore-uncensored films and series in a fun-smothering bearhug of censorship an embrace of harmony.

A SARFT spokesman announced yesterday that original drama series and films on video websites like Youku and Tudou are mostly great, but that some don’t live up to government quality standards, citing violations such as repeated curse words, violence, sexuality, and excessive enjoyability (OK, they didn’t really say that last one). SARFT will thus step in and begin to regulate original productions that are broadcast online. In the future, original productions destined for the internet will need to be approved by SARFT before they can be broadcast just like everything else.

SARFT explained the move as response to “outcry from internet users” and “industry needs.” I have a feeling the latter played a larger role than the former, primarily because the former doesn’t seem to exist. (Yes, I’m sure there a few crazies out there, but there’s certainly no great love for SARFT on China’s internet, nor any deep-seated desire to see even more of the internet censored).

This is bad news for all video sites, but it’s potentially especially bad news for Youku (NYSE:YOKU), which has had thus far had more success than any of its competitors in producing interesting original programming. Presumably this SARFT announcement means we can look forward to online programming quickly becoming as dull and lifeless as most television programming, which SARFT has been doing its damnedest to suck the fun out of for quite some time now.

We contacted Youku for this story; the company declined to comment.

The only possible silver lining is that it’s not entirely clear how SARFT plans to evaluate the productions. There’s some chance it will merely be tweaking the existant self-review system, and it also could implement different standards for online productions that allow a little more leeway. I wouldn’t hold my breath, though.

It’s also not clear exactly how far SARFT could eventually take this. Obviously original productions from all the major video sites will be affected immediately, but what about user-submitted content? At what level of production will videos officially need to be cleared with SARFT before they can be broadcast? It doesn’t seem like SARFT has its eye on user-generated content just yet, but that seems like the next step in SARFT’s eternal quest to suck the joy out of clean up Chinese entertainment.

Full disclosure: A year ago, I briefly worked for Youku. However, I currently have no professional connection to, or interests in, the company or any of its competitors.

[QQ News via Sinocism]

This article was updated on July 10 at 17:00 to append the disclosure statement I originally forgot to add. Fail! Sorry, folks.

Youku HQ in Beijing

Chinese online video streaming site Youku (NYSE:YOKU) has just announced a new agreement with NBCUniversal on a collection of feature films coming to Youku Premium, its paid service. They will include older titles such as those from The Mummy franchise, the Jurassic Park franchise, Schindler’s List, Trainspotting, and The Big Lebowski [1].

The deal will also bring current films to Youku Premium (including Safe House and Contraband for example) after they have been released in Chinese theaters. Youku’s vice president of movie operations and corporate development, Huilong Zhu, noted:

Youku has been steadily broadening and deepening our partnerships with Chinese and international studios […] Our new agreement with NBCUniversal is one more step forward towards our goal of offering the highest quality content to Youku’s more than 300 million viewers.

In addition to this new agreement with NBCUniversal, Youku also has content deals in place with Lionsgate, Twentieth Century Fox, Warner Bros, Disney, Dreamworks, and Paramount.

The Motley Fool points out that agreements like these haven’t done much to excite investors, noting that ad supported videos aren’t especially lucrative, and getting users to pay for a service like Youku Premium in China is ‘easier said that done.’

We didn’t see a lot of evidence of censorship on Youku; a search for Battlefield titles did turn up relevant trailers and other information about the games, although it’s possible other videos that had been there previously were deleted. A Youku representative declined to comment for this story.

Far more interesting is Sina Weibo’s censorship; we have confirmed the site now blocks searches for Battlefield 2 and Battlefield 3. Oddly, the error message that comes up when these searches return is: according to the relevant laws and regulations, these search results cannot be displayed. That’s the same message that comes up when one searches for politically sensitive topics, and it indicates that Battlefield’s legal status in China may be in some kind of flux or jeopardy.

Some Chinese news outlets are reporting that searches for Battlefield 2 and 3 are being blocked as part of a larger campaign against ten games that have been declared illegal. This information is totally unconfirmed at this point, but if it’s a rumor it’s at least a somewhat logical one. The list of allegedly banned games consists mostly of political simulation games, but also includes Operation Flashpoint: Dragon Rising, a recent shooter title whose plot involves political destabilization in China. Most of the simulation titles seem like they might be “sensitive” (albeit by China’s uber-sensitive standards). But Battlefield 3 makes no mention of China, China’s military, or anything else related to China, so it’s hard to see why it would be on this kind of list — if the list is even real to begin with.

Unfortunately, we don’t know a lot more than that just yet. We’ve contacted both EA and Sina for comment, but have yet to hear back from either of them. For what it’s worth, other Chinese web services like Baidu and Tencent Weibo don’t seem to be censoring anything yet. It’s possible this is just a bug, but it certainly seems to be a strange one.

Last week, SEC filings from Youku finally shed some light on how exactly the Youku-Tudou merger went down. You can read the filings for yourself here if you’d like — background on the merger starts on page 97 — and while it’s heavy on mundane details, it actually makes for somewhat interesting reading.

Youku and Tudou, it seems, had been involved in occasional conversations about possible mergers or cooperations since 2009. However, none of these discussions went very far, and both companies were also actively considering working with other competitors in the online video space. The real talks, interestingly enough, began not with anyone from Tudou or Youku, but with VCs. Eric X. Li of Chengwei Capital (an early investor in Youku) approached Jixun Foo of GCV Capital (an early investor in Tudou). The two agreed to meet in February, and on the 16th, Foo met with Li as well as Youku founder/CEO Victor Koo and CFO Liu Dele. Apparently Tudou CEO Gary Wang wasn’t informed about the discussions until after this meeting.

As discussions went on, Tudou also considered making Youku’s offer public in an attempt to start a bidding war with other competitors. It was decided, however, that this was too risky as it might cause Youku to rescind its initial offer of acquisition — apparently, Tudou was quite keen not to lose that opportunity.

Tudou and Youku were obviously in direct contact with each other as discussions continued, but VCs Li and Foo continued to play significant roles, discussing and coming to agreements on a number of important things on behalf of the companies:

[Li and Foo discussed and agreed upon] the amount of the termination fee, the method of calculating the merger exchange ratio, the authority of Tudou’s representative on the transition management committee, the length and scope of non-competition agreement for Mr. Wang and the scope of the restriction on Youku relating to discussions or solicitations of competing proposals.

The filing also shares the official reasons for accepting the merger from each company’s board (beginning on page 103). Youku’s reasons are more or less what you would expect — the merger gives Youku control of Tudou, after all — but some of Tudou’s reasons for acceptance belie that the company was struggling to increase the value of its shares, and concerned about its inability to do so on its own. They also reveal that Tudou management was still wondering whether it could have gotten a higher price had there been an open sale and bids from other competitors, but obviously, it decided not to risk Youku’s offer being withdrawn by pursuing that.

The rest, as they say, is history, but if you’re still hungry for more details, the full filing has around 400 pages of em. Go nuts!

Disclosure: I briefly worked for Youku, however, I have no stock or other interests in the company.

[Thanks to @niubi of Digicha for the tip]

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.

[Image source]

Chinese video website Youku (NYSE:YOKU) quietly announced late last week that it had made a move to integrate Youku and Tudou accounts, after their giant merger back on March 12. Here at Tech in Asia we’ve been wondering how the two sites would coexist post merger, and whether there would be any tie-ups between the two services, which so far remain as independent video sites.

What this new integration means is that users can use Youku credentials to log in to Tudou, and vice versa. In the future, there will be incrementally improved support for your friend relationships on the platforms, and more synchronized activities as well. Youku already integrates a number of other social services into its video platform for comments and favoriting, such as Sina and Tencent Weibo, Renren, and Kaixin001 (see below).

It’s safe to assume that Youku (or Youku/Tudou) doesn’t want to have its services fragmented, so it will be interesting to watch exactly how smoothly this integration goes (I suspect they are playing Barry White on a loop at the offices) and how users on both platforms respond.

It might be an understatement to say the merger has affected the minor players in China’s video space as well. As far as content licensing goes, word on the street says that Sohu, Tencent, and Baidu’s Qiyi will be teaming up (but not actually merging) to purchase video rights together.

Just last night Youku announced that it had signed an exclusive content deal with CBS Studios International for the two television shows Survivor and American’s Next Top Model.

Having the rights to stream the most popular shows is hugely important to any streaming video site in China. Unfortunately, getting those rights is expensive, especially if you’re one of the smaller players. And after the Youku-Tudou merger, everyone else is a smaller player. Rumor has it that Sohu, Tencent, and Qiyi (which belongs to Baidu) will be teaming up to buy video rights together.

The three former competitors won’t actually be merging, it seems, just pooling their money to buy video rights so that they can collectively afford to compete with Youkudou Tuodouku Youku Tudou. There’s not much more detail than that, and this story should still be considered a rumor for now, but it likely won’t be for long: according to Sina Tech’s sources, the companies will be holding a press conference to announce this news tomorrow.

And it shouldn’t really come as a surprise to anyone who has been watching the Chinese internet video market. This is sink or swim time for many of the smaller players; it’s to be expected that some of them would rather work with their former competitors and keep competing than die off independently.

In any event, we’ll have more on this news tomorrow, assuming Sina’s sources are correct and it does turn out to be accurate.

[via Sina Tech]

Chinese video streaming Youku.com has just announced that it has signed an exclusive content deal with CBS Studios International for the television shows Survivor and America’s Next Top Model. The agreement will mean two seasons of each series will be licensed for streaming on Youku.

Coincidentally, this licensing comes on the same day that China’s supreme court announced a proposed stricter stance on unlicensed copyrighted works by the nations internet companies. Youku spokesperson Jean Shao was cited by Computer World as saying:

We have been compliant with international standards for a long time, so we don’t think this will have an impact at all.

Indeed Youku has made a number of important content partnerships in recent months, including Lionsgate, Twentieth Century Fox, Warner Bros, Dreamworks, and Paramount. And Tudou, who Youku merged with back in March, has content deals of its own.

As for this latest agreement with CBS, according to Youku’s announcement the shows actually began airing weeks ago [1]. The shows are supported by advertising, with a new episode added every Thursday.

These apps capture short videos of fun things that are happening to you, and let you share them to microblog sites like Sina Weibo. Many Chinese-made apps of this kind also feature video-filters so that you can stylize your mini cinematic exploits as well. Among the competition, users can pick out which app best suits their needs based on what kind of a social network it involves, which services it can sync/share to, and how much they can customize their clips.

