Youku Partners With Warner Bros. to Offer Video-on-Demand Pay Service in China
Youku.com Inc. (YOKU), the largest online video site in China, said it partnered with Warner Bros. to offer U.S. video-on-demand titles to Chinese Internet users starting today.
The three-year agreement with the Time Warner Inc. (TWX) unit will provide as many as 450 films, including new releases and classics, Youku Chief Executive Officer Victor Koo said in an interview at the companys headquarters in Beijing today.
The paid service paves the way for Youku, which began trading in New York in December, to expand beyond advertising for generating revenue as it seeks to turn profitable. For Warner Bros., the deal builds on this months agreement to offer its content through You On Demand Holdings Inc.s on-demand television viewers across China.
We believe were on a path to profitability as our revenue is growing at triple digits and basically our cost structure is increasing at a lower speed, Koo said. At some point in time that will come together in a very nice way. We dont have a set time frame.
Youku, which has reported losses since it started in December 2006, may get 10 percent of sales from the pay service within five years, Chief Financial Officer Dele Liu said in todays interview.
Premium Service
The Youku Premium service includes monthly subscriptions as well as video-on-demand titles, Koo said. The company will continue to offer free content as well. A trial version of the pay service tested since October processed 200,000 transactions for Warner Bros. films including Inception.
Customers can pay Youku for videos using their mobile p! hones or the Alipay online payment, Koo said.
Youku led Chinas online video space, accounting for 22 percent of the markets advertising revenue in the first quarter, according to Beijing-based research firm Analysys International. Tudou Holdings Ltd. had 16 percent, followed by Sohu.com Inc. (SOHU)s 13 percent, according to Analysys.
China, the worlds largest Internet market with 477 million users, censors content for politically sensitive topics and pornography. Google Inc. (GOOG)s YouTube, the worlds most popular video-sharing site, is blocked in China.
Youku is projected to narrow its loss to $19.2 million this year from $30.2 million last year, according to the average of six analysts estimates compiled by Bloomberg, excluding some items. Next year, the company is expected to report profit of $242,000, according to Bloomberg estimates.
The company raised $233.3 million in its U.S. initial public offering in December. The stock surged 161 percent on its trading debut at New York Stock Exchange, the biggest gain for a U.S. IPO since Baidu Inc. in 2005.
Youku shares have dropped 59 percent from their April 19 high of $67.27, to close at $27.34 yesterday. Thats still more than double the IPO price of $12.80.
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