Internet firms tie up for video content

China Daily, April 25, 2012

The Chinese online video industry saw another surprising corporate collaboration on Tuesday as Sohu.com Inc, Tencent Holdings Ltd and iQiyi.com - the online video branch of Baidu Inc - launched the Video Content Cooperation alliance.

The three online video providers, previously fierce rivals for Internet video consumers, said they will bring their combined purchasing power to bear in joint acquisitions of "superior" domestic and imported video content.

They will also share their existing content libraries and provide other mutual support.

"Sohu, Tencent and Baidu 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," said Deng Ye, chief executive officer of Sohu Video and vice-president of Sohu.com Inc.

The combination could make VCC the most powerful communication and marketing platform in China's online video industry, she added.

Liu Chunning, vice-president of Tencent, said he hopes the alliance will "burst the bubble" of overpriced content in China.

As online video providers pursue users by offering popular movies and TV shows, they're spending increasingly large sums to acquire entertainment while remaining in the red.

The price of some popular TV shows surged to more than 1 million yuan ($158,560) per episode in 2011, from about 50,000 yuan to 80,000 yuan in 2009.

"Irrational pricing and disorderly competition have made it hard for Chinese online video providers to make ends meet," said Liu. Ad revenue hasn't come close to covering the costs for the websites.

"VCC offers economies of scale. It may bring order to the industry and push prices down," he added.

Liu Hong, chief operating officer of LeTV.com, said VCC's presence will benefit the development of China's online video industry and help bring the price of licensed content to reasonable levels.

"Purchasing content is one of the biggest costs for video websites. In the long run, it will continue to increase," said the LeTV.com executive.

Analysts said the unexpected merger of Youku.com Inc and Tudou Holdings Ltd last month forced the smaller online video providers to act.

Youku had the biggest share (21.8 percent) of China's online video market in the fourth quarter of 2011, followed by Tudou with 13.7 percent, said the domestic research company Analysys International.

Sohu.com Inc was ranked third with a 13.3 percent share.

Tencent launched online video services in April 2011. The company has a much smaller market share than Youku or Tudou.

"Obviously, the merger of the industry's top two players posed big challenges for smaller competitors. You have to respond to survive," commented Tao Chuang, chief executive officer of PPTV, a domestic online TV service.

Ruan Jingwen, president of iResearch, a Beijing-based research firm, said VCC will reshuffle the Chinese online video industry and help elicit new orders.

"The launch of VCC indicates that Chinese video websites have finished fighting over scraps and formed a few giant to compete with each other," Ruan said.

The number of Chinese Internet users who watch videos online reached 325 million by Dec 31, according to the China Internet Network Information Center.