Here are the ten main social video-sharing apps coming out of China right now: seven are from startups, three from major web companies. In each instance, click on the red-highlighted name of the app to get it from its homepage:

WeiPai

Video upload limit: 3 minutes
Apps for iOS and Android
Video filters: Yes

The first such social video app that I tried was this one, Weipai. Now maturing nicely into a social network filled with young, smartphone-toting users, its iOS app is looking well polished and already up to v3.0. But, very bizarrely, its Android app is buggy and very rough, left pretty much abandoned since it came out last summer. With more Chinese on Android than iOS by some metrics, that seems like an unwise choice.

WeiKu

Video upload limit: 30 seconds
App for iOS only (with Android in the works)
Video filters: Yes

We looked at Weiku quite recently, and found that it decided to limit videos to just 30 seconds in length. The app developers apparently believing that was quite enough time for your friend to show his no-hands biking or for your cat to look adorable. On top of that it has built a mini-social network (as have most of these apps) where you can browse video missives from fellow users of the app.

iSheHui

Video upload limit: None
Apps for iOS and Android
Video filters: Yes

The two founders of iShehui snagged funding from Cyberagent Ventures back in February that amounted to 10 million RMB (US$1.59 million). The company claims that its app has been downloaded just over two million times, and it features the usual array of fellow members’ videos to browse and several methods of sharing your videos.

Movie360

Video upload limit: None
App for iOS only
Video filters: Yes

This is the only app that’s not free, costing 18 RMB in the Chinese app store. From the makers of Camera360, this Movie360 app is a little different from the others in this list in that it really is just an app that’s stripped of ancillary social networking. Instead of all that, you upload your video straight to major video platforms such as Youku, Sina Video, or YouTube. The Chengdu-based Pinguo startup behind this employed the same tactic with its photo-filter app, which has enjoyed some international success as a result.

Yi Xia

Video upload limit: None
Apps for iOS and Android
Video filters: Yes

We looked into Yi Xia last December and found it to be buggy yet promising. In the intervening months, it has gotten a bit more stable and also had a facelift so that it now resembles the American app Path. With 36 video filters to choose from, it has more stylistic choice than all the others.

Vida

Video upload limit: 20 seconds
Apps for iOS and Android
Video filters: Yes

Vida began as just a photo-sharing app – but it recently got updated to support short (very short – just 20-second) videos using its array of real-time filters that it called “insta-render.” With a swish UI and a pretty dynamic social network attached to it, videos are still a small part of its service. Vida has explained to the Chinese media that video uploads are currently only 5 percent of its resources right now.

Vlook

Video upload limit: None
Apps for iOS, Android, and Symbian
Video filters: None

The Vlook app looks the most basic of the selection made by startups (the six apps above this one in the list) and is the only one that lacks video filters.

Sina Paike

Video upload limit: None
Apps for iOS and Android
Video filters: Yes

And now we get to the big boys. Made by Sina (NASDAQ:SINA), this app is hard-wired to Sina Weibo, its popular microblog service. Though it could also be used to do some citizen journalism – which is idiomatically demoted by the “Paike” phrase used in the app’s name – Sina’s app still retains an element of fun with a choice of photo filters.

Youku Paike

Video upload limit: None
Apps for iOS and Android
Video filters: None

Youku Paike launched earlier this year, and has more of a news-oriented flavour. The app lacks any filters and is filled up mostly with other users’ submitting reports about things happening across the country. As such, it’s not very good as a social video-sharing app – but perhaps Youku (NYSE:YOKU) was aiming instead for clicks and hits coming from breaking news. This isn’t the place for your doe-eyed puppy videos.

Q Pai

Video upload limit: 30 seconds
Apps for iOS and Android
Video filters: Yes

Sina’s main microblog rival, Tencent (HKG:0700), is a bit behind the curve with its Q Pai app, where the video capturing is a bit buried in its mainly photo-oriented feature-set. Geared mainly to work with Tencent products such as QZone and Tencent Weibo, it’s of no use to any people who might want to tweet their videos to Sina Weibo.

WHERE CAN I CLICK TO GET THE PEPSI?

Tudou — which is now a part of Youku, so maybe we should be saying Youku — launched an ecommerce integration feature on its website on March 30, which at present is being used in cooperation with Pepsi to connect to that company’s Tmall store. This is reportedly the first such combination of web video and e-commerce to have been attempted in China. Presumably, if it’s a success, Tudou will then expand it to work in ads for other companies, too.

It works like this: in some videos that feature people wearing hats and drinking beverages — Pepsi beverages, one assumes — users can click on the hat and/or bottle of the beverage to be taken directly to the product’s page on Tmall. So says Tudou, anyway; in practice, I found some recent Pepsi ads on the site, and I clicked on some bottles but I never got anything to happen. Perhaps I wasn’t watching the right videos, but folks, there is a limit to how much time I am willing to spend watching soft drink advertisements. (Or perhaps they’ve been announced but aren’t actually up yet; the news story wasn’t too clear on that point).

This glorified press release totally balanced news piece makes a big deal out of this being groundbreaking, but I have some real questions about the scalability and efficiency of this as a new model of advertising. Auto-tracking any object in a video is pretty hard, so any implementation of this sort of click-the-product-to-buy approach is going to require at least some manual intervention, and that costs time and money. I suspect that’s why I had trouble finding any ads that this has been implemented in; I rather doubt it’s even possible to do this sort of thing effectively with any kind of automatic system.

So while having clickable bottles is a neat gimmick for Pepsi and Tudou, I don’t imagine it’s going to be setting the video advertising industry on fire anytime soon. Still, the thought of clicking on a Pepsi sort of makes me want to drink a Pepsi, so…mission accomplished?

Disclosure: The author of this post was at one time an employee of Youku. However, he does not currently work for Youku or own any stock in it or any other company.

The Chinese children’s entertainment network Taomee (NYSE:TAOM) – sometimes compared to Disney – has not had a fairytale ending to its 2011 financial year, with profits down and operating expenses up.

Taomee – which runs most of its children’s games, such as Mole’s Garden (pictured above) from 61.com – saw its stock drop just over 5 percent to close at $5.98 on Tuesday night on the New York Stock Exchange. But that’s just about the average it has been at since last September.

At the end of Q4 2011, net revenues were at US$8.6 million, down 32.5 percent from the previous quarter, but up slightly from $9.6 million in the same period of 2010. Looking at the year as a whole, net revenues were $45.4 million in 2011, an increase of 26.2 percent from $36.0 million in 2010.

But Taomee profits shrank to virtually nothing. Q4 2011 profits were a mere $0.6 million, compared with $4.1 million in the third quarter of 2011 and $4.9 million in the fourth quarter of 2010. Part of that came from rising operating expenses, doubling the 2010 level to stand at $22.8 million for 2011 as a whole. That was blamed on rising salaries, benefits, R&D, and marketing costs.

The main rise in revenue seems to have been, interestingly, from offline items, especially merchandise – that more than doubled to $5.1 million in 2011. So while the online games for kids seem to be struggling, good old-fashioned toys looked to be stronger products.

In addition to the games and merchandising, Taomee makes animated shows based on its gaming characters, which it licenses to local video-sharing sites such as Youku (NYSE:YOKU) and Baidu’s iQiyi and features on its v.61.com portal. So, while Taomee had a rough year in 2011, it’ll be interesting to see if it causes the company to push less into games, and perhaps more into cartoons and toys.

See the full results in the Taomee announcement.

Markets in the US reacted positively to the Youku Tudou merger as shares in both firms sky-rocketed. Tudou (NASDAQ:TUDO), the smaller of the two Chinese video-sharing sites which is effectively being swallowed up by Youku, has just closed at an historic high of $39.48, nearly tripling its pre-announcement levels. Youku (NYSE:YOKU), meanwhile, has just ended the day at $31.85.

According to The Street and other sources, the merger is worth $1.1 billion. Investors seemed optimistic that the combination of China’s two social video sites would be a strong force, and that the deal might eventually help cut massive bandwidth and content costs. But the merger is mostly taking place at boardroom level – the two respective sites will continue as normal, and for some time will still have competing and overlapping interests, especially in terms of licensed TV and movie content that the two sites have already purchased.

When the move is complete – as we reported yesterday – the new company’s two sites will have the dominant market share among Chinese video-streaming services. Yesterday we used iResearch stats to speculate that the company would effectively dominate 49 percent of the sector. But it should be noted (and thanks to Will Moss for pointing this out) that Analysis International has different figures which suggest that Youku Tudou Inc (to be NYSE:YOKU) will dominate only 35.5 percent of the market.

Piper Jaffray analyst Gene Munster said, in a note to clients:

Overall, we view the Youku/Tudou acquisition as a net positive for the company as we believe it eliminates a significant competitor in content acquisition and will make Youku far and away the largest online video company in China.

The deal dictates that Tudou shareholders will swap their shares for those of Youku at a value of roughly $39.88. Youku and Tudou shareholders will own 71.5 percent and 28.5 percent of the combined entity, respectively.

In a special Monday conference call timed for US investors, Youku’s Victor Khoo said the deal would benefit the whole online video sector in China. And one Tudou executive said that it would result in $60 million in cost savings for the merged company.

Elsewhere on the Chinese web, netizens on Weibo reacted with some bemusement to the country’s largest ever web deal, jokingly asking which two behemoths might be next to hook up. “McDonalds merging with KFC!” quipped one; “How about Cola and Pepsi?” joked another.

This will not be the new Youku Tudou Inc logo - just our little joke.

Stop the presses! It has been announced moments ago that China’s two largest video-streaming sites, Youku (NYSE:YOKU) and Tudou (NASDAQ:TUDO), have signed a deal to merge. Or, rather, Youku will swallow up Tudou in its entirety.

It will involve a 100 percent stock-for-stock transaction between Youku and Tudou that will end up with “Youku and Tudou shareholders and ADS holders owning approximately 71.5 percent and 28.5 percent of the combined entity, respectively.”

The resultant merged company will be called Youku Tudou Inc., and will retain the $YOKU stock ticker. It looks like both the respective sites, Youku.com and Tudou.com, will go on as they are under their separate brands and URLs.

We believe the agreement between Tudou and Youku is already signed and on the books, but because they’re both publicly listed companies, the US SEC will need to approve the deal; and until that happens, we’re not likely to hear much more out of either company. We have reached out to both Youku and Tudou and will update if they’re able to say anything on the record – at the moment, they cannot speak publicly about this.

But, in the official announcement, Victor Koo, founder, and CEO of Youku, said:

We intend to lead the next phase of online video development in China. Youku Tudou Inc. will represent a differentiated leader in the online video market in China with the largest user base, most comprehensive content library, most advanced bandwidth infrastructure and strongest monetization capability within the sector. Youku Tudou Inc. will have the reach and scale to bring our users high quality content at high speeds. The combined company will have the two leading online video brands in China: Youku and Tudou.

