China's version of Youtube, Youku Tudou Inc., hinted it could swing to profitability next year as advertisers spend more on online video and costs fall from a recently completed merger.
"Content prices have dropped significantly compared to last year, which will be reflected favorably in 2013," Youku Tudou President Dele Liu, said in a recent interview.
"Even though we don't give a definite timetable (for profitability), 2013 (will be) a good year."
In March, online video firm Youku agreed to acquire its chief competitor, Tudou Holdings, in a stock deal worth about $864 million. The merger was completed on August 23.
Mr. Liu said the company plans to integrate sales, content procurement and search operations, while maintaining separate Tudou and Youku websites that will each produce its own shows.
Both companies have been mired in losses due to steep bandwidth costs and the merger has been seen as a way to gain more competitiveness and cut costs. Youku Tudou had roughly a 30% share of the online video market in the second quarter, according to market research firm Analysys, making it the largest player by far in the sector in China. But analysts have also warned that the fragmented online video market is still unsettled, and China's largest Internet companies Baidu Inc. and Tencent Holdings Ltd. both have their own sites competing with Youku Tudou.
Still, in China, heavy restrictions on content that can be broadcast over national television has created a swelling market for online video companies, which offer licensed Western content and a growing amount of content produced in-house. The result has been a more than doubling of online video viewers to almost 400 million by the end of 2011 from 164 million in the second quarter of 2008 according to Analysys. As a result, online video revenue has ballooned, growing 35 times to 1.69 billion yuan ($268 million) in the fourth quarter of 2011 from CNY46.5 million in the first quarter of 2008 according to Analysys.
To compete with the Internet giants, Youku Tudou will emphasize its content and user experience, Mr. Liu said. For example, he pointed to the success of Youku's reality.