Youku shows signs of maturity

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Corporate News

Net losses at Chinese online video firm Youku Inc 優酷 more than doubled to RMB62.8 million ($9.9 million) in its latest quarter, but the company exhibited signs of improving health including a doubling of revenues and moderation of its costs. The company also said that its planned merger with Tudou Inc 土豆網 was comfortably on course.

"Despite challenging macroeconomic conditions, we recorded another quarter of strong revenue growth." said Victor KOO 古永鏘, chairman and CEO of Youku. "We are pleased to see the continued rationalisation of the online video sector and improving content and bandwidth cost structure. The planned integration with Tudou is proceeding smoothly and we are on track to realise the potential of the combination of No.1 and No.2 online video platforms in China."

Revenues in the second quarter of the year were up by 96% to RMB387.4 million ($61.0 million), gross profits grew 48% to RMB76.9 million ($12.1 million).

Although it revealed that the cost of acquiring content had ballooned from 25% of net revenue to 37%, it said that most of this inflation occurred last year and that now "current content prices for popular TV serial dramas [are] about 1/3 to 1/4 of the peak."

In another sign of maturity Youku cited research showing that online video has surpassed online search in terms of Chinese internet user coverage in May 2012, and that since Sept 2011, online video has accounted for more user time spent than any other internet application in China.

Shareholders of both Youku and Tudou are expected to vote on the merger proposals on 20 Aug and the company said that the deal is expected to create more value than previously envisaged. That's because the two have fewer overlapping viewers than previously thought, something which will enhance advertising effectiveness in future.

The management teams are expected to be fully merged by the fourth quarter of the year.

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