Tudou’s Gary Wang added:

Youku and Tudou share a vision for the future of online video in China and how to deliver the best user experience possible. This transaction further strengthens our market position as Tudou brings its valuable brand, library of professional licensed content, user generated content platform, extensive user base, broad range of partnerships and expertise in mobile video.

The new company will have, far and away, a huge market share in the online video sector, representing quite a threat to the likes of Ku6 and Baidu’s iQiyi. According to figures from last year, the two companies account for about half of the entire video market themselves, with Youku at about 30 percent and Tudou at about 19 percent (see chart below)

Update: Big thanks to Will Moss for pointing out that iResearch’s Q2 figures vary greatly with Analysis’s Q4 numbers that put Youku+Tudou at 35.5 percent, as cited in The Wall Street Journal. We’ll keep the chart intact below, but do note that it’s for Q2. (RM)

There was speculation last spring that Youku would acquire Tudou. And while that didn’t materialize in 2011, these two leading online video providers in China would go on to have a colored relationship over the next year. We saw the two in a legal tiff regarding TV show content rights, and eventually we even saw Tudou block Youku’s Soku video search from indexing its content.

Alibaba's ads in action on its ad platform page.

New stats just released by Analysys International show the online ad market in China expanding once again, with Alibaba and Baidu (NASDAQ:BIDU) showing the most growth, while Google’s (NASDAQ:GOOG) China advertising market share shrinks back further.

The Q4 2011 online ad market share – calculated by revenue – shows that the never-ending boom in e-commerce, coupled with Alibaba’s leadership of it in the B2C (Tmall) and C2C (Taobao) sectors, means that Alibaba’s aggressive ad platform push has resulted in 49 percent growth year-on-year, now standing at 17.4 percent. That’s the strongest proportional growth.

Baidu’s online ads account for 30.5 percent of revenue, up slightly over the previous year. Analysys International puts this down to a government push to get small- and medium enterprises (SMEs) online and engaged with internet search marketing. Google remains in third, now ebbing down to 6.5 percent. Sohu has remained stagnant year-on-year.

Sina saw a significant loss of market share, indicating that its traditional web portal has weakened its ad platform; plus, it doesn’t seem to have capitalised on its social success with Sina Weibo in order to turn that around.

Soufun might be the only unfamiliar name to readers. It’s a heavily-trafficked real-estate web portal, carrying mostly ads for housing developments.

Here are the Q4 2011 stats in contrast to the same period a year before:

[Source: Analysis International for Q4 2011 and Q4 2010]

Amid interesting (and somewhat controversial) numbers regarding China’s online video market, both the leading video site Youku (NYSE:YOKU) as well as perpetual number two, Tudou (NASDAQ:TUDO) have recently announced new content deals.

Youku has signed a licensing agreement with global entertainment company Lionsgate (NYSE:LGF) to bring 200 titles to the Youku Movies Channel, supported by ads. Notable titles include Hotel Rwanda, Monster’s Ball, and Mr. Magorium’s Wonder Emporium. Youku has previously signed deals with Twentieth Century Fox, Warner Bros, Dreamworks, and Paramount.

As for Tudou, it just announced that it has sold broadcasting distribution rights for self-produced drama Love Oh Dear I Do (pictured below) to Shenzhen Satellite TV and China Anhui TV.

A few months back Tudou partnered with TV Tokyo to bring more Japanese anime to its platform. The company has also previously announced intentions to produce its own animation, claiming that it wants to create content of the same standard as Pixar.

ent.people.com.cn

Imagine this situation: An awesome coat catches your eye when you are watching a drama or TV show online. You have no idea which brand it is or where to buy it. But then a link to a shopping and payment webpage appears just beside the coat on your screen? Consumers can enjoy this new video shopping experience during March 6th to 8th on Tmall.com, and also enjoy a special sale for Women’s Day.

More than 30 women’s clothing brands joined in the debut show of Tmall’s video shopping, catering to young consumers and online shoppers. Click here to enjoy the fashion show and browse around for some clothes you like.

By using a dynamic image recognition technique, this video shopping service can associate goods in a video with a matched commodity in Tmall.com, and then give access for browsing or placing an order. If fails to find an exact match, it will offer alternates.

On February 27, an underwear fashion show hosted by Tmall.com gave the public its first glance at how video shopping service functions. You can check it out here.

According to hexun.com, Youku.com started its collaboration with Tmall.com as strategic partners on this new shopping service two years ago in 2009. Data from Taobao.com shows 77 percent of videos with goods descriptions are from Youku.com.

[Via china.com and tech.hexun.com]

Raw data from online analytics company comScore (NASDAQ:SCOR) shows the Chinese online video-streaming sites growing en masse, racking up a cumulative total of approximately 803 million unique views in the month of January 2012. That figure is up from 688 million uniques in December 2011, representing a growth in viewed videos of 16.7 percent.

The figures [1] show that Youku (NYSE:YOKU) remains the market leader, while Tudou (NASDAQ:TUDO) has strengthened somewhat in its second place.

The top seven sites remained stable from the December to January figures; in descending order, they are: Youku, Tudou, Sohu (NASDAQ:SOHU), Tencent (HKG:0700), Sina (NASDAQ:SINA), PPLive [2], and iQiyi (formerly called Qiyi).

Tudou declared itself pleased with the numbers (pictured below) – but then it was the source of the raw data – pointing out that its stats were up in three key areas, while rivals (Youku being the main one) decreased slightly between those two months. In January 2012, compared to the previous month, Tudou’s monthly uniques were up 6.5 percent; its total number of video views went up by 14.3 percent; and total number of minutes viewed on Tudou went up by 17.8 percent. The data seems to suggest that Tudou is edging closer to Youku in terms of unique video views and market penetration. The company’s chairman and CEO, Gary Wang, lauded the stats, telling us via email that “investments made in our brand, content, and platform” were “reflected by the significant improvements in key operating metrics in January of this year.” Tudou’s recent financials revealed rising revenue still hampered by the ongoing inability to actually crack a profit.

Youku responded to the information by telling us that “our daily unique visitors exceeded 34 million in December 2011 according to iResearch, which was a 43 percent increase over December 2010, and this number was 1.6-times that of our closest competitor.” Although comScore once described Youku as the world’s second-largest video-streaming social site after YouTube, Youku takes issue with the US analytics firm’s methodology, saying that the “sampling needs improvements” to better reflect the web environment in China.

Here are the comScore stats for January 2012, split into a double-decker view so it can fit in the column:

Viewing Time

Aside from the tussling at the top, it’s interesting to see the amount of videos viewed per user, and how long they’re being watched for. Those two metrics look disastrously bad for Funshion, whose videos apparently get watched for only two minutes per user. The best performers here are Baidu’s (NASDAQ:BIDU) iQiyi and LeTV – the latter of which launched a joint-venture with Tudou last October – with over six hours of viewership per user, almost certainly busy viewing licensed TV shows and movies. Youku bests Tudou by quite some margin in this area, as the two sites continue to duke it out over broadcast rights to pricey TV series and films.

So that’s how the Chinese video-streaming industry seems to stand now, aside from the disputed numbers. Let’s hope Tudou and Youku never have corporate basketball teams, or they’ll both try to set their own scores based on their own definition of a basket.

Well, we all knew it was coming. Heck, I even wrote it was coming in an article three months ago. Now, it’s official: China’s State Administration of Radio, Film and Television (SARFT) plans to establish a platform for regulating internet television.

According to SARFT vice-chief Zhang Haitao, the administration will regulate IPTV streaming services, mobile video services, and traditional internet television services like Youku (NYSE:YOKU) and Tudou (NASDAQ:TUDO).

The move is part of a larger push by SARFT to regulate the “three networks:” telecom networks, computer networks, and cable television networks. The regulatory bureau already has a tight grip on television, but until now, internet television and mobile video have been allowed to develop relatively free of SARFT’s interference er, regulation.

The announcement reads in Chinese media like SARFT is looking to improve the internet television industry and make it safer and more interactive via its new platform. While it’s as yet unclear exactly what the ramifications of this will be, I suspect that if anything, SARFT will be ‘keeping us safe’ from the types of entertainment it considers harmful, i.e. basically anything that isn’t CCTV News. Of course, I could be wrong — we’ll just have to wait and see how things actually turn out.

On a related note, for those interested in the background of SARFT’s regulatory impulses this past year, this article is a very interesting read.

[via Sina Tech]

China’s biggest video-sharing site, Youku (NYSE:YOKU), has today launched a standalone app for iPhone and Android just for recording and uploading videos. The app is called Youku Paike, and focuses on enabling easier user-generated content that can be shared more quickly on social media such as Weibo.

There are a lot of keen amateur videographers among China’s netizens, who aim to capture news or potentially viral vid clips and gain a following by doing so. The idea is that the Youku Paike app makes it easier for anyone to do this. Or you can just use it to film kittens. But it comes with political risks for Youku. In a country where authorities dislike free-flowing information – especially online – the company will be secretly hoping that this doesn’t get used to record protests.

Also, browse and view other citizen journalist videos in the Paike app.

Anyway, with now well over 100 million Chinese using 3G on some sort of smartphone, the time is ripe for social media to embrace video, not just user-generated photos and text. We recently looked at the Yi Xia app which does almost the same as Youku’s, as well as the more sophisticated iShehui app which has Instagram-like filters to give your video a makeover.

Youku actually added a video-upload feature to its regular app back in October of last year, but the company seems to have decided that it needs to be spun-off into a separate app. As the company’s press release explains, it’s designed “to highlight the social media aspects of video blogging,” and so it comes with the option to sign-in using Sina Weibo for people who don’t fancy signing up for a Youku account.

So, while Youku and its rivals are still spending big bucks getting TV shows and Hollywood movies onto their sites, it’s interesting to see old-fashioned user-generated content getting this social media twist.

Get the Youku Paike app from the Android Market or the Apple App Store.

In a sign of growing hostility amongst video-streaming services in China, three such sites have reportedly blocked access to a video search engine owned by the market leader, Youku (NYSE:YOKU). Its Soku.com search feature indexes and lists videos from across the Chinese web, including those of its rivals. But Tudou (NASDAQ:TUDO), LeTV, and Sohu’s (NASDAQ:SOHU) video portal have all teamed up to tackle Youku over what they claim to be unfair search results on Soku.

And so the Tudou, LeTV, and Sohu TV sites have blocked Soku from indexing its content, perhaps hoping users will just come direct to their own sites to search for their licensed TV shows and movies. Or use Baidu.com (NASDAQ:BIDU) instead. The sites seem to be risking losing traffic from Soku, but then hope to gain the advantage of weakening the market leader’s product. In response to this, a Youku representative told the Chinese media that this “closed door” method made no sense. The rep added:

Tudou is, in the 21st century, taking an 18th century style approach with its isolationism, which abandons the user’s needs.

