China Watch Blog has learnt that China’s top two online video companies are joining forces, with Youku.com buying smaller rival Tudou Holdings in an all-stock deal worth more than US$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 US-listed companies have been bitter rivals, locking horns in courtroom battles over alleged copyright infringement and unfair competitive practices, according to a Shanghai Reuters report.
Both companies this month reported a net loss for last year, pinched by rising costs for internet bandwidth, content and mobile video services.
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.
Shares of Tudou, which is 9 per cent owned by Sina Corporation, soared 159 per cent in early trading on Monday in New York to US$38.30 from Friday’s US$15.39 close. Partly reflecting the tough competition, Tudou shares, which debuted in August, had consistently traded below their IPO price of US$29 each.
Youku stock surged as well, gaining 15 per cent to US$28.80. Shares in Baidu, China’s top search engine, lost 1.2 per cent while Renren, dubbed China’s Facebook, saw its stock gain 4.3 per cent.
Youku currently leads the fragmented Chinese online video market with a 21.8 per cent share, ahead of Tudou’s 13.7 per cent, according to internet researcher 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, and Tencent Holdings (SEHK: 0700) Ltd, which is trying to develop an online video platform.
“These are not small, insignificant players. So even though this is a step in the right direction in terms of consolidation, there’s still a long way to go,” Clendenin added.
