China's video sharing market will see a reshuffle after the government recently tightened its control over online video websites in the country.

The State Administration of Radio, Film and Television (SARFT) said in a statement last Wednesday that it has ordered eight online video-sharing websites in China to shut down and issued warnings to 20 websites over "improper online content" including copyrighted movies, violent videos and pornography.

The statement follows an earlier SARFT announcement in March that ordered 25 video-sharing websites to close and warned 32 others, including Tudou.com, one of China's largest YouTube-copycats.

Gao Xiaohu, analyst from domestic research firm Analysys International, said the government's latest movement will force many of the small video-sharing website in China to shut down and will help current major players expand their market shares.

"Major video sharing websites in China have all been under great pressure to prove their potential to make cash after having generated huge traffic during the past few years," he writes in a research note.

"The government's latest campaign will force advertisers to reduce or even stop spending their budgets on small- and-medium-sized websites and increase their expenses on major ones, which will accelerate the industry consolidation."

According to experts, China has about 100 video-sharing websites, which over the past few years have received over $100 million in investments from venture capitalist firms encouraged by Google's $1.65 billion acquisition of YouTube in 2006.

But the lack of a mature business model has forced many video-sharing websites to tacitly allow individual users to upload copyrighted films, violent videos or even porn clips in an effort to increase their viewer numbers, which in turn helps them get investments to pay for the rocketing broadband expenses.

This approach has triggered the displeasure of the SARFT and the Ministry of Information Industry, which unleashed a controversial regulation in December that gives State-controlled entities the sole right to operate web sites that provide video or audio content, or permit user uploads or downloads of the media.

Although the SARFT revised the edict in February with a grandfather clause that permitted websites that were established before January 31 to have licenses and continue operation, the government's grip on online video has increased, especially due to the upcoming Beijing Olympics.

Victor Koo, founder and CEO of Youku.com, one of the major video sharing websites in China, says that if online video businesses want to be become major application operators and a healthy industry in China, it must be acceptable for everyone.

"Online video sharing websites will never thrive based on violence or pornography," says Koo. "We will fully support the government's regulation because what we want to do is to establish healthy mainstream platform."

The Chinese video-sharing websites have long been relying on investment from foreign venture capitalists but their revenues have long been limited by prudent advertisers who are extremely wary in embedding ads in online video clips.

Although most of the major video sharing websites including Youku.com and Tudou.com claim they will make a profit next year, many advertisers still fear that some of the inappropriate content will have a negative impact to their brands and may drag them into copyright lawsuits or expose them to additional regulatory risks.

Gao from Analysys International said that the government's recent move to tighten control over online video content did help clear out the "troubling" video clips and will increase the commercial value of the online video sharing websites.

"Under the joint pressure of regulation and investments, small players will be forced out of the market and this will give major video sharing websites a bigger bidding power over advertisers," Gao says.

China has overtaken the United States to have the world's largest Internet population, boosting the country's online advertising market to 9.34 billion by the end of last year, according to research firm NielsenOnline.

Domestic research company iResearch says in an earlier report that video-sharing websites took 1.9 percent of the country's online advertising market last year. It predicts it will grow to 2.8 percent this year and hit 4.5 percent by 2010.

(China Daily 05/26/2008 page9)

2013-07-17