Youku to buy Tudou, creating China online video giant

Mon Mar 12, 2012 5:10pm EDT
 
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By Kazunori Takada

SHANGHAI (Reuters) - China's top two online video companies are joining forces, with Youku.com buying smaller rival Tudou Holdings Ltd in an all-stock deal worth over $1 billion, creating an industry leader with more than a one third share of a market that is losing money as it battles rising costs.

The two U.S.-listed firms have been bitter rivals, locking horns in courtroom battles over alleged copyright infringement and unfair competitive practices.

Both companies have this month reported a net loss for last year, pinched by rising costs for Internet bandwidth, content and mobile video services.

But bringing the two together is a good move for a highly competitive industry with many players fighting over more than 450 million Internet users, analysts said.

"This creates China's biggest video site, but it doesn't create a YouTube - they still have less than 50 percent market share," said Bill Bishop, an independent analyst based in Beijing.

Youku currently leads the fragmented Chinese online video market with a 21.8 percent share, ahead of Tudou's 13.7 percent, according to Internet research firm Analysys International.

"We know online video is way too competitive. There are 10 players, where there should be only one to two," said Michael Clendenin, managing director of Shanghai-based RedTech Advisors.

"After this merger there are still too many players in the industry," he said, noting others in the market such as Sohu.com Inc, Baidu Inc, and Tencent Holdings Ltd, which is trying to develop an online video platform.   Continued...

 
An employee is seen through a glass wall as she walks past the logo of Youku.com above the reception desk at the company's headquarters in Beijing, in this December 9, 2010 file photo. Youku.com, China's largest online video company, is to buy second-ranked Tudou Holdings Ltd in an all-stock deal valued at more than $1 billion to create an industry leader in the world's biggest Internet market. REUTERS/Soo Hoo Zheyang/Files