When Tudou, China’s second-biggest video website, reported fourth-quarter and full year results for 2011 overnight, it tried to show everything in the best light.
Gary Wang, founder and chief executive, said he was “very pleased” to present the numbers and emphasised the strength of Tudou’s growing integration with social media services. But that can’t hide the fact that Tudou, which went public in the US last year, continues to bleed red ink. Its net loss in the fourth quarter was Rmb148.9m ($23.6m).
That is down from a net loss of Rmb263.7m a year earlier but when share-based compensation is excluded the adjusted net loss is almost ten times that of the same period in 2010. For the full year, the net loss climbed to Rmb511.2m from Rmb347.4m in 2010.
Not that this comes as a surprise. Youku, Tudou’s larger rival which will report on March 14, is also expected to have had another loss-making quarter.
Both Youku and Tudou are spending big to enhance their network infrastructure to ensure smooth streaming and good quality, and to acquire and produce content.
The two companies are also embroiled in a legal battle, accusing each other of copyright infringement – a sign of their fierce competition. And they are up against other online video outlets belonging to much larger, financially stronger groups, such as Baidu.
All these challenges make profitability elusive, even as revenues are soaring.
In the fourth quarter, online video in China generated Rmb1.69bn in advertising revenues, 135 per cent more than in the same period 2010, according to Analysys, a Beijing-based internet research firm. Tudou’s net revenues rose 70 per cent year-on-year in the quarter. So when is the time to make money, if not now?
Analysts believe it will take at least another year. Tudou is right to focus on social media. In December, according to iResearch, another internet intelligence company, more than 40 per cent of all video views on Sina Weibo, China’s leading microblogging service, were on Tudou, in which Sina holds a minority stake. Another area to watch is content acquisition – online video producers will have to team up more to lower the cost of film and TV content licenses.
Last but not least, the climate in the advertising industry will be key. Recently, advertisers in China have been more cautious given the uncertain macroeconomic outlook. For online advertising, that could go two ways. Some ad accounts could hold back, just as they do in traditional media. Others could switch more advertising from television to cheaper online video.