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BIDU is looking more Google like everyday.

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September 21, 2010 – Comments (0) | RELATED TICKERS: BIDU , GOOGL , YHOO

This is what FORBES says about BIDU.

 

The Google Of China Also Has Its Own Youtube Clone

There have been increasingly loud rumblings about China’s leading Youtube clones, Youku and Tudou, racing each other toward U.S. IPOs later this year or early next year. But they are also racing against a new, well-connected competitor, the Hulu-like Qiyi.com, which is co-owned by China’s leading search engine Baidu (51%) and Hulu investor Providence Equity Partners (49%).

A dominant search engine owning an online video site — now where have we heard this one before? This sort of synergy looked good on paper when Google bought Youtube, but it could prove vital in China. The Chinese online video market is still unsettled and highly competitive, and all the players are still bleeding money.

Youku and Tudou have raised a combined $255 million — $90 million of that just since I wrote this magazine article on them last year. We can thank a third established player, ku6.com, now publicly listed on Nasdaq as KUTV by way of acquisition by Hurray Holdings, for our first openly verifiable look at how quickly these companies can burn cash: The company reported a whopping net loss of $11.8 million in the second quarter this year.  (Youtube, it should be noted, is not a factor in China, as it is blocked by the Great Firewall; owner Google, of course, also famously dropped its mainland-based search service this year due to its refusal to continue self-censoring).

All three players have to contend with daunting expenses: bandwidth and self-censorship, both of which scale up as the sites become more popular; and content, which is also getting more expensive as the sites compete with each other to deliver quality product to their viewers. They also have a difficult challenge on the revenue side: the big advertising dollars that they need still go, for various reasons, to the traditional state-owned television players like CCTV, and those vested interests can be counted on to fight hard to keep that money.

Why should Qiyi.com have a chance to do well in this environment? The site, which just launched in April, doesn’t get nearly as much traffic yet as the leading players. And the video market has been brutal to for some contenders, either for lack of backing, smarts, luck, political savvy or all of the above.

Qiyi has some obvious advantages, most notably on search traffic. Baidu insists it is an honest broker on video search, but it would be foolish not to find ways to tip viewers toward its own video site, and Baidu is not foolish. (See my colleague Andy Greenberg’s magazine article on the company and its billionaire CEO Robin Li last year). Qiyi also has deep-pocketed backers in the cash-rich search engine and in Providence, an experienced media investor that has contributed $50 million and will surely not hesitate to throw in more as needed.

But when and if online video turns profitable in China, it will also depend on optimizing those brutal expenses and hard-to-capture revenues, and that is where Qiyi also may have some advantages. The Hulu-like licensed content of Qiyi should make self-censorship a lower-cost line item than at its leading competitors, each of which have to contend with a lot of user-generated videos. Qiyi can also get more bang for each bandwidth dollar, as that kind of longer-form content is also attractive to advertisers, a reason all the other sites have long been busy signing up content partners (Internet portal Sohu and ku6, for example, went in together on a $10 million fund to license Hollywood movies).

Clearly, a shakeout is coming at some point. Youku and Tudou are hoping the capital markets will put them ahead of the others, though either standalone could get swallowed up by a mega-platform like Tencent, as Digicha blogger Bill Bishop has suggested. Ku6 will have help from its current backer, online games giant Shanda Interactive and billionaire Chen Tianqiao. Qiyi has its piggy bank and some key advantages the others don’t.

What do I think will happen? A crucial and often unspoken issue that has yet to play itself out is what the most powerful players in Chinese broadcasting will want to do. Television and movie content is something the government cares deeply about, and the advertising revenue that comes with it is something the monopoly-minded state-owned broadcast networks also care deeply about. The more that online video moves in the direction of becoming television and film, and the more that online video reaps advertising revenue, the more closely the government will be watching.

What is more, a state-owned company has a better shot at securing a lower rate on bandwidth from the state-owned enterprises that currently sell at much higher prices than in the U.S. We have seen these kinds of state-owned supply chain advantages in other industries like airlines, where private enterprises have struggled.

All this means not only that consolidation is inevitable, but also that the winners will have to have very strong government relations. That could mean CCTV is one of those winners. A company like Baidu, which has done well so far at managing its relationship with the government, just might also have a shot at ending up a winner. Another point for the Google of China’s entry into the video market

 

 

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