A search today for a very popular Taiwanese show – the one at the centre of a still unresolved copyright spat between Tudou and Youku – shows no results for Tudou, which also has rights to the series, and so its blocking of Soku seems to be working. It’s not clear how it’s being implemented, as the tudou.com/robots.txt file does not show it to be disallowing any third-party ‘web spiders’ to crawl the internet and index content.

Do you have a search warrant?

Soku launched last May and was designed by Youku to be an impartial video search engine with an open API and social sharing features.

The whole situation is similar to the e-commerce search controversy last year which saw Alibaba’s etao.com product search engine being blocked by initially just 360buy, and later by a few other rivals too. In both cases, smaller sites are rebelling against being indexed by the market leader in each sector, feeling that it might be a better strategy to battle the giant rather than dance to its tune.

We’ve contacted both Youku and Tudou to comment on the situation, and will update the post if we hear back.

[Source of quotes: QQ Tech (article in Chinese)]

Youku HQ in Beijing

Chinese online video giant Youku (NYSE:YOKU) today announced that it has inked a deal with none other than Twentieth Century Fox Home Entertainment to license 250 films. The movies will be shown on Youku’s Premium on-demand platform which launched last year. The company’s vice president of movie operations and corporate development, Huilong Zhu, explained:

We have been working closely with Hollywood studios in providing quality content to millions of Chinese Internet users while effectively protecting intellectual properties… We are encouraged by the growth of the Youku Premium platform, and our new licensing agreement with Fox will make Youku Premium more compelling for our users.

Many of Youku’s premium offerings are integrated into its movie page [1], with a small ‘paid’ badge on the top corner of the title if it isn’t free. Wisely though, Youku allows users to watch the first five minutes of a paid movie for free. The company says that its pay-per-view transactions “more than tripled between Q2 and Q3 of 2011,” with Youku Premium users paying more than once a month for content.

Chinese video sites like Youku started out with huge amounts of unlicensed content, and much of their popularity springs from this. But now that many of them have gone public (or intend to go public), video sites have cleaned up their act, bringing in more original and licensed content. Youku specifically has been pushing its Youku Originals, such as The Ultimate Winner, which we told you about earlier this year.

Recently, however, Youku and its rival Tudou (NASDAQ:TUDO) have been making headlines with each accusing the other of pirating content. We’ll keep you posted on that situation if we hear anything. Update 22:24pm: Youku says they filed a lawsuit and it was accepted by the court.

After Tudou.com (NASDAQ:TUDO) went public with allegations of TV show piracy on rival Youku.com (NYSE:YOKU) late last night, Youku has now responded – and says that Tudou itself has pirated over 60 of its own licensed TV dramas and serials.

It has also become clear that China’s two biggest video-streaming sites had been talking about this behind closed doors for a week. But it’s now all out in the open, apparently making it more likely that a two-way legal battle will ensue, rather than any further negotiations.

Talking to PO over the phone, a Youku representative at its Beijing headquarters told us:

Tudou has been pirating our content since last year. They’ve violated the copyright on more than 60 dramas that have received over 100 million hits on Youku, and includes some ‘Youku Originals’ productions. They were set as ‘recommended’ by Tudou too.

We will file a lawsuit against them – probably next week.

The defiant press release adds:

Youku has continually called for an end to mudslinging PR battles that generate traffic by harming competitors […] Since Tudou has repeatedly failed to remove the mountain of stolen intellectual property posted on their site while attempting to smear Youku in the press, Youku now has no choice but to pursue legal action.

Claims and Counter-Claims

Tudou’s original claim relates to a TV chat show that it licensed from a Taiwanese broadcaster, Cti TV. Youku’s counterclaims this morning pertain to dramas it had licensed from other broadcasters, such as The Emperor’s Harem and Wu Zetian: The Untold Story (pictured above), as well as some self-produced Youku content such as web serials.

But for the time being, neither company has properly addressed the issue of having unlicensed copyrighted material on each other’s sites.

I get the feeling there’ll be a response by one side – or both sides – in this controversy even today.

The Taiwanese TV show at the heart of this Tudou vs Youku tussle.

[UPDATED 12/16 - Youku counters that Tudou's claim is against only two episodes of the chat show, but that Youku has licensed that show from Cti TV as well. Plus, says Youku, Tudou has pirated hundreds of its episodes of its own licensed dramas. See new new report].

China’s two largest video-streaming sites, Tudou (NASDAQ:TUDO) and Youku (NYSE:YOKU), are heading for a legal battle after Tudou announced that it is taking action – together with its license partner Cti TV – over alleged piracy of a popular TV series on Youku.

The Tudou claim relates to a chat show hosted by model and actress Dee Hsu – aka ‘Little S’ in Chinese – called Kang Xi is Coming (pictured above), and to which it has exclusive licensed streaming rights. Tudou has bought a number of other Taiwanese shows, which are especially popular amongst young women, for streaming. The joint press releases says:

Cti TV alleged that Youku.com has illicitly pirated all of the ‘Kangxi is Coming’ programs that was officially broadcast by Cti TV starting on December 1st, and that the pirated videos were not uploaded by Internet users but officially uploaded and recommended by Youku.com itself.

The statement goes on to explain that Youku did start to remove some of the offending videos, but then on December 8th they reappeared, and now remain on the site generating revenue for Youku with ads from the likes of automaker Suzuki, and confectionary brand M&Ms.

Tudou and Cti TV say they’re seeking negotiations and compensation or – failing that – full legal action; though that would be made more complex by the separate legal systems that exist in mainland China and Taiwan. The press release even threatens:

Cti TV will use for reference the effective rights protection measures directed against Youku.com adopted by the domestic TVs […] and reserve the right to take comprehensive measures to safeguard its rights and interests, which include continuous serious negotiation with Youku.com, reporting the case to the competent authorities […] and requiring them to blacklist Youku.com among serious piracy and revoke its related license and qualification.

We’ve reached out to Youku, and will update when we hear back. [UPDATE: Youku has responded in detail. Click through for the full report].

Youku HQ in Beijing

This is episode 2 of our Asia Tech Tour video series. If there’s any Asian service or app that you’d like to see us explore, please send us your request.

Today Charlie [1] and I do a quick overview of Youku.com (NYSE:YOKU), which is the leading streaming video website in China, with about a 30 percent market share. We’ve written about them pretty extensively in the past, and you can read those articles here.

The company gets pegged as the YouTube of China quite often, and while there are certainly similarities, there are a few differences as well. To find out more, check out the video below.

SARFT attacks TV ads, and maybe video web sites too, via the Telegraph

For the past few days, rumors have been swirling that along with its limitation of “entertainment” programs, China’s State Administration of Radio, Film, and Television (SARFT) will also be implementing a new regulation that bans all advertisement during TV dramas. Yesterday SARFT management bureau chief Li Jingsheng announced that SARFT will indeed be banning ads during TV programs.

The detailed regulations will be announced sometime later this month, but it seems that advertisements will be allowed, but only during the time when one show has finished and the next show has yet to begin. Shows will no longer take breaks in the middle of episodes for advertisements.

Needless to say, this could have a massive impact on the Chinese television market, where yearly losses in advertising as a result of the regulation have already been estimated as potentially reaching 20 billion RMB (over $3 billion US). We expect this figure may be a tad inflated, as networks will likely find ways of replacing that lost revenue — running text ads that scroll across the bottom of the screen while shows are in progress, perhaps — but there’s no doubt the regulation will nevertheless have a massive impact on the industry.

Online Video Sites: Time to Celebrate? Maybe…

At face value, this would seem to be great news for online video operators like Youku and Tudou, who are already poaching viewers away from television but who have historically struggled to profit from them. With fewer advertising opportunities on television, there’s a reasonable expectation that at least some of the money TV networks will be losing may flow in the direction of video websites, instead.

Moreover, if the loss of in-program advertising weakens China’s popular satellite networks, that could serve to drive even more viewers onto the internet as TV stations losing money will likely have to sacrifice quality or quantity (or both) in their show productions to be able to balance the books. In particular, this could really help Youku, which has an established history of successful self-produced dramas and films. If similar regulations don’t affect internet operators, and net ad revenue increases, Youku (and other sites) will be able to put even more money into original programming.

…and Maybe Not

That said, SARFT has framed the regulatory decision as a move to get viewers away from their computers and back in front of the TV by offering them a more enjoyable viewing experience. There are plenty of people who are annoyed by the advertising that permeates many of China’s web video sites, and the prospect of an ad-free television experience could be just what’s needed to get them back in front of the big black box.

Of course, that seems like a fairly pointless gesture. Entertainment is moving to PCs and, beyond that, mobile devices, period. SARFT can’t regulate that reality away, unless they can trick some other regulatory bureaus into shutting down the internet entirely (hey, it’s China, you never know). But that doesn’t mean they can’t go down swinging, and one has to assume that some of those fists are going to be aimed directly at online video providers.

We can be fairly certain, too, that SARFT is not trying to do online video sites any favors. Others have interpreted the regulations as a move by SARFT to weaken independent TV stations and, by extension, strengthen CCTV, and this makes some sense in light of the “entertainment ban” on satellite networks announced by SARFT earlier this year. If SARFT’s primary goal is to strengthen CCTV and the domestic propaganda apparatus, probably independent (and foreign-listed!) websites like Youku (NYSE:YOKU) and Tudou (NASDAQ:TUDO) will find themselves in the regulatory bureau’s crosshairs sooner or later.

Here, it’s worth noting that SARFT continues to be involved in a sort of behind-the-scenes territorial spat with MIIT (the Ministry of Industry and Information Technology) over who should be allowed to control certain types of content on the internet. Typically, the internet is MIIT’s domain, but as SARFT’s interests (TV shows, films, etc.) move increasingly online, so too has SARFT asserted its authority over those areas of the net.

In any event, it’s hard to be sure what exactly will happen before the regulatory details are announced and we see how satellite TV networks respond. We’ve also reached out to some domestic video websites for comment on the new regulations and will update this post if we hear back.

[Via Netease Tech, h/t to @MalcolmMoore and @niubi for sharing that link on Twitter and having a short discussion about it as well!]

Youku (NYSE:YOKU), China’s biggest online video site, has today launched two new web apps on its platform. One is an impressive virtual classroom where you can view the lecture’s slides and make notes all on the same page; the other is a party-oriented music-video feature where you can easily make playlists or sing along to the lyrics.

The diverse and slick-looking web apps – called Youku Classroom and Youku Music Box (pictured above), respectively – have been made by the Youku Labs division and incorporate some social media elements as well.

