SHANGHAI-BASED PPLive and other privately owned online video Websites are scrambling to expand their content and retain user loyalty as traditional Chinese television stations and Internet portals muscle into a lucrative and growing market.

PPLive, one among the earliest providers of peer-to-peer online streaming of live TV broadcasts, announced last Monday that it is forming a joint venture with Beijing-based media and broadcasting company Sun Media Group.

The financing and structure of the venture weren't disclosed, but reports said it will target women in the 20-40 age bracket. Sun is controlled by popular female TV host Yang Lan.

China has 384 million Internet users, bigger than the population of the United States, and an estimated two-thirds of them watch online videos. Video Websites, portals and now traditional TV stations are eying those numbers as a lucrative revenue source in advertising.

New channels

Global online advertising spending on the video sector will increase up to 45 percent every year in the next five years and may reach US$5.2 billion yuan, according to the US-based eMarketer.

"More and more traditional TV program producers are seeking new channels to reach more viewers via their own video sites or through other platforms," said Zhao Huibin, an analyst with China Internet Network Information Center. "As the big players enter the market, privately owned video sites will have to expand and diversify their content to attract picky viewers."

The online video industry in China is fragmented and highly competitive. To survive, those already in the business are jostling for new content sources and for strategic alliances to bolster their marketing reach. For those wanting to enter the business, the race is on.

"We are hoping to cooperate with more content providers and are also considering producing and broadcasting some exclusive programming," said Chen Zhong, marketing director for PPLive. "By widening the array of our programming, we hope to target our users more specifically according to their ages and interests."

PPLive is among the leading online video platform in the world, with an installed user base of 175 million, according to its open information. The site, which has been compared with Hulu in the US, streams licensed video content to users free of charge. According to Reuters, the company doubled its revenue from advertising on the site last year. No figure was given.

In early December, the company secured more than 100 million yuan (US$14.6 million) from private equity DFJ DragonFund, BlueRun Ventures and Softbank China as part of a third round of financing. It also received an unknown amount of capital from a Shanghai government development fund.

Baidu Inc, the country's top search engine, also made a strategic investment in the company in 2007, but no details about that link-up have been made public.

Internet portals in China are also seeking to carve out positions in the online video market.

NetEase, one of China's biggest Internet portals, recently teamed up with Shanghai-based online video provider Joy.cn, giving the site a wider platform for user access.

The link-up also allows Joy.cn to restructure its video site to include programs from more than 100 TV stations, including about 10,000 TV series episodes.

"We will continue to offer users licensed movies and TV series at the same time as we expand channels to more Internet portals and social networking sites," said Joy.cn Chief Executive Officer Vincent Lv.

Joy.cn spent about 50 million yuan for licensed content in 2009. The figure is expected to swell considerably this year as the site expands programming.

Independent players

Apart from its investment in PPLive, Baidu is adopting a more aggressive strategy. The Nasdaq-listed company announced plans this month to create an independent company to offer premium online videos to Chinese Internet users. The new entity is designed to work with content providers to supply copyrighted material, including movies, TV shows, sports, and animation, and it will generate its revenue through advertisements.

Providence Equity Partners, an investor in Hulu, is teaming up with Baidu for the venture. The size of the investment and a start-up date weren't disclosed.

"As China's Internet industry evolves, we have seen increasing demand for high-quality video content on our search platform," Ren Xuyang, Baidu's vice president of marketing and business development, said in a statement.

"By establishing this new company, we will be able to better serve our users and customers with superior content and focused resources," he said.

The popularity of online video entertainment and revenue prospects in the industry have not gone unnoticed by China's traditional television stations. They want a piece of the action.

In late December, state-owned Hunan TV launched its online video platform.

"We expect online advertising to become a new source of revenue," according to Zhang Ruobo, chief executive officers of Happy Sunshine Entertainment Interactive Co, the new media subsidy of Hunan TV.

Hunan TV also plans to work with mobile phone manufacturers, including Apple Inc and Nokia, to develop plug-in software on mobile devices in order to reach more users.

The big kid on the block of broadcasters is China Central Television. The dominant government-owned network launched its own online video site, China National Television Network, late last month.

China National Network Television provides users with live TV programming as well as reruns from its 20 channels. Users may also upload their own homemade videos through a user-generated sector.

Barely into its first month of service, China Network Television added another five services including movies, documentaries, business news and TV serial programming.

These newcomers won't grab a significant market share for at least the next two years because they need time to fully develop new business models, according to Tang Yizhi, an analyst at Analysys International.

"Traditional media like CCTV will take rather a long period of time to adapt to new methods of marketing for its Website content," she said.