Online advertising surges to $11.7 billion (2)

The top position is currently dominated by search companies.

Advertisers started to pay more attention to the online video sector as more people started to use the Web to watch video content, according to the report.

The total revenue of the nation's online video market hit 9.25 billion yuan in 2012 with advertising revenue taking nearly 73 percent, iResearch estimated.

The company projected the market could be worth more than 33 billion yuan by 2016 and advertising income will take about 70 percent of the total revenue.

In the third quarter of last year, Youku.com, a video platform operated by Youku Tudou Inc, took more than 21 percent of the market measured by revenues, said Analysys International. Second-placed Iqiyi.com enjoyed 10.3 percent of the markets and Sohu.com ranked third with 10 percent.

However, most of China's Internet video websites are losing money, largely because of increasing operational costs and stiff industry competition.

Tencent Holdings Ltd, the country's No 1 Internet giant, pledged to spend more on content this year, including purchasing copyrights and making its own programs. The Shenzhen-based company expects to make a profit in a year or two despite its video arm only taking 6.5 percent of the market share in terms of revenue.

"The advertising price for China's online video sector is set to increase as more advertisers realize it is a strong platform for brand promotion because the video websites are able to reach as many as 450 million viewers in total," said Yan Huawen, an analyst with iResearch.

"Because there are more people watching online videos than using search engines, video became the nation's No 1 Web service last year. The earnings outlook will become optimistic in 2013," Yan added.

In addition, researchers found large portal sites will find it increasingly difficult to lure advertisers.

Portals such as Souhu.com and Sina.com earned around 2.5 billion yuan respectively from advertisers last year, far behind search engines and e-commerce platforms, according to the iResearch report.

Portal sites contributed 13 percent of the total Internet marketing revenues in 2012, but the proportion is likely to drop to less than 9 percent by 2016, it estimated.