Back to School

The virtual Classroom web app is really neat, and gives you a dynamic interface that allows you to watch lectures from, say, Yale whilst also seeing the actual slides, reading the subtitles, making notes, and even tweeting about it on Sina Weibo.

The circular icon in the middle (pictured above) allows you to switch the panes around – without disturbing the playing of the video – so that you could make the slides or the notes larger.

The sizeable library of lectures and debates that feeds into this new web app is at the Youku Edu page, which features open courses from some of the UK and US’ top seats of learning, such as Cambridge and Harvard.

Youku.FM

On a lighter note, the second new offering today is a stripped-down video jukebox – dubbed Music Box – that scraps all the ads and clutter of the usual Youku interface and replaces it with just one video and an ancillary panel where you can assemble ad hoc playlists, or view the lyrics (on some tracks) for a bit of karaoke action.

Youku says that logged-in users will also see the benefit of the Music Box web app learning your musical tastes so that it’ll offer up music that’s more suited to your tastes. All the music videos come from the already huge collection that’s on the site.

Give the two Youku Labs apps a try – here’s the Classroom, and click here for the Music Box.

[Update, Nov. 11: Clarified the new program in the second paragraph, and added a more relevant indie movie]

Youku (NYSE: YOKU), China’s biggest video-sharing site, has just launched a new portal called Youku Presents, which showcases some of the country’s young, indie filmmakers.

Youku Presents gives practical support, promotion, and potential sponsorship to some young, Chinese digital movie-makers, and has grown out of the website’s earlier Youku Originals platform. But this new initiative is a sort of hybrid of indie-made and Youku-produced content.

The first Presents project kicks off today with a series from five young, local filmmakers called “Operation Thanksgiving” – a bit baffling, though, since that’s a North America-only holiday institution – but is more generally “aimed at encouraging young people to thank the people who have helped them in their lives.”

The company’s Originals series has been sponsored a number of major brands, such as the American automaker Chevrolet, Lenovo, and Philips – showing that special projects like these can actually be lucrative.

Youku’s senior VP, Frank Ming Wei, commented in a press release:

Youku has had the privilege of working with talented young directors to bring their work to the public – from ‘Hip-Hop Office Quartet’ to last year’s ‘Old Boys.’ We are delighted to preserve that tradition with Youku Presents, and we look forward to fostering new talent for years to come as we tap the creative potential of our users and the commercial potential of our platform.

Some of the digital artists participating in Youku’s new platform might well be hoping it’ll bring them some artistic and/or commercial success, such as getting featured in a film festival, or being picked up by a brand for use in a viral marketing campaign.

So far, there’s just one Presents short film released, which I’ve embedded here for you to watch. It’s 13-minutes long, has English subtitles, and is called Grandfather:

Smart TVs and other set-top internet-to-TV streaming boxes provide a bit of a challenge to China’s government, which prefers to control content carefully, especially the content that appears on televisions, since — unlike computers — nearly everyone in China has one. Internet video companies like PPTV have a license from the government that allows them to provide streaming video services to computers but apparently SARFT does not extend that to net-enabled TV devices, and in fact had expressly forbidden Chinese video companies to support that kind of streaming. PPTV ignored that order, and now they’re being warned that another incident of noncompliance could result in heavy fines, forced restructuring, or even the termination of their license to broadcast video on the internet (which would effectively destroy the company).

PPTV’s CEO Tao Chuang has denied that the company ever supported or offered their services to the makers of these third-party set-top boxes — think HTPC but with fewer features — but boxes featuring PPTV streaming services are sold publicly by a number of different companies in electronics markets around the country. Producing and selling these devices is also apparently illegal.

The warning by SARFT is an indication that the permits held by all Chinese internet streaming companies — including Youku (NYSE:YOKU), Tudou (NASDAQ:TUDO), etc. — do not allow them to stream their videos to televisions, which will be bad news for companies planning HTPC support and Smart TV apps to increase their reach.

Some analysts have interpreted SARFT’s crackdown in this area as a move to reduce competitive pressure on CCTV, China’s state-owned television conglomerate, which has been losing viewers to the internet and to China’s satellite TV stations over the past few years. The crackdown on entertainment programs and on net-to-TV streaming may be an attempt by SARFT — which has close ties to CCTV — to ensure that on television sets, at least, the government-run channels remain unthreatened by more entertaining competitors.

[Via Sina Tech]

One more neat update is that the app now supports Youku Paike, a feature that allows user to record a video and upload it quickly to Youku from their phones. Other minor additions include the Soku search engine, and also Sina Weibo integration for easy video-sharing to the microblog service.

The radial button on iPhone looks innovative but I did find it a little hard to access at first. There’s a small button located in the bottom of the page which may require some practice before you can actually press it correctly at first touch. The radial button has two layers of access features: the first offers search and account details, while the second gives access to different types of content quickly. It does help users to find videos more easily but it takes some time to remember what the icons represent.

Youku explains that this updated version is the product of understanding what users wanted in the previous version. I remember not liking the previous version so I guess this should be a better user experience. The Chinese online video company also revealed that its iPhone and iPad apps have been downloaded 6.2 million and 1.7 million times respectively as of September 24, 2011. Plus, Youku software clients and widgets were pre-installed on approximately 22.9 million mobile phones in China.

You can head over here and here to download either the updated iPad or iPhone app.

Chinese web portal Sina (NASDAQ:SINA) had a very rough day yesterday, as its stocks tumbled 15 percent, crashing into a trough that it hadn’t whacked since back in 2009. Although it’s a bad week for Chinese tech stocks in general, there seems to be a method to the madness: investors are getting spooked by three or four factors that represent a risk to Sina’s workings and potential profitability.

Of course, that doesn’t mean that any of the feared scenarios might well occur this year, but it’s looking like a perfect storm that Sina needs to weather.

$SINA on Wednesday morning after NASDAQ starts a new day: still around yesterday's 15 percent drop mark. Over the past year, however, it's up just over 95 percent. (From Google Finance)

According to the QQ Tech site – who, being owned by rival portal Tencent, seems to be reporting this in great detail – the three fears investors have are that Sina faces…

1. New Regulations - Investors are feeling nervous in a Chinese climate that’s increasingly hostile to media companies – which is what Sina is morphing into with its popular Weibo. The bullet train crash tragedy put Weibo between a rock and a hard place – lauded by people as a platform for truth and sharing, whilst surreptitiously trying to appease Chinese media directives to stem the tide of rumors and government-aimed invective.

   However, Sina is already running a very tight ship (my polite way of saying they’re censoring users); and I’d have to say that a drastic action – such as Weibo being shuttered (by failing to get a new, mandatory microblogging license) – is extremely unlikely.

2. VIE Clampdown - As we reported earlier this week, there are rumblings that Chinese authorities might try to tighten regulations on VIEs, the legal devices that many overseas investors use in Chinese web firms. This is a factor in the sinking Baidu (NASDAQ:BIDU), Renren (NYSE:RENN), and Youku (NYSE:YOKU) stocks as well this week.

3. Overvalued? - Despite its success with the microblogging platform Weibo, Sina might well be overvalued and due a correction. The Goldman Sachs valuation of the firm at up to US$7 billion might now be an albatross around its neck.

Beijing-based analyst Bill Bishop – the author behind DigiCha – points to news from back in the summer of an agreed share sell-off by Sina management, which gives us the fourth fear factor:

4. Down to Zero - Apparently, Sina has a forward contract with Goldman Sachs for senior execs to eventually sell out to zero percent. The previous round of dumping, back in June, caused the previous Sina shares dip. But now, there’s the concern that the biggest tranche of shares to be dispatched – 1.8 million – “within this year” might well be now, right in the midst of this regulatory and VIEs worry. This aspect might be overblown, however, as those execs don’t have significantly large stakes.

NASDAQ has just reopened for Wednesday, and Sina is off to a poor start, hovering at around yesterday’s low, with occasional dips down to new nadirs. (Youku is having an even worse day, plummeting well below yesterday’s poor form).

[Source: QQ Tech news - article in Chinese; and Digicha]

Video content prices are sky high....get it?

Part of what’s hurting online video companies is content costs. As sites struggle for exclusive rights to the most popular content — various TV serial dramas, mostly — prices are pushed up. And up and up, and then up some more.

Recently, Sohu’s video service broke records by spending more than 30 million RMB — that’s about $4.6 million — on the web broadcast rights to 30 episodes of the classic “Ups and Downs”, a serial drama. That’s not an anomaly; earlier this year the rights to 98 episodes of the “New Princess Peach” drama also went to Sohu, for 30 million RMB. Other companies are spending similarly astronomical sums to get their hands on valuable content; Youku, Leshi, and PPS have all spent more than 200 million RMB to secure the web broadcast rights to a single show.

What’s especially remarkable is how much prices have gone up. Just three years ago, web broadcast rights for a single episode of “Ups and Downs” cost 10,000 RMB, or about $1,500. Given that Sohu just paid over 1,000,000 RMB/episode for the rights to that same show, that means web broadcast prices are over one hundred times what they were three years ago.

In this market, only companies with cash to burn — either as the result of an IPO or because they’re affiliated with a larger (and profitable) web company — will survive. But even the market leaders are branching out in new directions, too. Youku has been commissioning original content from films to TV serials on its own for some time now, and several of its products have met with great success. Tudou and several other video sites are also attempting to move into creating original programming, though none have yet been able to rival Youku’s success in that field.

Full disclosure: I do occasional freelance work for Youku.

It's a metaphor.

Ku6, a streaming video site that’s been struggling to gain a foothold in China’s extremely competitive online video market, posted losses of over $21 million, nearly 40 percent worse than the $15.5 million in losses they sustained in Q2 2010.

To be fair to Ku6, content costs in China have risen exponentially over the past few years, to the point that some smaller sites are considering tacitly endorsing piracy because the legal costs may be cheaper than buying the online broadcast rights to copyrighted shows. Prices have risen because of the sharp competition in the internet video sector, with video sites occasionally engaging in bidding wars that drive up the prices of the most desirable video content.

However, despite rising content costs, Youku and other leading sites have been able to reduce their losses recently, though no online video company in China is yet making a profit. Ku6′s losses are perhaps partially the result of its minimal market share (see the chart below) and partially the result of Shanda’s mistakes in advertising, according to corporate leadership. Either way, it’s difficult to imagine Shanda holding on to Ku6 if it continues to make such a large dent in their bottom line without being able to increase its market share significantly.

(PS: Bonus points to the intrepid commenter who can spot which anchor we used in the image above. It’s from a famous ship. No googling.)

