Regulator Eyes Online Video in Ad Crackdown 广电总局或限制视频网站广告

By newsdoug on January 6, 2012

Video sites face new regulation Chinese regulators seem to have discovered a sudden fondness for the Internet, first saddling many social networking sites with cumbersome “real name” rules and now potentially setting their sights on the fast-rising video-sharing sector. I doubt these 2 initiatives are related, but they both do reflect a worrisome surge in China’s classic heavy-handed approach to fast-rising new industries, which often ends up stunting their development or even killing them outright. In this latest news, Chinese media are reporting that an official at SARFT, the agency that regulates TV, has hinted that tough new requirements limiting the amount of ads that TV stations can show during their programs may also soon be extended to video sharing sites. (English article) The new requirements would come just months after many of China’s leading video sites, including Youku (NYSE: YOKU), Sohu (Nasdaq: SOHU) and Tudou (Nasdaq: TUDO) have signed a series of landmark agreements to offer legally licensed content as they wean themselves from the pirated material that has historically been a mainstay on such sites. (previous post) Thus the new requirements, if they come, would almost look like punishment for this positive development, when instead encouragement should be offered. This new requirement would follow the higher-profile move in December when Beijing issued new rules requiring all social networking sites (SNS) to register users using only their real names. (previous post) That rule dealt a blow to Sina (Nasdaq: SINA), whose wildly popular Weibo microblogging service looks set to become the biggest victim of that new policy. Frankly speaking, I’m not even really sure how dependent the online video sites are on advertising for their revenue, as some of the movies and TV shows offered under these new licensing agreements are on a pay-per-view basis that would see users paying to watch content. But regardless of the current situation, advertising is clearly a potential revenue source as these companies work toward sustained profitability, and any move by regulators to put sharp new limits on this activity could seriously hamper the industry’s development.

Bottom line: Potential new rules limiting ads for online video sites could seriously hamper the industry’s development, hurting their chances for sustained long-term profitability.

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