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Enemies make friends in video war
April 27, 2012, Friday
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LESS than two months after the merger of top Chinese video sites Youku and Tudou, three other leading players in the market joined hands to acquire more patented content and share some broadcasting.
The move was aimed at reducing content costs in the face of cutthroat competition, but it's not clear how much the alliance will shake up the industry.
Under the new arrangement, Sohu Video, Tencent's video unit and Baidu's online video venture iQiyi said they will share some of their existing content through one another's sites. At the same time, they will buy group airing rights for patented TV series and movies.
Enemies of your enemy
In business there is an axiom: Your only friends are the enemies of your enemy. Does that kind of thinking really work in China's online video market?
"It can help the three websites save licensing fees, but it will take some time to see how indeed the alliance will work out and what kind of licensed content they'll be buying and sharing," said Analysys International's researcher Zhang Fan.
The alliance's strength is built on Baidu's leading position in the search engine market and Tencent's more than 600 million active QQ instant messaging users.
"We hope to leverage each other's advantages," said Deng Ye, chief executive officer of Sohu Video and vice president of Sohu Inc.
The three companies said in a joint statement on Tuesday that they hope the move will bring down soaring licensing fees to a "rational level," enabling them to compete more easily in a fierce market.
Patent fees for some of the popular TV series have skyrocketed more than 10 times to around 2 million yuan (US$317,460) for one episode in the past two years.
"The association is a natural outcome for the three companies, and their partnership will bring pressure to bear on market leaders Youku and Tudou," Zhang added.
It is still unclear how much money the three companies will spend to acquire licensed content in the future.
They said they each agreed to provide exclusive airing rights for four TV series to be broadcast on all three networks in the next year.
"It would be very difficult for any single video site to buy exclusive airing rights for popular TV series or for blockbuster movies because the cost is so high and advertising income can't cover the costs," said Geng Xiaohua, vice president of iQiyi.
Sohu Video and iQiyi ranked third and fourth in the market before the merger of Youku and Tudou last month. Tencent was in the fifth place and collectively they held about a fourth of China's 1.69 billion yuan online video market, compared with Youku and Tudou's combined 33 percent in the fourth quarter last year, according to an Analysys International report.
Consolidation underway
Analysts had predicted when Youku and Tudou announced their US$1 billion share swap in March that the move signaled a consolidation underway in the loss-making industry.
After the announcement of Sohu-Baidu-Tencent alliance, Tudou said in a carefully worded statement that it "appreciates" efforts by other industry players to bring back licensing fees down to a more rational level. That will benefit the industry as a whole, it added.
However, teaming up solves only a small part of the problems facing the trio of video streaming sites.
It's true that the deal will probably allow them greater access to a larger number of TV shows and movies. But it also means that each of them may have to spend more on marketing to attract users who will quickly discern that the three sites largely have the same premium content.
Online video uses typically surf around to find content. A number of factors determine where they end up, including loading speeds of a website or even the design of a web page.
No guarantee for profit
There is definitely no guarantee that the cost saving of sharing content will translate to profitability.
Ever-rising licensing fees for premium content have been squeezing the profits of almost all the major video streaming sites for the past few years.
Both Youku and Tudou were still reporting losses at the end of the first quarter.
Sohu and Tencent haven't spun off their video units yet, forcing the parent companies to pour huge subsidies into those money-losing units.
Baidu's iQiyi was a joint venture with Providence Equity Partners. It still isn't making money after two years of operation.
Smaller players in the online video market are probably the biggest losers. As the bigger players consolidate and present more formidable competition, they may be forced to close shop.
The move was aimed at reducing content costs in the face of cutthroat competition, but it's not clear how much the alliance will shake up the industry.
Under the new arrangement, Sohu Video, Tencent's video unit and Baidu's online video venture iQiyi said they will share some of their existing content through one another's sites. At the same time, they will buy group airing rights for patented TV series and movies.
Enemies of your enemy
In business there is an axiom: Your only friends are the enemies of your enemy. Does that kind of thinking really work in China's online video market?
"It can help the three websites save licensing fees, but it will take some time to see how indeed the alliance will work out and what kind of licensed content they'll be buying and sharing," said Analysys International's researcher Zhang Fan.
The alliance's strength is built on Baidu's leading position in the search engine market and Tencent's more than 600 million active QQ instant messaging users.
"We hope to leverage each other's advantages," said Deng Ye, chief executive officer of Sohu Video and vice president of Sohu Inc.
The three companies said in a joint statement on Tuesday that they hope the move will bring down soaring licensing fees to a "rational level," enabling them to compete more easily in a fierce market.
Patent fees for some of the popular TV series have skyrocketed more than 10 times to around 2 million yuan (US$317,460) for one episode in the past two years.
"The association is a natural outcome for the three companies, and their partnership will bring pressure to bear on market leaders Youku and Tudou," Zhang added.
It is still unclear how much money the three companies will spend to acquire licensed content in the future.
They said they each agreed to provide exclusive airing rights for four TV series to be broadcast on all three networks in the next year.
"It would be very difficult for any single video site to buy exclusive airing rights for popular TV series or for blockbuster movies because the cost is so high and advertising income can't cover the costs," said Geng Xiaohua, vice president of iQiyi.
Sohu Video and iQiyi ranked third and fourth in the market before the merger of Youku and Tudou last month. Tencent was in the fifth place and collectively they held about a fourth of China's 1.69 billion yuan online video market, compared with Youku and Tudou's combined 33 percent in the fourth quarter last year, according to an Analysys International report.
Consolidation underway
Analysts had predicted when Youku and Tudou announced their US$1 billion share swap in March that the move signaled a consolidation underway in the loss-making industry.
After the announcement of Sohu-Baidu-Tencent alliance, Tudou said in a carefully worded statement that it "appreciates" efforts by other industry players to bring back licensing fees down to a more rational level. That will benefit the industry as a whole, it added.
However, teaming up solves only a small part of the problems facing the trio of video streaming sites.
It's true that the deal will probably allow them greater access to a larger number of TV shows and movies. But it also means that each of them may have to spend more on marketing to attract users who will quickly discern that the three sites largely have the same premium content.
Online video uses typically surf around to find content. A number of factors determine where they end up, including loading speeds of a website or even the design of a web page.
No guarantee for profit
There is definitely no guarantee that the cost saving of sharing content will translate to profitability.
Ever-rising licensing fees for premium content have been squeezing the profits of almost all the major video streaming sites for the past few years.
Both Youku and Tudou were still reporting losses at the end of the first quarter.
Sohu and Tencent haven't spun off their video units yet, forcing the parent companies to pour huge subsidies into those money-losing units.
Baidu's iQiyi was a joint venture with Providence Equity Partners. It still isn't making money after two years of operation.
Smaller players in the online video market are probably the biggest losers. As the bigger players consolidate and present more formidable competition, they may be forced to close shop.
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