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'China's YouTube' pries path through profit puzzle

Owen Fletcher | July 29, 2009 is courting advertisers while opening other small streams of revenue

BEIJING, 29 JULY 2009 -, China's leading video sharing Web site, faces a challenge shared by YouTube and other rivals worldwide. The Web site has worked to expand its revenue from video ads, mobile downloads and elsewhere, and it claims a massive audience of 25 million visitors each day. But despite all that, Youku -- like YouTube and similar sites worldwide -- has yet to become profitable.

Investors have pumped millions of dollars into online video companies like Youku on the belief that they will eventually start turning profits, and the companies have tried building different revenue models to reach that goal. Youku is now "on the path to profitability," Victor Koo, CEO of Youku, said in an interview. But an ongoing challenge is winning advertisers that have traditionally spent most of their marketing funds on television. Television claims a much larger piece of advertising budgets in China than it does in developed countries, said Koo.

"We're trying to get advertisers to see us as what we are, which is Internet TV," Koo said. "That is still, I think, a work in progress."

Youku's ad revenue is growing quickly thanks to a sales team that started full operating early last year, Koo said. Youku, launched three years ago, now has 250 advertisers and expects to comfortably surpass its revenue goal of 100 million yuan (US$14.7 million) this year. Its advertisers include big brands like Coca-Cola, Audi and Chinese PC maker Lenovo.

Advertisers can buy display ads on Youku's Web site or video ads that run before downloaded clips. Some ads appear on top of paused video clips or during episodes of serial dramas, which Youku hosts through deals with copyright holders. Youku has sought such deals to gain more of the professional content that often attracts advertisers.

Youku also pulls some revenue from ads beside search results on its site, provided by Google and Chinese search engine Baidu.

But the company has started supplementing its advertising income with revenue from elsewhere. Merchants on Taobao, an auction site dubbed "China's eBay," can pay Youku a fee to place video clips in their for-sale item listings.

Youku also receives some revenue from traffic to its new mobile phone portal. Deals with China's three mobile operators give Youku a slice of the subscription fees users pay to download videos on the portal. The portal is still in beta, but Koo expects it to start bringing in more revenue next year as China's carriers build their numbers of 3G subscribers.

Youku launched a Web site tailored for the iPhone months ago, and it is working with handset makers like Nokia and Sony Ericsson to embed Youku applications on some of their phones.


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