Video websites post heavy losses amid mounting costs

After several Chinese video-sharing websites saw their losses widened during the first quarter of the year, analysts told the Global Times Sunday that the loss-making trend is unlikely to be reversed any time soon.

Youku.com Inc, a leading video webiste in China, reported Friday a net loss of 156.1 million yuan ($24.8 million) in the first quarter of 2012, compared to a net loss of 46.9 million yuan for the same period in 2011.

The company attributed the increase in the loss to higher video content prices in 2011, rising labor costs, as well as "expanded investment in product development in wireless, search, social and paid services".

"The jump in the loss at Youku was mainly caused by fierce competition in the sector and rising video content costs," Li Yan, an Internet analyst with Beijing-based financial information provider imeigu.com, told the Global Times Sunday.

Li noted that such a trend of losses in the online video sector "will not change any time soon."

Besides Youku, some other Chinese video-sharing websites have also reported losses for the first quarter.

Huang Hui, chief financial officer of Renren Inc, one of China's largest social networking sites, disclosed on May 15 in a conference call that the revenue brought by its video-sharing subsidiary 56.com was "small" - about $1 million for the first quarter.

Renren reported a loss of $13.6 million for the first quarter of 2012, a 423 percent surge from $2.6 million loss during the same period of 2011.

"After some mergers or partnerships, which will possibly take place this year or next year, a few companies will emerge as dominant players in the market, and they are likely to change the loss-making mode of operation," said Li.

Cooperation is already taking place in the industry. In late April, Internet companies Sohu.com Inc, Tencent Holdings, and Baidu Inc officially announced that their video-sharing websites would be teaming up to buy video rights together under a "Video Content Cooperation", aiming to bring down the prices of copyrights of video content.

Another two companies Youku and Tudou Holdings, after long being engaged in legal disputes, announced in March that Tudou would merge with Youku in an all-stock deal worth over $1 billion. The merger is expected to be completed in the third quarter of 2012, and the new entity will be named Youku Tudou Inc.

"Some small video companies will be phased out of the market, and the big few that survive in the sector will work out sound strategies to earn profits," said Li.