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China's YouTube rival shifts into overdrive

Steven Schwankert | Aug. 20, 2008
Since its launch in December 2006, has emerged as China's online video leader.

Koo said that Youku has "directed" the way people prepare their videos, encouraging users to film the world around them instead of just themselves.

That direction seems to be paying off with advertisers. Since it began accepting advertising in January, the company has signed up 150 advertisers, Koo said. They include Olympic sponsors Lenovo and Samsung, both of which ran games-related promotions on the site.

He said advertising growth has been double-digit for every month of 2008, although he did not provide actual figures.

Youku's model sees advertising as its main revenue stream. It also wants to be a platform for professional video content creators, such as film and television studios, and advertisers wishing to use online video. Like rivals both domestic and foreign, Koo does not believe his company will charge users for the service anytime soon.

"We would need to do high-definition (HD) to have an online subscription model," he said. "HD, copyrighted material could work, maybe in two years," he added.

However, with current consumer broadband speeds in China topping out at 2M bytes per second, the country would need an increase in bandwidth before companies can offer HD video online.

Koo said his company takes "a proactive stance towards copyrighted material," by screening out unauthorized content, and seeking out rights holders to create partnerships. Youku counts Shanghai Media Group, Beijing TV and Hong Kong's Television Broadcasts Ltd. (TVB) as partners for television content, and has agreements with film distributor China Film Group and studio Huayi Brothers.

Those partnerships could be the key to Youku's ultimate success, according to one observer. "Generic content is the scourge of this sector, so their ability to sign up original content deals is key," said Duncan Clark, chairman of BDA China, a Beijing-based telecom and Internet investment and research firm.

Liu Bin, BDA's principal analyst, added: "Its major challenge is how to increase the user experience and add user interactivity to its services. A [video on demand]-like business is not the key selling point of video sharing, and user loyalty for such services is not high. Youku cannot effectively grow merely by adding more content. It needs to think of offering more services to compete with other online video companies."

For the remainder of this year and 2009, the challenge for Youku is to prove its model, Koo said. A liquidity event -- usually an initial public offering or buy-out -- wouldn't be considered until after that, he said.


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