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People's Daily Online>>China Business

Online Video Corporations Merger might End Losses

(People's Daily Online)

09:37, March 27, 2012

"We intend to lead the next phase of online video development in China,"said Victor Koo, founder, chairman and chief executive officer of Youku. On March 12, 2012, Youku Inc. (NYSE: YOKU) and Tudou Holdings Limited (NASDAQ: TUDO) announced that they had signed a definitive agreement for Tudou to merge with Youku in a 100% stock-for-stock transaction.

Under the terms of the agreement, Youku and Tudou shareholders will own 71.5% of shares, and shareholders of Tudou American Depository, a U.S. dollar-denominated equity fund of foreign corporations, listed on New York Stock Exchange (NYSE), will own the balance. The combined entity will be named Youku Tudou Inc. According to the press release, Youku's ADSs will continue to be listed on the NYSE under the symbol "YOKU".

The competition for the Chinese online video market has intensified. According to Chinalabs, a number of Chinese video sharing sites, such as 56.com, Ku6.com and Qiyi.com have gained 9.05 %, 8.24% and 7.11% market shares, respectively. However, online video sites are not able to generate reliable revenues except through advertising. Youku derives all of its revenues from online advertising services.

Tudou filed a prospectus form – publicly traded companies are required to file this form to disclose information – with the U.S. Securities and Exchange Commission in August 2011.

According to its summary, Tudou typically enters into advertising contracts with third-party advertising agencies. “We pay agency fees to third-party advertising agencies that purchase our advertising services and recognize revenues net of these agency fees.”

Youku has suffered losses since its initial public offering in 2010. Youku had a net loss of 204.68 million Yuan (US$ 31.01 million), while Tudou suffered a net loss of 347.4 million Yuan (US$ 52.6 million) in 2010. The net loss continued into the 2011 financial year. According to unaudited 2011 financial results, Youku reported a net loss of 47.474 million Yuan (US$ 7.445) for the third quarter, which ended September 30, 2011.

Besides continued losses in the Chinese video market, the new merged Youku Tudou Inc will have about 51% of market shares, according to Chinalabs. “Youku Tudou Inc. would establish a clear and dominant leadership position in China's online video sector and become one of the largest Internet properties in China,” said Koo.

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