Youku Sees Mobile, Original Content Aiding Profit Push, Koo Says

Youku Tudou Inc., China’s largest online video company, says original programming and a push into mobile content will help the company as it seeks to post its first profit since a 2010 initial public offering.

Viewership on mobile applications for smartphones and tablets like Apple Inc.’s iPad was 50 percent higher this month than at the end of last year, Victor Koo, chairman and chief executive of Youku Tudou, said in an interview in Beijing on April 27. Youku bought rival Tudou Holdings Ltd. last year to reduce costs for content and bandwidth.

Youku Tudou, which hasn’t been profitable since it listed on the New York Stock Exchange, faces growing competition in China’s online video market. Baidu Inc. has expanded its video service with an acquisition as it seeks a greater share of advertising revenue that’s projected to rise to 16.2 billion yuan in 2014 from 1.36 billion yuan in 2009, according to Shanghai-based iResearch.

“Online video advertisement is growing very fast, but not fast enough to support exciting profits,” said Ma Yuan, an analyst at Bocom International Holdings Co. in Beijing.

Youku Tudou’s net loss more than doubled to 424 million yuan ($69 million) in 2012 from 172 million yuan a year earlier. The Beijing-based company is forecast to lose 419 million yuan this year, according to the average of eight analyst estimates compiled by Bloomberg.

Youku Tudou held about 76 percent of the online video market in 2012 based on monthly average unique visitors, according to iResearch.

Losses Narrowing

While Koo said the company is on a “clear path to profitability,” he declined to project when that will happen.

“The losses are narrowing on a sequential basis,” Koo said. “We are still in a growth investment mode, especially with mobile and original content. The good thing is our revenue is also growing healthily.”

Mobile traffic is increasing “very, very strongly” with 150 million daily video views at the start of this month compared with 100 million at the end of last year, Koo said. The company gets more than 90 percent of revenue from advertising although paid video services are growing at “high double-digit or triple digit rates,” he said.

One bright spot is greater success in charging for original content, Koo said. The company made almost as much charging for views of its own popular series of videos called “Hip Hop Web Movies” as it did from paid viewings of the movie “Life of Pi,” Koo said. He didn’t disclose revenue figures for either.

Youku Tudou shares have gained 3.7 percent this year, compared with an 8.1 percent decline in the Bloomberg China-U.S. Equity Index of the most-traded Chinese shares in the U.S.

Separate Brands

The company is dividing the business into three main units, maintaining separate brands for the Youku and Tudou online video operations with a third division managing search and premium accounts.

Wei Ming was this month named president of Youku with Yang Weidong to lead Tudou as the company tries to boost efficiency and create separate brands for the two services.

Baidu, owner of China’s most popular search engine, acquired online video site last year. Robin Li, chairman and chief executive officer at Baidu, said he expects the site to become profitable.

“We will continue to support iQiyi to grow, but right now it is still burning money,” Li said on April 26.

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