The Chinese giant video platform Youku Tudou used to be a place where everything and anything could be found. From Hollywood blockbusters to South Korean soap operas, there was always something for everyone’s taste, a paradise for illicit and hit video. Nevertheless, they realized that piracy doesn’t pay.

Today, it is one company that controls almost a third of China’s booming online video market. The main way they found to make money is simply using licences to transform the illegal in legal and distribute movies and shows, for  like the Walking Dead. This strategy already bear fruit by providing €121,000 to the company which is now expecting to see for the first time quarterly net profit.

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The tracking of illegal content

Illegal content like pirated films or TV programmes used to be abundant on the Chinese Internet. Nowadays, in order to keep its market share, Youku Tudou employs some detective that seek carefully all over the website for pirated content and eliminate them. This shows how much China’s online video industry is trying to hunt down illegal content in order to get higher advertising revenues and better relations with foreign media. It is not as easy as it looks though. Lu Changjun, the head of Youku Tudou’s internet police squad says that : « The biggest challenge is that there are more new ways to pirate video as the technology develops ».

But it also works on the other side, better technology has helped Youku Tudou or Sohu to fight against piracy and be more vigilant than ever. Last November, lawsuits were organized to demonstrate how good the industry is changing. Viewers tastes change as well. They prefer watching online video advertising in high quality and easy to find because they are legal then to seek for hours to finally watch it in, most of the time, a very poor resolutions versions. Michael Clendenin, Director Manager of technology consultancy RedTech Advisors reinforce this trend by saying that « at the end of the day piracy is going away in China ».

A difficult challenge

Let’s not forget, China doesn’t have the best reputation when it comes to intellectual property protections and enforcement. The United States do not believe when Youku Tudou and Baidu (which is the second largest market share for online video) assure that they never ignore pirated material and would have never stubbornly uploaded illegal content on their websites. At least, Tencent Holding, which is the fourth largest online video, concedes that they never ignored piracy but they also never engaged legal proceedings against it. Nevertheless, they all admit that they lost few copyright infringement lawsuits against other Chinese firms.

There is a lot of opportunities on the sector of on-line video. According to iResearch in Beijing, the market should grow by more than a third this year and reach €1,457 billion annual revenues. It is especially thanks to advertisers willing to put money on legal content. Face to the popularity of on-line video, I believe it has been a successful challenge. However, piracy leads to costly lawsuits, decreases the number of viewer and also doesn’t bring advertising revenues. Moreover, overseas, the foreign movie production firms are loosing money.

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Here is the alarming scream of Charles Zhang, chief executive of Sohu the third largest online video provider : « We pay so much money to buy content. If piracy continues we won’t be able to survive. We bleed and lose money ». Last November, Youku Tudou, Tencent, Sohu and Chinese conglomerate Dalian Wanda group got together with the Motion Picture Association of America in retaliation against Baidu and other smaller Internet video software QVOD. The lawsuit was asking for €35,500,000 in damages for copyright violation.

During the trial, Baidu said it « deeply regrets the sensationalistic litigiousness ». We could here also from the discussion that « At present, we’ve already agreed to work together with many copyright holders, and together provide better resources for legal high-definition video for our users ». A representative from one of the Internet video software defend the company against the piracy allegations, saying they did not provide the content but they were « just a video player ».

Clendenin added that « in the future they need to be able to licence content and be able to say they take a strong stand against piracy » and that it would help Chinese on-line video firms to earn more respect and trust from the foreign media providers as it showed how serious they are getting about piracy. And they should be… With about a quarter of the 20,000 links found leading to pirated content, Youku Tudou is right to be intransigent. However, since the lawsuit in November, the number of illegal link has drastically decreased to one-fifth. Therefore, the company is not the only portals that can host links so the war has just started.

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Smartphones, another platform to deal with

 The mobile Internet is also the cause of many difficulties. Baidu and QVOD are the leaders on this segment and it is way more problematic because it will become in a few year (if it is not already !) the favourite web portal for Chinese audiences. The State Internet Information Office reveled that more than three-quarters of China’s Internet users are using Internet with their smart-phones and tablets. Baidu is the default search engine for more than 80% of smartphone is China, it controls most of the audience and especially their path from the home page to the content.

On the other hand, QVOD’s Kuaibo video app is also a big player and has kept a record of one-quarter of video content app downloaded for the past few months. It represents nearly Youku Tudou and Baidu video apps combined. This app is allowing users to download content from websites to their phones or tablets.

The app lets users pull content from websites onto their phones and tablets. This trend is becoming the norm, indeed, consumers spend more and more time watching videos on their mobile devices. It is also a good way to fight against piracy because people can’t watch  illegally downloaded bad quality videos on the small screen that their phones have. They prefer downloading  legal video with a faster mobile connection. « No need to go to the DVD store on the corner. You can get it online » says Clendenin. The user habits have changed very quickly, now it is time this industry does as well.

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