China's online-video industry may require a facelift as domestic technology giants and government-backed media groups enter the fragmented but potentially lucrative market.

Market entry by these mammoths casts a dark cloud over the future of domestic Youtube-like websites, such as Youku.com and Tudou.com, which are funded heavily by foreign venture-capital firms.

"We are dancing with a group of elephants," said Gary Wang, chief executive of Tudou.com, one of China's largest video-sharing websites. "If we don't dance carefully, we could easily get crushed."

Wang's so-called "elephants" include most of China's technology giants and video copyright owners, which recently identified the online-video sector as the perfect location to expand influence.

On Wednesday, Chinese search engine Baidu Inc announced plans to form a new company to provide copyrighted content to users. The news came shortly after China Central Television, Shanghai Media Group and Hunan Television, one of China's most popular providers of entertainment programs, announced plans to post their videos online. [Baidu to form video portal]

"The success of Hulu in the US has emboldened Chinese companies and media groups of this business model's huge potential," said Edward Yu, CEO of domestic research firm Analysys International.

Yu said websites like Youku.com and Tudou.com, which have long been accused of offering pirated content uploaded by their users, and therefore they may need to shift their focus to specific market sectors like entertainment programming or user-generated content.

Hulu is jointly owned by NBC Universal, News Corp and Walt Disney Co and allows viewers to stream TV shows over the net for free in the US. The website has won over users as well as advertisers from Youtube since its debut in 2007.

Tudou.com's CEO admitted while they are under new competitive pressure, they have no plans to change their strategy.

Unlike in the US, there are no mega-media groups that control the majority of domestic films or TV programs in China, and it is that reality that increases the chances of survival for firms like Youku.com and Tudou.com.

Victor Koo, founder and CEO of Youku.com, told China Daily in an earlier interview the impact of government-based media groups on his firm may not be as gloomy as predicted.

And although these groups may hold a substantial advantage in news and sports programming, Youku.com has the advantage in entertainment programming.

Koo contends that his company, with revenue of about 200 million yuan last year, will greatly expand its library of authorized video content this year.

Liu Ning, an analyst at research firm BDA China, said compared with video sharing websites such as Youku.com and Tudou.com, Chinese video streaming websites such as PPStream, PPLive and Xunlei may be the first to feel the heat.