Web Clean-Up Expands To Baidu, Youku Tudou
The web clean-up that began in April with a relatively innocuous-looking crackdown on Sina’s (Nasdaq: SINA) video sites is showing signs of becoming a major movement, with word that regulators in Beijing are investigating 52 website operators for violent and pornographic content, including giants Baidu (Nasdaq: BIDU) and Youku Tudou (NYSE: YOKU). News of this new clean-up comes after similar reports emerged last week that online game operators were coming under similar scrutiny, and indicates the current crackdown could last for the next few months.
This kind of campaign is relatively common for China, though it’s always difficult to predict how things will develop. In this case, one of the nation’s several Internet regulators revoked the video licenses for Sina in late April after determining that some of the content on its relatively small site was pornographic. (previous post)
At that time, I observed that the move looked like a warning signal to much larger video operators like Baidu and Youku Tudou, which inevitably had similar content on their sites due to the large presence of user-generated material. Unlike Sina, which derives very little revenue from its video service, the revocation of video licenses for Youku Tudou or Baidu would have been disastrous for their businesses.
Now it seems that both Baidu and Youku Tudou have gotten sucked into a clean-up that increasingly looks like it’s coming under a directive from central leadership rather than just a regulatory agency. According to the latest reports, the pair of Internet leaders were among 52 Internet companies that are being investigated for violent and pornographic content on their sites. (English article; Chinese article) Another site among the group is operated by NetEase (Nasdaq: NTES), one of China’s leading online game operators.
All the reports are almost certainly correct despite their use of unnamed sources, since the original story comes from the central Xinhua news agency. Xinhua points out that to date, regulators have banned 122 web publications and punished 93 websites for publishing inappropriate content, in what look like new figures from the media regulators designed to show their movement is spreading.
Investors in Youku Tudou seemed most concerned about the news, with the company’s shares dipping nearly 2 percent in the latest trading session. Baidu’s shares actually rose nearly 2 percent, while NetEase shares were largely unchanged. Investors are probably betting the clean-up will be relatively limited, and that regulators won’t take any drastic moves against such major names as Baidu and Youku Tudou.
That seems like a relatively safe assumption, since these companies are emerging as some of China’s most promising private firms that are becoming an increasingly important part of the economy. Previous clean-ups have run a similar course, often leading to the closure of some smaller websites while leaving the larger players relatively unharmed.
From the broader perspective, the bigger questions are how long this current movement is likely to continue and what kind of impact it might have on the online video and publishing industries. The current movement looks like an extension of a broader clampdown that began about a year ago at many of the nation’s major media and journalism schools. The effects of that campaign are still being felt, though momentum seems to be slowing.
One reason the government may be moving more carefully this time is the economy. Put simply, China’s leaders worry that the nation’s economy is rapidly slowing. Thus they are unlikely to take drastic actions that could cost jobs and unnerve financial markets. Accordingly, I would expect to see this current campaign continue for the next 2-3 months, and then slowly ease through the rest of the year.
Bottom line: A government Internet clean-up campaign is likely to build over the next 2-3 months, but won’t claim any major victims due to Beijing’s concerns about the slowing economy.
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