Video Sharing: Let the Tie-Ups Begin

By newsdoug on August 18, 2011

Tencent courts Youku Just a day after Tudou’s (Nasdaq: TUDO) disappointing IPO that saw its shares drop 12 percent on their trading debut (English article), there’s buzz in the market that Tudou’s top rival, industry leader Youku (NYSE: YOKU) is in talks for an equity investment by Chinese Internet leader Tencent (HKEx: 700). (English article; Chinese article) Such a tie-up would bear a remarkable resemblance to Google’s (Nasdaq: GOOG) landmark purchase of global online video leader Youtube several years back, and testifies to the fact that online video is a much better business prospect when it has strong support from a company like Google or Tencent, which can use their wider array of services to steer traffic to these more specialized video sites. The development is also interesting because Tencent itself has already flagged video as a major focus area, pumping hundreds of millions of dollars into a business it hopes will help to jump-start its sputtering growth. (previous post) If and when it happens, such a tie-up will give money-losing Youku, which already enjoys a market cap more than 4 times the size of Tudou, an even bigger advantage in the video-sharing market, providing the clout of China’s top online game and instant messaging service provider. Such a move could leave Tudou, whose chairman Gary Wang has little or no interest in similar tie-ups, no choice but to find its own partner. Rumors of such a tie-up were already rife in the run-up to Tudou’s IPO, with talk that it was seeking investment from leading online search site Baidu (Nasdaq: BIDU), which no doubt would still be interested in such a tie-up. (previous post) Other video sharing sites like Xunlei, which had to abort a planned IPO last month as market sentiment tanked (previous post), could also be forced to search for new tie-up partners if a Youku-Tencent alliance takes shape.

Bottom line: An equity tie-up between Youku and Tencent would throw a new dynamic into the video sharing market, forcing other players to seek similar tie-ups.

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