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China's video sharing websites hunger for capital

By Yu Hongyan (chinadaily.com.cn)
Updated: 2008-12-19 15:50

More than half of China's 200-plus video-sharing websites plan to cut jobs to save costs to stay float as the financial crisis makes it hard for them to get financing.

Only 1 percent of those websites managed to turn profits, with the remaining 99 percent in the red, according to iRearch, a Shanghai-based online marketing research firm.

Related readings:  License relief for video-sharing websites  Video sharing website to raise ad prices  Netizens call for interactive govt websites  Online community Tianya plans share sale

Uncertainty about returns on investment and the financial turmoil have made venture capital (VC) investors hesitant in investing in the video sharing website industry, the Shanghai Securities News reported.

The sector only received six VC investments this year.

"I think the entire video sharing industry is unlikely to raise funds within the next three years," said Gary Wang, CEO of Tudou.com, one of the country's largest video sharing websites.

"It would be much harder to raise capital at the moment, especially for those who don't have a clear business plan."

Cutting jobs will be the first step for these companies to save costs, though some insiders doubt its effectiveness, because labor only accounts for less than 30 percent of the total costs, while servers, bandwidth, and other hardware costs take up the remaining 70 percent.

Victor Koo, CEO of Youku.com, Tudou.com's major rival, believes the severe market situation will help to restructure the industry, leaving the most competitive one or two video sharing websites to survive.

And acquisitions by major portal websites seem to be another way to survive, said some analysts. For example, Hupo.tv and Mofile.com, two small websites merged recently.

China overtook the United States to have the world's most Internet users at 253 million at the end of June, 160 million of which are video sharing website users, according to the China Internet Network Information Center, the country's network information center.

The changing consumption patterns have encouraged advertisers to put their ads online. Sources from iResearch said that the market size of Internet-based economy came to 14.63 billion yuan ($2.14 billion) in the third quarter of 2008.

iResearch's statistics show that ads on video sharing websites were worth 170 million yuan in 2006, and 410 million in 2007. The number for 2008 is expected to be larger.