Baidu raises $50M to exploit China’s online video explosion

The online video business in China is seeing explosive growth, as Chinese consumers learn how to capture and watch video and as Chinese advertisers seek to boost their branding. Several several emerging Chinese companies are scrambling to exploit it — so far, few U.S. companies are there.
Baidu, the leading Chinese search engine company, said today it has raised $50 million from private equity firm Providence Equity Partners to pump into Baidu’s new online video unit. The unit, a separate corporate entity called Qiyi, is licensing premium video content and running ads beside it online. Baidu will own maintain majority ownership of the company. Baidu is hoping to use its search engine prowess to drive traffic to the new company, much like Google has featured links to the videos hosted by its video company, YouTube.
It comes at a time when China’s leading online video company Youku is boasting impressive growth with its own premium video advertising business. The company’s chief executive, Victor Koo, visited the U.S. this week to meet with bankers as he begins to prepare the groundwork for a possible initial public offering over the next few years. Youku generated about 28 million in gross revenue last year, he said. This comes mostly from advertising on its premium content videos (you subtract about 20 percent of that for agency rebates, leaving about $22 million in net revenue). He expects revenue to at least double this year, and then to double again in 2011. He spoke at a Goldman Sachs conference, and stopped by VentureBeat offices in San Francisco for an interview. The company launched in 2006, and only began trying to monetize its content in 2008. Youku has 30 million unique viewers a day, and 200 million a month, he said, citing Nielsen and iResearch.
China’s media industry is particularly attractive for emerging companies, Koo said, because the premium film and video content is so fragmented there — and not dominated by a half-dozen media conglomerates like it is in the U.S. Decades of significant regulation of the media industry has meant that each Chinese city has its own independent media channel. The larger cities, such as Shanghai, have up to nine channels. Another reason why China is ripe for more video companies is because people there are only now starting to catch on to the habit of taking video and posting them online. Chinese consumers have lagged the U.S. by several years, he said. Finally, in freshly capitalistic China, many brands are still establishing themselves with consumers, and so are motivated to buy visual advertising, including 15- to 20-second TV spots. That urge is greater than in the U.S., where many brands are already established, and where advertisers are more interested in buying text links to boost lead and sales performance directly.
Companies: Baidu, Providence Equity Partners, Youku
People: Victor Koo