Desktop and HTPC Functions

Installed on a desktop computer, iKu Mini offers a slick, simplified interface that allows viewers to watch licensed content from Youku’s library. The top 50 offerings in each of three categories — Movies, TV Dramas, and Variety Shows — are listed conveniently in the application, and beyond that, users can search for other titles themselves. However, at present, what streams on iKu Mini is limited to Youku’s professional content; user-generated videos are not presently listed or searchable. I’m not sure if that’s a feature they plan to add in the future, but as a fan of paike citizen-journalist videos, it’s a bit disappointing the service can’t be used to watch them right now.

Of course, Youku has had the iKu Accelerator — a PC client that helps increase streaming speeds, especially outside of major urban centers, using P2P technology — for quite some time now, and iKu Mini apparently also leverages that tech, which means that in some cases, shows watched on iKu Mini may stream more smoothly or at a higher resolution than you can get on the Youku main site, depending on your internet connection and your location.

If you’ve got an HTPC setup, iKu Mini is ready for the big screen, too. All the videos on the service stream at Youku’s highest quality levels, and while they still aren’t HD resolutions, they’ll look better than the average Youku video when blown up on a TV screen. (In fact, this might be why user-generated content isn’t available through iKu mini, since most of it is low res and wouldn’t look great on a big screen).

Controlling iKu Mini on an HTPC setup using Smart Remote on an Android Phone

Mobile Functions

But what’s really cool about iKu Mini is the mobile functionality. Android Users with the Youku client will find that an update automatically brings them the new “Smart Remote”, which allows them to control iKu Mini wirelessly using any Android phone. This means that users with an HTPC set can sit on their couch and watch TV or movies via iKu Mini, just like they might watch any other show, without having to get up and fiddle with a keyboard or mouse.

Beyond the Smart Remote, users can use iKu Mini to watch videos on their Android phones as well. And if the client is installed on their desktop, they can click a button to switch the video from the phone’s screen onto their desktop or HTPC screen, without pausing or losing their place. A two-fingered swiping gesture on the phone can bring the video back onto the phone’s screen, again without losing the viewer’s place. Pretty useful for situations where you’re almost done watching something but you’ve got to run to a meeting or a date — now you can finish watching that episode with headphones on your phone while you’re on the subway!

So that’s cool…what’s not cool about iKu Mini?

Well, there’s the fact that at present, Youku’s large library of user-generated content isn’t supported. Of course, like all UGC, most of it is crap anyway, but some of it is pretty cool, and it would be nice to see that included in this desktop experience.

Of course, as a Mac user, the larger issue is that for the moment, anyway, iKu Mini doesn’t work with my computer or my phone. The desktop application is written in Adobe Air, but is offered on Youku’s website only as a .exe download, which won’t work on Macs. And the cool Smart Remote features aren’t yet available on Youku’s iPhone app. We’ve got good reason to believe that Youku is working on adding Mac/iOS support for iKu Mini, but it’s not clear yet when that will arrive.

Where to Download iKu Mini

IKu Mini is available as a free download from Youku’s website for Windows 2003, XP, Vista, and 7. If you don’t have it already, you’ll also need to download Adobe Air. Mobile features of iKu Mini are available via Youku’s Android app.

Anything else?

In researching this post, we also came across this video of iKu Mini being controlled via Microsoft’s Xbox Kinect motion sensor. Since this video was uploaded about a month before iKu Mini’s release, and since the Xbox is technically illegal in China, we assume this is just something Youku’s engineers did for fun in the office. So with the caveat that you shouldn’t expect iKu Mini to work on your Xbox 360 anytime soon, this is pretty cool, no?

Full disclosure: I have worked for Youku in the past, and continue to work for the company from time to time as a freelance contractor. That said, my duties were not connected to the research and development of the iKu Mini, nor do I own any stock in Youku.

Sina reported its Q2 financials today, revealing a net income of just $10 million, down from $25 million last year. What caused the drop? Sina Weibo. Sina’s microblogging platform has grown to become the dominant one in China, but the company has been slow to monetize it. In July, Sina announced the launch of a Weibo micro-currency and social games, but it’s too early to tell whether or not those initiatives will help Sina earn back some of the money it has been spending on Weibo.

Netease also announced its Q2 results today. It’s apparently doing quite well, with net revenues of about $280 million and profits of $120 million US. That’s a 59 percent jump from Q2 2010.

Tudou saw a bit of a blemish on its successful IPO last night, as shares opened down 13 percent from their offer price and finished the first day still 12 percent down. Still, given the horrible state of the market right now, Tudou’s performance on day one wasn’t too bad, even if it doesn’t compare to the massive first-day jumps of Chinese net stocks in happier times.

Baidu stock has been dropping all week under the weight of a series of attacks from CCTV accusing the company of all manner of bad practices. But it ended yesterday slightly up as it becomes more and more clear that the CCTV attacks represent some kind of vendetta against the company rather than unbiased investigative reporting.

Youku was one of the few companies to see a small bump in its stock yesterday, which ended the first day of rival Tudou’s launch up almost 13 percent partially on the news of a rumored cooperation with Tencent.

Representatives of Youku would not comment on the rumors when we contacted them Wednesday afternoon.

The timing of this leak, coincidental or not, isn’t great for Youku’s biggest video rival Tudou, which just completed a successful IPO. Tudou’s stock will begin its first day on the Nasdaq in just a few hours, but now that debut may be overshadowed by news that the company’s biggest rival is in talks with Tencent, one of China’s internet giants.

Youku currently enjoys a significant lead over Tudou in market share, and the last quarter saw Tudou’s market share shrink even as its expenditures grew.

We’ll keep an eye on these rumors and update if they are confirmed or the situation changes.

Of course, Tudou is planning an IPO, and perhaps because of their financial situation, they recently upped the amount they’re seeking to $180 million US.

Still, Tudou is in a tough spot. Its road to IPO has been far from smooth, and the current environment overseas is so unwelcoming that many Chinese companies originally planning to IPO this year have shelved their plans and elected to wait until investors are feeling more friendly. Tudou, it seems, does not have that option; they will have to put together a successful IPO, and soon.

Of course, an IPO at the moment — Tudou’s most recent plan was to IPO on August 17 — could also be dangerous given that the US markets are especially rough after the nation’s credit crisis and subsequent rating downgrade. Youku, Tudou’s chief rival in China’s internet video market, has seen its stock fall dramatically. Many are questioning how much Tudou would be able to raise in the current market.

If Tudou does not or cannot IPO, the next question is whether or not Youku would buy it. Such a move would give Youku dominance of the video market, and the company probably has the money to do it. However, if Tudou runs out of money without being acquired, Youku stands to gain a significant percentage of its market share without spending a dime. Victor Koo, the company’s CEO, told Sina Tech that he “always keeps an open mind” when asked whether or not his company was considering buying Tudou.

Other companies might stand to gain more from acquiring Tudou and its percentage of the internet video market. Baidu could merge the company with its own Qiyi video service to gain some traction, and according to Sina, industry insiders are suggesting that Sohu and Tencent might also be interested.

We’ll keep you up to date as Tudou approaches its IPO. We have also reached out to Tudou for comment and will update this story should we receive a response.

Netflix, Youku, and the Future of Digital Distribution

Netflix’s rise has come at Hollywood’s expense as cable and other traditional distribution windows have refused to buy titles that have hit Netflix, claiming that Netflix’s online on-demand streaming platform robs the cable companies of the ability to sell ads for the same content. In addition to a loss in licensing revenue from cable companies, Netflix has contributed to the decline in DVD sales across the board, as customers opt to rent and stream instead of own and buy. Essentially, Netflix’s model encourages customers to avoid more profitable viewing options for cheaper, online streaming content.

How are the studios fighting back? By limiting the content they license to Netflix, and when they do, giving Netflix the least valuable content. Or, they make Netflix users wait for the good stuff. According to the Los Angeles Times:

Studios have already taken numerous steps to limit Netflix’s appeal. Four studios prevent the company from offering some newly released DVDs until 28 days after they go on sale in stores. Three others keep their films off the Netflix Instant streaming service until they finish airing on HBO — about seven years after their home video release.

These tactics limit the content that Netflix can provide their customers and consequently reduces the value of the service. As the rising cost of acquiring content has affected Netflix’s bottom line, the rental company has passed the costs onto its consumers, raising prices as much as 60 percent earlier this month.

Customers were outraged but Hollywood execs argued that the new pricing plan allows customers to pay less for less valuable on-demand streaming content, or pay more for more current physical rentals, which more accurately reflects the value of the studios’ content.

But perhaps the most cunning studio tactic of all is to cut Netflix out of the equation entirely by cultivating ancillary partnerships and Internet-based distribution channels. In March, Warner Brothers signed a deal with Facebook to rent movies such as The Dark Knight digitally on the popular social networking site. Over the coming months WB will plan to roll out more titles on this “test” platform.

What is Netflix’s response to the Hollywood drubbing? Expand overseas. Netflix announced it would expand its online streaming service into 43 countries in Latin America later this year. In a move to offset content costs with additional revenue streams, Netflix is placing a huge focus on this international push.

Meanwhile, in China…

Youku CEO Victor Koo rings NYSE opening bell

As the battle for content rages in Hollywood, an unexpected story is unfolding in the new media world of China. Here, the landscape is completely different, and some might say more evolved than America’s. The dominant player is an online video sharing website known as Youku, the Youtube of China. But some, including Youku CEO Victor Koo, argue that Youku is actually the Netflix of China. Koo is quick to point out in his most recent BusinessWeek interview:

About 70 percent of the content on Youku is licensed and professionally produced, with the remaining 30 percent being user-generated.

In 2010, Youku inked deals with WB and Disney to provide movies and TV shows such as Inception and Grey’s Anatomy for a small fee. Youku also offers a 20RMB per month subscription plan. Though Youku might seem like a Chinese bootleg of YouTube or Netflix, the company has pulled off something that no one in Hollywood has yet: original online content.

In the second half of 2010, Youku released a series of 10 films online in a project known as “11 Degrees.” In an effort to cash in on original content programming aimed at college educated Chinese youth, Youku teamed up with 11 directors to produce original short films whose sole purpose was free distribution on Youku’s site.

Chopstick Brothers in ELLE China

The runaway hit of that series was a 43 minute film called Old Boys directed by the Chopstick Brothers. The film itself marked a huge milestone in the world of new media, not only in China but globally as well. It was the first film, perhaps ever, that was distributed entirely free online and which subsequently went on to receive mainstream and critical success.

With over 35 million hits, the film has become a huge part of the pop culture subconscious in China, with the actors and soundtrack referenced in mainstream television and radio. During the release of the 11 Degrees project, the company’s own original programming snatched the top spots from both licensed domestic and foreign Hollywood films and TV shows.

