The Youku.com website is displayed on a computer. The Chinese Internet video market rose to global prominence with Youku's US$233 million initial public offering in the United States in December.
Visitors shunned the booths of traditional television companies and elbowed their way into the exhibitions of Youku.com, Tudou.com and other Internet video service providers at the 17th annual Shanghai TV Festival last week.
Their eagerness to see all the latest online trends underscored the hot potential and changing face of the Chinese Internet video market, which rose to global prominence with Youku's US$233 million initial public offering in the United States in December.
An estimated 280 million users watch online videos in a market that is expanding with such diversified services as online payment, search, high definition and social networking functions.
"Everyone knows that people are watching online videos, and the key point is how to give them a unique experience," said Zhang Dazhong, vice president of Shanghai Media Group. "Better experience leads to success in competition."
Zhu Xiangyang, vice president of Youku, China's biggest online video provider, told a forum during the festival that 61 percent of China's online population - the biggest in the world - watches videos.
Advertising prospects are equally vast.
China's online video ad market revenue is expected to reach 2 billion yuan (US$303 million) this year and is forecast to hit 14 billion yuan within the next five years, said Liu Chunning, online video division general manager of Tencent, China's biggest Internet firm.
Small wonder that investors are piling into the market. In just the past few years, Chinese Internet video firms have received more than US$1 billion in funding, according to research firm ChinaVenture.
But revenue streams do not always equate to big profits. Most video websites, including top firms such as Youku and Tudou, are still struggling to break even, analysts said.
For the first quarter, Youku reported a net loss of 46.9 million yuan, although revenue rose 163 percent to 128 million yuan.
It's a fiercely competitive market where quality of content can make or break companies. Youku said 28 percent of its revenue was spent on content in the first three months of this year. That was up from 17 percent a year earlier. About 44 percent of revenue was spent on bandwidth costs.
Firms can no longer afford to rely solely on online advertising to cover costs and make profits.
The name of the game is business diversification, both to give users a wider experience and to secure more sources of income, industry officials said. Among those in the game, besides Youku and Tudou, are Xunlei.com, Tencent, Shanghai Media Group, Sharp and Samsung.
To penetrate into the realm of Internet video users in China, who are "young and have high incomes," Youku said it will expand its content from TV dramas and films to growing sectors such as video music, cartoons and other entertainment.
Youku, which has a 40 percent market share, is introducing new features, including video search engine Soku, Zhu said.
Tudou, which is planning its own US IPO, said it enjoys an advantage in the user-generated content sector.
Whereas other video websites invest heavily in the purchase of TV programs and films to broadcast online, Tudou encourages its users to upload their own video clips, something akin to YouTube.
Tudou also has established an online transaction platform where users can offer for sale the videos they make themselves.
All of the big companies, including Youku, Tudou and Tencent, have invested heavily in the production of dramas exclusively for online broadcast.
Shenzhen-based Xunlei, which provides users download and online video services, said it is experimenting with charging users for HD video downloads, offering higher download speeds and mobile video services.
"We are trying our best to find other income sources," said Zou Shenlong, Xunlei's chief executive.
Tencent, which runs the popular QQ instant messaging service and microblog service, plans to integrate social networking functions with online video broadcasts, while also encouraging user-generated content.
At present, Tencent has more than 300 million QQ users and 100 million microblog users.
It's a natural way for Tencent to integrate online video with social networks, utilizing its huge user base, the company's Liu noted.
Tencent also said it plans to invest more than 500 million yuan on TV and film production.
Traditional television companies are also trying to get a piece of the online action.
Shanghai Media Group provides video services through platforms ranging from traditional free-to-air broadcasting and Internet protocol TV to computers, mobile phones and tablets like iPad, the company's Zhang said.
SMG also has established a TV shopping mall with a "fast and one-click" payment system that allows users to pay for products directly through their television sets.
Device makers are also emerging as players in the market.
Lenovo Group Ltd, China's biggest personal computer maker, announced during the forum that it is introducing its first smart TV, which allows users to access online video content.
Sharp and Samsung also talked up their strategies on smart TVs, saying they are eager to collaborate with online video content providers.
The most mature business model seems to be that of mobile TV, which allow users to watch videos on their cell phones.
Websites, including Tudou and PPLive.com, have launched mobile client ends in China, allowing people to watch and search videos via cell phones and tablet computers.
Generally, it's much easier to charge handset users than it is to charge Internet users. Websites share the income with telecom operators like China Mobile. "Our handset program with China Mobile is now our most profitable business," said an official from Tudou, who specifically asked not to be identified.
