Youku Aims to Unite Fragmented Chinese Media

The web has a reputation for serving niche markets and splintering and localizing media, but apparently things are different in China. The folks from leading Chinese video site Youku visited our office this week, and painted a picture of an extremely localized Chinese television market that takes the vast majority of the country’s advertising dollars. So Youku CEO Victor Koo thinks there’s an opportunity to create a new national media market on the web where one didn’t exist before.

youkuexecsAccording to SARFT (the State Administration of Radio Film and Television), there are 1,660 different TV stations and only one national network, CCTV. Meanwhile, with 300 million Internet users in China (270 million of them on broadband), some 140 million visit Youku every month, said Koo, the former president of Chinese portal Sohu (s SOHU). Koo thinks that uniting that audience around a body of programming will give TV advertisers a good reason to shift their budgets online.

Besides the fragmented media status quo, there are a number of factors that could help Youku bring a national market to its mix of original, TV, and UGC content. Youku is a programmed site, and unlike its algorithmic American counterparts at YouTube, it accepts payment to promote content within its various content categories. And original online shows have only just emerged in China, but they’ve already proved promising, with a local franchise of the international series Sofia’s Diary scoring 15.3 million hits on Youku and other sites since December, according to Variety.

Meanwhile, media companies are moving away from DVDs and into relatively less-piratable online streaming. Some premium content companies allow Youku to host their programs for free, simply to gain web distribution and make a modicum of online ad revenue, according to CFO Liu Dele.

Then there’s the fact that Youku may actually be around for a while, due to its willingness to comply with the Chinese government (which Koo and Dele insisted is loosening its grip on web content). Of all the Chinese video sites, Youku seems to have the best relationship with the government, and early on secured licenses for both distributing traditional media over the Internet and hosting user-generated uploads.

But Youku faces the same monetization issues as other online video sites. It may have attracted an aggregated audience, but it hasn’t been able to capitalize on it yet. Koo said Youku only introduced pre-rolls in the middle of last year and today it sells just 2-3 percent of its inventory, with a standard of one pre-roll and one post-roll per hour-long show (that’s way less than we’re used to in the U.S.). As it gets involved in more content development, the site is also exploring sponsorships and product placement.

Koo and Dele said next up in their quest to start an all-China phenomenon and generate revenue will be a nationwide “roadshow” series of events that would bring the site’s online experience offline.