Hollywood studios and online media production companies have tried to imitate the success Youku Originals has had in China but with mixed results. In America, the closest thing to a mainstream online hit is the Mortal Kombat: Legacy series of shorts produced by new media production company Machinima and distributed under the Youtube Live banner.

Actors pose at premiere of Mortal Kombat: Legacy

But despite Mortal Kombat’s stellar performance, racking up 5.5 million views in one week, the series has yet to break its niche circle of gamers and comic fanboys and enter into the American mainstream. In China, you can hear the Old Boys theme song playing on the radio; in America, you’d be hard pressed to find any broad coverage of the Mortal Kombat series aside from a few billboards in Los Angeles.

American production companies like Vuguru, Maker Studios, and Machinima are focused on creating content for computer screens but face larger barriers to entry than their Chinese counterparts. In the United States, citizens have a plethora of robust, cheap and convenient entertainment options. The way Americans consume their media is distinctly different from the way Chinese consume media. The notion of watching an entire film on a computer screen is something that Chinese people are much more comfortable doing than Americans.

Perhaps this is a result of the stronger and more mature theatrical distribution channels available to U.S. citizens. As of today, China has only 6,200 movie screens, that’s one for every 214,750 people; as opposed to the U.S., which has nearly 40,000 screens, one for every 7,675 movie goers.

In addition, the pervasiveness of piracy and bootlegging in China has created a culture where video quality is a luxury, not a necessity. Unlike Americans, Chinese are okay with watching a less-than-perfect movie over a throttled Internet connection. Americans want big screens, Dolby Surround and full HD quality. The Chinese are happy to get it streaming online for free.

Cultural and historical factors also come into play. To understand why “new media” in China has had more mainstream success than in America we must first understand the term itself. In China, almost all modern forms of entertainment media are relatively new. From the founding of New China in 1949 until the economic reforms in the 1980’s, all media in China was state-run and state-owned.

The media of that era was largely utilitarian in nature: newspaper, radio, and television were controlled by the government and existed solely as mouthpieces for the Party. Entertainment, when it was afforded, was closely monitored and censored. In short, original content in China was isolated and creatively stifled for decades.

Thus, the Chinese don’t have such high expectations for their media. For the average Chinese person, transitioning from watching plays put on in their local village to watching streaming short films online is easier to swallow than for Americans, who are reluctant to replace IMAX theaters with 14-inch laptop screens. True, Americans will watch short clips of anthropomorphic animals, but a full feature film delivered online is a tall order for anyone over twenty.

So what lessons can Hollywood learn from their current battle with Netflix and the growing power of Youku’s original programming in China? Firstly, studios must get comfortable with the idea that online distribution will be the norm for content consumption in the very near future, not a fringe distribution channel. As the Internet generation gets older, a higher percentage of the population will become accustomed to watching longer form content off the Internet. In this sense, American audiences are becoming more Chinese.

Part of the 11 Degrees Project, the short film Miss Puff's Goldfish Bowl

Secondly, barriers that keep online content from mainstream culture will become less prevalent. As American consumer perception gradually shifts and as a wider swath of the population accepts the Internet as a viable way to receive content, studios will need to treat the Netflix’s and Youku’s of the world as the cable and satellite companies of tomorrow. Access to this subscriber base will dominate future power struggles and content pricing will be a function of who makes the market. Studios are scared, as they rightfully should be. The media conglomerates of the future will be the ones with established web platforms. Everyone else will be playing catch up.

But the lawsuit with Wang’s ex-wife is settled, according to the company’s most recent filing, and Tudou will forge ahead in their latest IPO attempt. Yesterday the company announced it would be seeking $180 million, up 50 percent from its initial filing last November, via an SEC filing.

The company may well need the extra cash as it faces stiff competition from domestic competitors with more experience, more users, and deeper pockets. Tudou’s chief domestic rival is Youku, who raised over $200 million in their own IPO last year, and who gets heavier traffic than Tudou as of their most recent regulatory filings. As previously mentioned, Tudou also faces significant expenses from copyright litigation, and the SEC filing indicates that Tudou expects it will continue to be exposed to IP lawsuits as they move forward with this latest IPO attempt.

In fact, that Tudou plans to continue with its IPO at all right now is somewhat remarkable given that the rough waters overseas have led several Chinese companies to shy away from initial public offerings this year.

Full disclosure: The author of this post is a former Youku employee and an occasional freelance contractor for Youku.

[Via SFGate, Image Source]

In fact, it’s gotten so bad that some tech CEOs believe the window to overseas IPOs has, at least temporarily, closed for Chinese companies. Zhang Fumao, the CEO of Beijing-based web game developer Youxigu, says that his company was originally planning to debut on the market this year, but has now pushed back to 2012.

“The current environment for overseas IPOs is truly awful,” Zhang told reporters. “Many American investors have doubts about Chinese companies entering the market, and funds are looking down on Chinese companies when they make their estimates.”

The main issue seems to be concerns with the veracity — or lack thereof — in the reports offered by some Chinese companies. “Especially for game companies,” Zhang said, “when we apply for IPOs, the user numbers, active user ratio, and the value of each individual user will all be called into question by American and European investors.”

Zhang insists that for any gaming company, the cashflow is sufficient, and there would be no reason for them to cook the books, but foreign investors remain skeptical. And so Zhang, his company, and many other China tech companies, will choose to sit on the sidelines for a while, building their profiles while — hopefully — some of the suspicion directed their way cools down.

[Image Source]

Indeed since its last SEC filing in June we can see that there have been 46 more copyright claims slung at Tudou Holdings Ltd (currently TUDO:US, pending its listing). There are now 587 claims, versus 541 last month. You might like to compare the full SEC documentation for June against the July one. This newest attempt comes after the resolution of CEO Gary (Wei) Wang’s messy divorce, which finally saw the company in a safe place to go ahead with an IPO.

The July 8 filing at the SEC also reveals that of those growing number of copyright issues, 364 have been settled, while 223 are ongoing. Of the 364 settled intellectual property rights (IPR) cases, Tudou lost 182 of them – yes, Tudou has lost exactly half of all squared up IPR cases thus far – and won only 16. Of the others, 79 saw an unspecified reconciliation outside of the courts, while the remaining 89 claims were withdrawn by the plaintiff.

Paying up

So we can assume that Tudou has had to cough up cold, hard cash for up to 261 copyright disputes – which sounds very pricey. Of its 182 lost battles in a courtroom, Tudou has had to pay anywhere in the region of 1,000 to 50,000 RMB (about US$150 to 7,700), indicating that the individual claims have not been massive, but that pay-outs might have totaled millions of RMB.

Tudou.com does have a great deal of licensed content on its site, ranging from American TV dramas to popular Chinese romantic serials, which are ad-supported. Purchasing content is getting increasingly expensive, which is pushing some of the market leaders to commission their own dramas, comedies and animations. Tudou’s CEO recently signaled, however, that it’d focus on creating its own, cheaper video podcast-style content, rather than engage in an expensive ‘arms race’ with Youku and Baidu’s Qiyi.com for the biggest-name TV shows and movies.

Youku.com – which seems to be trying both strategies, whilst also increasing spending on Hollywood content – faced some daunting copyright claims before its own IPO. According to stats on Sina Tech news, Youku faced 250 claims in 2009, and spent a total of 1.5 million RMB (that’s US$230,000 at today’s weakened USD prices) in settling them. [UPDATE; July 14th - I messed up some basic figures that I sourced from Sina; so I corrected those. Also added official figures from Youku below].

Official stats from Youku’s IPO prospectus indicate 2009′s IPR pay-out figure to be 1.4 million RMB from 252 cases (almost agreeing with Sina’s). Youku lost some 30 percent of copyright claims, which is a better record than Tudou’s 50 percent rate of losses so far. Interestingly, Youku’s PR team indicate that post-December 31st 2009 Youku paid out 2 million RMB in claims and other liablities related to cases before that date.

Here’s an interactive graph showing video website market share in China, sourced from stats for June 2011 from 163.com:

Your expensive high speed railway will not save you.

That title is not a metaphor. It seems technology in China really is trying to kill us.

First there was the escalator in Beijing that went crazy and reversed direction last week, injuring more than thirty people and killing one teenager, whose parents are now arguing with MTR, the company that runs that line of the Beijing subway, over what their child’s life was worth. Several other escalators along Line 4 have been shut down since the accident. That may be for unrelated reasons, but as a daily Line 4 passenger, I’m not complaining. I prefer a hiking up a few flights of stairs if the alternative is plummeting to my death.

The Beijing escalator betrayal seemed like an isolated incident at first, but then I learned that another escalator in Shanghai had done the same thing last night. Luckily, it malfunctioned well after rush hour, and as such, only two people were injured and no one was killed.

So avoid the escalators and you’ll be safe, right? Nope. Trains, bridges, and even roads are also out to kill you, and the scariest thing is, they’re all brand new!

Just a few loose bolts, but it’s still good!

Qingdao Haiwan Bridge, photo from The Telegraph

There was the story of China’s newest and grandest bridge, the largest sea bridge in the world. It was meant to be a crowning achievement that helped the Party fete the 90th anniversary on July 1st in style, but rumors quickly spread on Weibo that the bridge hadn’t been properly finished, and after investigating CCTV and other Chinese state media reported that the bridge had loose bolt nuts, unfinished guard rails, and no lighting whatsoever. Those, apparently, are separate projects that will be completed at a later date, even though the bridge is open right now.

Safer on solid ground? Think again

Then today rumors spread (again on Sina Weibo) that China’s new Beijing-Shanghai high-speed rail is also having problems. A reported one-hour stop due to “weather”, it turns out, may have lasted more like two hours, may have included the train tipping precariously to one side, and there are many who doubt the weather had much of anything to do with it. The topic has quickly become one of the Chinese internet’s most popular; Weibo messages from a Caijing reporter about the delay were retweeted tens of thousands of times and this video of an angry passenger arguing with a clearly in-over-her-head and very sad conductor on the train was the second hottest thing on Youku as of this afternoon. The details of this story are not yet clear, but it is obvious that not all is well with China’s newest, fastest and highest-profile high speed rail line.

Less popular but also visible online was the story of this Yunnan highway, which collapsed entirely in one spot despite the fact that it wasn’t yet two days old. Check out the picture below to get an idea of the disturbing extent of the collapse (more on news.qq.com).

news.qq.com

Of course technology isn’t actually revolting, and in fact, the real tech story here is that Sina Weibo, once again, spreads these stories far and wide with remarkable speed, giving rise to rumors but also informing people quickly of news stories that might otherwise be suppressed.

So what’s really going on?

