Qiyi, Baidu’s Hulu Clone, Launches. Time For Consolidation in China’s Online Video Industry?

• Posted by bbishop
• on April 24th, 2010

Qiyi.com launched this week. It is a partnership between Baidu and Providence EquityPartners, an investor in Hulu. Qiyi flatters Hulu with a front page nearly identical to Hulu’s.

I have written several posts about the China online video market. Consolidation is needed and may be coming. I have heard from several people that Sina has been actively talking to potential partners in the online video sector. There are not many good ones left. Among the Youtube clones, Youku is the best, Tudou is second, and 56.com is a distant third. Among the P2P video firms, PPStream and PPLive seem equally successful, and in classic Chinese competitive spirit PPLive is suing PPStream, accusing it of removing the PPLive software during a new PPStream upgrade install.

All of the above firms are growing but are still small, especially compared with state-owned players like CCTV’s CNTV and Shanghai media group and the huge, cash-rich listed firms like Tencent, Sina and Sohu.

Tencent, with a $35 B+ market capitalization and $1.2B+ cash in the bank (even after its $300 M investment in DST) could easily swallow Youku or Tudou. Youku is in a better position, as it recently closed a $40 M round and should have plenty of runway to get to profitability. Tudou has a great service, but they have not yet announced a new round of funding.

The most frequent version of the Sina rumor is that Sina will invest a large amount into Youku, which will then look to consolidate one or more of the remaining private Chinese video firms. I have not confirmed this, and it has not yet appeared in the Chinese press. But bankers are circling, such a deal would make sense, and the structure would fit with Sina’s history of joint ventures or investments as opposed to outright acquisitions.

True or not, there is now enough advertising revenue in online video that all the big players need to have a play in this space. Chinese Internet firms have historically tended to prefer building over buying, to the chagrin of many a Web 2.0 focused venture capitalist. Shanda’s Hurray did purchase Ku6, but at a very distressed price. In the case of Tencent, to which the market has gifted an awesome market cap, buying into an immediate, leading position for a tiny percentage of that market cap may make more sense than trying to build it themselves. If I were a banker, that is what I would be pitching.

Please tell me what you think in the comments.

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