In 2006, the popularity of video sharing websites hit China with their number sky-rocketing from 30 to over 300. However, with unclear objectives in mind and little avenue for profits, around 90 percent of them will likely close before next year, insiders say.

Since it was first launched in February 2005 and then bought up by Google for US$1.65 billion in October 2006, video sharing website Youtube has changed the face of the Internet. Through it, people are able to upload their own home videos, as well as movie clips and music videos, to share with all and sundry online.
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Chinese speculators did not stand idle and a number of Chinese rivals surfaced overnight, which gave rise to some frantic competition. Unfortunately, this soon led to burn-out from under-funded new kids on the block such as UUme.com, whose parent company Oak Pacific Interactive decided to choke off funding for it in June, and others like Mysee.com sure to soon follow.

"For hundreds of domestic video sharing sites, most of them will be gone in the future," said Wang Wei, the founder and CEO of China's largest video web Tudou.com, when speaking to the Oriental Morning Post Wednesday. He described these failures as a natural phenomenon.

Gu Yongqiang, CEO of Youku.com, specified that the industry was controlled by an intimate group of enterprises with strong funding, giving the example of the US$15 million received by Youku in venture financing last December.
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Although the number of video sites in China has surpassed 300, including podcasting, P2P downloading, video sharing, video searching ones, industry insiders see it as a bubble that is ready to pop.
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One analyst told the Post that many such sites lack vision and are merely trying to emulate the Google-Youtube phenomenon, in being acquired by a major company.
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"Many friends of mine who also developed video web businesses are suffering now," Wang Wei said. "Though Tudou.com secured its third venture investment in April, other webs have little funding driving them to closure."

The Post quoted the whole industry as having garnered 600 million yuan (US$78.9 million)?in 2006. The top sides invested over 100 million yuan (US$13.15 million)?apiece into their businesses, giving them low profit margins in an industry set to blossom to 3.4 billion yuan (US$447 million)?in domestic annual revenue by 2010.

According to iResearch's statistics, since 2004, China's online video industry has received US$120 million in venture investment.
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"To make a viable online video website, you need 100 million yuan to start," said Gu Yongqiang, highlighting the huge costs associated with this operation.

Gu said if competent websites want to be established in China's complex Internet environment, pretenders must enhance the national video-uploading-and-downloading system as well as severs and bandwidth, a costly operation for small players.

TVix.cn's CEO Wu Bo also indicated that the operation cost of a video web in China is even higher than it in the United States.

"We cannot learn much from American video sites," Wu said. "The advertisement pricing tag on our webs is 1/80 or 1 percent of American companies', but our operation cost is 4 times higher than America's."

"If we wish to reach the traffic amount that Youtube has reached, we would have to pay our telecom operators 240 million yuan (US$31.56 million) every year, obliterating any profits," he added.

Wang Wei said his Tudou.com has just launched a new advertisement system, but he does not envisage profits for a further three years.

(China.org.cn by Zhang Rui, July 6, 2007)