Each case is different, and none of these cases have been properly investigated yet, but the smart money is on corruption and corner-cutting to have some connection to almost all of these problems. The high speed rail was plagued with corruption charges throughout its development, and the cynical were aided in their suspicions when China’s Railway Minister was dismissed earlier this year amidst investigations for “severe” breaches of discipline (i.e., corruption). It’s hard to imagine how a two-day old road could collapse unless it wasn’t properly built in the first place, and in the case of the escalators, there are already whispers that they may have failed because the relevant companies bought cheap escalators that were never meant to hold the number of people who ride them every day during heavy rush hour traffic.

Of course, you can never fully rule out the possibility of a robot revolution. If the smog in Beijing is anything to go by, cars here have already been trying to kill people for years. We recommend keeping your eyes on Weibo for the latest news of technology gone wrong — that is, if you think it’s safe to get that close to a computer!

Photos: Sina Weibo, The Telegraph

1. Xia Xinyu: Xia Xinyu is a young television actress who has been in some well-received shows including “Dwelling Narrowness,” but she’s in the news now for two reasons. First, she is apparently the third party who broke up Nicholas Tse and Cecelia Chung’s marriage. Second, some sexy photos of her have also been released. (Image source)

1. “Naked Wedding”: “Naked Wedding” is a new and popular television program that’s being broadcast both on traditional television and via Youku. It has attracted a lot of attention by claiming to be as “realistic” as “Dwelling Narrowness,” a program so “realistic” in its depictions of the troubles in China’s urban housing markets that it was canceled by censors. “Naked Wedding” has done well, though, and now people are searching for the full collection of episodes of the show. (Image source)

1. Deng Jianguo: Deng is a film exec who has been in the news recently for his marriage to a post-90s girl (someone who was born after 1990) despite the fact that Deng himself was born in 1959. Most recently, photos of their honeymoon have dragged the issue back to the top of China’s mainstream consciousness. Anyway, we’ve got to give Deng his due, for a man over 50, he looks pretty good in these pictures! (Image source)

1. “Naruto” 439: The latest episode of Naruto, a popular Japanese anime program, has been released, and like every week, it’s one of the top things people search for. (Image source)

1. Transformers 3 Screen Time: Transformers is a hugely popular franchise in China but the latest title has been delayed for reasons that we’re sure have nothing whatsoever to do with getting more eyeballs in front of the recent CCP propaganda flick “The Beginning of the Great Revival.” Wink. Anyway, Transformers 3 hits screens in China July 21st, assuming it isn’t delayed again before then, and fans are quite excited to see it (and also peeved they’re getting it weeks after it hit theaters in the US and Europe). (Image source)

1. “Love Before the Sun Goes Down”: “Love”, which is also known as “Ghep Tawan Wai Tee Plai Faa,” is a new Thai TV serial that’s also popular in China. (Image source: Baidu Baike).

1. Li Meixi: Li is yet another young lady who stands accused of helping break of Nicholas Tse and Cecelia Chung’s marriage. In this article, it says she’s now competing with Xia Xinyu to become Tse’s mistress, but as with all Chinese celebrity news, take that with a few grains of salt. (Image source: Baidu Baike)

1. “Modern People”: “Modern People” — a rough translation — is a 2010 TV serial drama set in Beijing that was apparently good enough people still are looking for episodes of it. (Image source: Baidu Baike)

1. “Love You”: “Love You” is a new Taiwanese serial with a deceptively simple English name — the Chinese title is “I fell in love with you when I was drunk.” Romantic! Anyway, people are looking for episode 13 of it, which is the one most recently broadcast. (Image source: Baidu Baike)

1. “New Huan Zhu Gege”: A remade version of a classic and beloved TV serial is about to hit the airwaves in Hong Kong and Taiwan, and as usual for remakes, people are skeptical that it can compare favorably to it’s well-liked source material. (Image source: Baidu Baike).

The Qiyi app has a layout familiar from the main website, where users can also stream videos in their browser, except that it’s darker and has more visual elements. The main categories of video content in the app are: movies, TV series, cartoons, documentaries, arts and literature, music, entertainment, and travel. The football section, which is so prominent on the website, is missing from the app.

The app allows Qiyi to push ahead with how it wants to present its content without being held back by the web-browser, which is especially important in a country which still loves to use the ancient IE6 browser to get online. It also allows Baidu to save bandwidth by using peer-to-peer technology, in a similar manner to Skype’s network.

Youku vs Baidu

Qiyi now has apps for iPhone, iPad, Android phones, Android tablets, Symbian 3, and even Bada – being joined by this new PC variant. You can try out their new PC app here, but take note that its content streams are geo-restricted to inside China only.

Youku and Ku6 have been luckier, after apparently satisfying SARFT’s newly rigid regulations, and have kept their video news channels intact. Note that Tudou’s remains at the ‘news.tudou.com’ URL, but its content has changed.

The clampdown seems aimed at wiping out video news content that doesn’t come from state-backed national or regional stations, and locking down who gets to produce or disseminate news in general. With China and its Party set for an important milestone on July 1st, the timing is not coincidental, either.

Courtesy of Marbridge Consulting, here’s the first of SARFT’s three bulletin points on its strengthened online news oversight:

Organizations with operations which entail gathering and producing their own news are required to possess a ‘Class A online audio and video service’ license. Organizations suited to apply for this license include radio or television stations at the prefecture-level and up.

[Source: The Marbridge Daily]

Pictured above are the current front pages at video-sharing site Youku.com, and web portals Netease (163.com) and Sina.com.cn, two full days before the event. Most websites that I’ve spotted running the regalia have opted to include a ‘close’ button which can return the site to its ordinary clothing.

It’s not clear if the sites are running the red livery as a spontaneous celebration, or if their hand is being somewhat forced by the Central Propaganda Department, which issues weekly directives to all media outlets, instructing them on what to say – and what not to say – so as to tow the Party line.

Either way, even foreign websites such as MSN China are likely to be making the east red as the anniversary date nears, and China’s biggest search engine, Baidu, will likely have a CPC-themed doodle come July 1st.

If you’d like to see some suitably revolutionary songs, you might like to check out the four videos of foreigners rocking some Chinese tunes that we posted a few weeks ago.

It’s not Youku’s first tie-up with the US film studio, having licensed the hit thriller Inception from Warner Bros last year.

Just the other day, my colleague Li Chen wrote about how China’s video sites are needing to spend big to pay for increasingly pricey copyrighted content. In contrast, Tudou.com, over the weekend, announced it would stop trying to compete in terms of licensed shows, and instead focus on self-made and user-generated content.

However, Youku is clearly opting to wow its users with the biggest-name titles, at any cost. Youku’s CFO, Liu De-le, says in the press release:

Over the past year we’ve seen Chinese Internet users become more sophisticated in terms of what they’ll spend money on. People are increasingly willing to pay for high quality content, and we take the growth of Youku Premium as a sign that the market is improving for paid services.

Youku Premium is the site’s showcase platform, being closely watched by the industry to see if users are willing to pay enough. Inception, and most of Youku’s paid video content, costs only RMB 5 – about 70 cents USD – to watch.

Youku reveals it has seen “200,000 paid transactions for its library of more than 300 movies” and thousands of educational TV shows since Youku Premium started in October of last year. The maths on that doesn’t sound too enticing when you consider how much they’ve decided to charge, putting a movie on a par with a mobile app in terms of expense.

Marking a divergence from the TV-like – or Hulu-like – aspirations of Youku.com, and Baidu-owned Qiyi.com, Tudou will instead focus on two kinds of ‘self-produced’ content: high-budget animations, drama, comedy series, and lower-budget user-generated content (UGC) that somewhat resembles video podcasts – a content approach that Tudou has been trying for a little while, and likes to call UGC 2.0, to differentiate it from users’ general, random uploads.

Recently, after the Tudou Video Festival which showcased such UGC 2.0 works, the company was running with the mantra that “Everyone is the director of life”, so it wasn’t too surprising when Gary Wang – original name Wang Wei – said in the staff meeting in Beijing the other day that Tudou “will focus above all on self-made and UGC content,” but with the proviso that it “will not reduce the investment in this area of ​​copyright,” – to quote a Chinese visual media news site, but not Mr Wang’s actual words.

No mention was made of Tudou’s long-awaited US IPO, however.

Leading the way, or losing ground?

The move away from competing fully against Youku, Qiyi and PPStream for viewers’ attentions with so much copyrighted content looks set to remove some of those licensed shows from Tudou, gradually over time, such as the TV series Lost (pictured above), as well as the tear-jerker Korean romantic drama serials that are so popular amongst Chinese youngsters. It’ll remain to be seen if that impacts the number of visitors going to the Tudou site.

At the moment, Tudou has a 17% share of Chinese video market, compared to the 22% enjoyed by Youku.

For a flavour of Tudou’s UGC 2.0 content, and to evaluate whether it’s the right move to make in the market now – in terms of viewers and attracting ad revenue – head over to the Creative section of the Tudou site and take a look around. or, check out this embedded video of a student-produced 12-minute animation about a hapless and timid crocodile kid…

[Source: Rboke.com]

There’s a recent trend among video websites in China to spend enormous amounts of money to acquire TV and movie content. In the past, such content was usually streamed without license, and as a result many Chinese video sites became wildly popular when they first started. But now that many of them have IPO’d (or intend to IPO) they are trying to go legit with licensed content.

According to 163, citing the a Hunan newspaper, internet video sites are sparing no expense to keep movies and TV content so that their audiences don’t stray:

The price of a hot TV series could reach as much as 600,000 RMB (or almost $100,000) per episode. Just this year, at least five hot TV series sold over 20 million RMB, among which, the remake of the famous 1998 hit series Princess Pearl/ Huanzhu Gege sold for over 30 million RMB, with a total of 97 episodes. Sohu was the big spender on that deal, becoming the only online distributor of the series with this record price. This is especially impressive when compared with the 2006 big seller online Wulin Waizhuan, which sold for 100,000 RMB for 81 episodes.

However, expense is not a major concern for the buyers. Most websites have employed a dedicated team, providing professional advice on their purchases. And this gives websites a new way of marketing. Profit is assured. In the first quarter of 2011, the profit of Chinaʼs online video business reached 660 million RMB, while at the same time last year, the number was only 314 million RMB. (my translation)

An Alternative to buying

If the price continues to grow at this pace, it may bring an end to the era of free online TV series in China. Recently we’ve also written about how many video sites are beginning to produce their own original content themselves. Youku stands out with the popular short film The Ultimate Winner, its own animated web series, and even more content on the way.

As it always has been, the Chinese video space will be an interesting one to watch. Here’s how the Chinese market share is divided right now, the numbers courtesy of 163: