Tencent, Sohu, Baidu Unit to Form Online Video Alliance

Tencent Holdings Ltd. (700), Sohu.com Inc. (SOHU) and Baidu Inc. (BIDU)’s iQiyi.com unit said they will form an alliance to offer online video services in China, a month after industry leader Youku Inc. agreed to buy a rival to cut costs.

The agreement between Tencent, Sohu and iQiyi will cover collaboration on content licensing and broadcasts, according to a joint statement e-mailed by the companies yesterday. The partnership will help restore “rational pricing” for video content, it said.

Youku, China’s most-popular online video website, last month agreed to buy Tudou Holdings Ltd. (TUDO) to add online users and help boost pricing power over purchase of content. The deal, valued at $1 billion at the time, would combine two companies that together accounted for more than a third of China’s Web video advertising revenue in the fourth quarter, according to data from Analysys International.

Sohu accounted for 13.3 percent of China’s online video advertising revenue in the fourth quarter, behind Youku’s 21.8 percent and Tudou’s 13.7 percent, according to Analysys. iQiyi, a venture between Baidu and Providence Equity Partners, ranked fourth with a market share of 6.9 percent, according to the Beijing-based researcher.

Tencent, China’s biggest Internet company by market value, rose 0.9 percent to HK$238.80 at the close in Hong Kong, valuing the Shenzhen-based company at HK$440 billion ($56.7 billion). Baidu, owner of China’s most-popular search-engine, and Sohu are both based in Beijing, while their stock are traded in New York.

The deal with Tudou will generate as much as $60 million in cost savings annually, Youku Senior Vice-President Michael Xu said at the time. Both Youku and Tudou are unprofitable as the costs of licensing video content soared for Chinese Internet companies.

To contact the reporter on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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