You may still question about the revenue model of online video and how long they will be burning the money, but the fact is that Ku6 has been listed, and other two leading video sites Tudou and Youku both are preparing for its IPO. (ref: Chinese online video sharing: where is the way out)

The Money

Tudou has raised USD 135 millions since it was set up in 2005; Youku has raised in total USD 160 millions in its 6 rounds of fundrasing and the latest one is USD 50 millions which closed only 2 months ago (ref: this). No need to say why they still need money, but you may wonder why not go for VC money for one more time? First of all, I don’t think it make sense any more to raise another round of VC money. USD 50 millions investment this amount probably has reached the max for a VC round; The valuation for these sites is very high after several rounds. Also from strategy point of view, video sites need much more money to cope with very high copyright fee, more bandwidth, fast growing mobile market. Of course, I guess the pressure from the investors may also be the reason. After years of burning money, VC firms of course want the exit as soon as possible. Acquisition sounds impossible anymore for Tudou and Youku considering their valuation, IPO seems the only and a must solution.

The Piracy

YouTube is fighting against the Piracy issues for a long while. Piracy, as always, might be complicated in Chinese internet where every one can not avoid. On one hand, due to the tough competition, video sites have to pay more and more money for the copyrighted content. (Youku paid around usd 8.44 million for copyrighted content during the first 9 months this year, according to this report.) On the other hand, some video content producer even movie studio want to see the piracy content on these sites at beginning because it can help generating social buzz and later on when content gets hot they can charge more. So the piracy is a long-time battle which could be the hurdle for sites going IPO, but surely they know how to get around it. Also we have seen sites like Tudou has been working hard to give people the image, it encourage Chinese independent and creative video producers to work with them and help them monetize their works. Tudou Video Festival which is held every year is absolutely great, is like Oscar for Chinese online video industry.

The Market

Net loss attributable to Ku6 Media was $12.8 million in the third quarter of 2010 ($12.4 million in the second quarter of 2010, and $5.2 million in the thirdquarter of 2009, according to this report.) Tudou‘s loss is reported at $12.67 millions in past three quarter this year; and Youku’s net loss is even double the figure, $25.27 millions in past three quarter this year (via this). Even so, the investor, the operator still believe it is worthy of burning the money. Thanks to the market. According to Nielson’s latest report on Chinese video market, 265 millions users watch video online and around 40 millions only watch online video instead TV. The market value will be over $300 millions by end of this year. iResearch report also say the market value for Chinese online video market will reach $775 million by end of 2012. The market still has huge potential.

The Vision

So how are they going to use the money? Besides paying for the expensive bandwidth, marketing expense, copyright content, high-difinition video content etc, I think they must have a clear plan for the fast growing mobile video market. With 3G getting popular in China, it assumes more and more videos will be watched on mobile devices; and some new ideas, such as live video streaming from mobile phone, augmented reality which could bring more interesting business models to this industry.

The money will keep burning, as long as we still have the hope!

Dr. Gang Lu - Founder of TechNode. He's a Blogger, a Geek, a PhD and a Speaker, with passion in Tech, Internet and R'N'R.

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