China's Video sites see profit in programs

Youku and Tudou, two of China's leading video sites, are set to confront more competition as huge amounts of capital pour into the industry. But for now, profits are less prolific.
Youku, China's first overseas-listed online video website, raised 233 million U.S. dollars on the New York Stock Exchange in December.
Last month, Shanghai-based PPLive, another video site with huge number of viewers, announced it has received $250 million in financing from Japan's Softbank Corp, which will take a 35 percent stake. That could lead to a fierce battle as more capital is pouring into the market.
Viewers have to install peer-to-peer software to watch PPLive's online streaming of TV programs and films whereas Youku and Tudou allow users to access their content through websites.
Much of the new capital will go toward buying licensed content from both domestic and overseas production houses.
PPLive said the average time a single user spends on its software is 2.5 hours per day, but whether time can be turned into profit remains to be seen.
Yao Xin, president of PPLive, said the company met its financial obligations in 2010 but has yet to break even.
Sales income surged fourfold in 2010 and growth momentum will continue this year, Bloomberg News reported, citing PPLive Chief Executive Officer Vincent Tao.
Content is key to succeeding in the industry, and so far, a lot of that content -remains pirated.
"We will certainly spend more to ensure a supply of licensed content, and we have entered into partnerships with different content suppliers," a marketing official at PPLive told Shanghai Daily.
Unlike Tudou and Youku, which feature a lot of video clips made by so called "grassroots" singers and performers, PPLive said it is focusing on professionally produced content, including local TV programs.
Youku is pursuing a similar strategy as it tries to grab more high-end content as well as hot TV series to attract users.
According to a stock exchange filing by the company, licensing fees for popular domestic-made TV series more than doubled in the first nine months of 2010.
Liu Dele, Youku's chief financial officer, noted that content costs could climb higher this year. He made the comment in a phone call with analysts after the release of the company's first earnings report following its listing earlier this month.
Youku reported a $5.7 million net loss for 2010, narrowing 18 percent from 2009 a year earlier. Revenue for the year surged 183 percent to $23.1 million.
"It's time for Youku to increase investment in content and a better user experience if it is to maintain its competitive edge," commented Analysys International's online video researcher Tang Yizhi. "It's too soon to talk about profit."
Still, Youku's Liu said his company is not interested in trying to secure exclusive airing rights for TV series, but will settle for the cheaper cost of sharing licensed programming with other content distributors.
If a market leader like Youku is still cautious about lavishly money on content, one can imagine how cash-strapped, smaller players are faring.
Instead, both Tudou and Youku are moving toward the production side of the industry by making their own TV series. Although that route is cheaper, perhaps, it still requires securing advertisers as production costs climb above 100 million yuan ($15.1 million) per episode.
In terms of advertising revenue, Youku leads the pack with a 21 percent market share, compared with Tudou's 16.6 percent.
The overall advertising market in the -industry nearly tripled in 2010 to 2.17 billion yuan.
Despite all the promising figures, there are skeptics who doubt that the industry is close to profitability.
"Ordinary viewers are most comfortable and relaxed when they're sitting on a couch and browsing through the TV channels rather than viewing programming on their laptops," wrote Wei Wuhui, a teacher at Shanghai Jiao Tong University's School of Media and Design and a columnist on the new media industry.
He said he's even less sure about the "comfort" impact of wireless technologies that will allow video websites to air programming through smartphones and tablet PCs. Advertisers will still view the TV set as the most effective way to reach consumers, at least for now, he said.
Indeed, wireless and 3G access is still limited to a relatively small group of elite users. For Youku, wireless value-added services and redistribution of online video contents generated only 7 percent of income in the fourth quarter of 2010.
Before any other large-scale, profit-making models emerge, websites will continue to be forced to throw large sums of money into content, and it could well be a case of he who squanders too much ends in last place.
Some see it differently. According to Analysys International's Tang Yizhi, the major value of video websites lies in their ability to distribute content through new channels, and mainstream income still relies on advertising sales and a small proportion of premium service fees.
Despite its vow to air authorized TV series and films from partners from home and abroad, PPLive is not alone in airing too much unlicensed content, although covertly.
Despite government crackdowns on piracy, it is astonishing to find dozens of American college open courses available to PPLive premium subscribers who pay 120 yuan a year. The website for Yale's open courses clearly stipulates that none of the courses are to be used for commercial purposes.
Then, too, hundreds of high-definition domestic and foreign films, whose use may or may not be pirated, are aired all the time.
Industry people keep insisting that eliminating unlicensed content will take time. But the longer it takes, the more damage to the industry's reputation as a whole.
Tudou and Youku have gone through court cases concerning intellectual property rights and gradually removed unlicensed videos in the run-up to their overseas listings. That's where reputation really matters.
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