Online video sector stuck in the red
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Both US-listed online video portals, the Beijing-based Youku.com and Ku6 Media Co, have reported a net loss in their 2010 fourth quarter financial reports released Tuesday. Analysts attributed the problem to the industry's high investment requirements in the initial stage of business development.
Youku reported net revenue of 152.5 million yuan ($23.21 million) in the fourth quarter, up 183 percent year on year. But expenses exceeded earnings — Youku reported 37.7 million yuan ($5.74 million) in net losses in the financial report. And total losses in 2010 could reach as much as 200 million yuan ($30.44 million).
As for Ku6, the company posted net revenue of $6.8 million in the fourth quarter, up 58.4 percent year on year, but its losses expanded to $15.4 million in the same period. And total losses in 2010 came to $51.5 million.
Liu Dele, chief financial officer of Youku.com, said Tuesday to the media that the IPO-related costs partly attributed to the company's losses in 2010.
But Zhao Xufeng, an industry analyst with Shanghai-based iResearch Consulting Group, further pointed that the online video industry could entail huge investments before profits can be reaped, which mainly accounts for the losses reported by the two online video portals in 2010.
"Prices for TV play copyrights have doubled in 2010, compared with 2009," said Feng Lin, an analyst with the China e-Business Research Center.
Currently, advertisements make up a major part of online video companies' income.
And Youku's Liu said that ad revenue accounted for nearly 93 percent of the company's total income, reported sina.com Tuesday.
But according to iResearch's Zhao, advertisements on video websites are under-priced in most cases due to the fact that the industry is still highly fragmented.
"Prices for advertisements posted on online video portals will be gradually raised after further integration of the industry," noted Zhao.
And analysts agree that there is still a long way to go before the fee-based model rakes in big bucks for online video companies, due to the fact that the country is still rampant with pirated products.
"People are not willing to pay if free substitutes are available," said e-Business Research Center's Feng.
However, with the number of Internet users growing in China, analysts hold firm that the online video industry still has big potential in the future — while not every industry player will survive.
"The industry in general has a bright future, but some companies will be weeded out," said Zhao.
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