Imagine you are the head of a sovereign wealth fund. One day a man comes to you and says, “I want to transform my Chinese online-video-sharing site into a full-fledged media company to tap into the world’s largest internet population.”
Interested? Before you answer, consider that the same man tells you upfront that you will probably not be able to find him in his office. You can try him on his mobile phone, but he might not pick up because there isn’t always good reception up on the summit of Mount Everest.
That’s roughly what happened when Gary Wang, 37, founder and chief executive of Tudou, one of China’s largest online video-sharing sites, approached Temasek.
It worked. He got his money.
In August, Temasek, the Singapore sovereign wealth fund, invested $35 million in Tudou, marking the fund’s first foray into the Chinese internet sector. Temasek wasn’t alone.
Wang also raised another $15 million from previous investors, which include Granite Global Ventures, IDG China, JAFCO Asia and KTB Ventures. Since the company started in April 2005, Tudou has raised $135 million, the largest investment in online video distribution in China.
Although the company is called tudou, which means potato in Mandarin and alludes to the image of a couch potato, Wang is anything but. In fact, the man can hardly sit still. In an interview with the Asian Business Leader, Wang admits that he spends half the time in the office and the rest globetrotting, travelling everywhere from Tibet to Kilimanjaro.
When the magazine asks how Wang managed to convince these experienced investors to part with their cash, he replied: “I may be fearless but I’m not foolish.”
Wang, a Fuzhou-born but US-educated engineer, started Tudou in 2005 after his previous employer Bertelsmann, the German media giant, had closed its China office the year before. He was inspired by the popularity of podcasting, a technology that enables individuals to produce their own poetry, songs and videos, and then upload them onto a podcasting website to offer the content to anyone who wants to subscribe to it.
Taking this concept one step further, Wang decided to start an online video-sharing company (although Tudou is often described as a YouTube copycat, Wang founded the company a month before the US site began operations).
Today, Tudou controls a 12.8% share of China’s online video market – earning Rmb313.7million ($46.3 million) of advertising revenues in the first quarter of this year, according to Analysys, the Beijing-based internet research company. And although domestic rival Youku led the pack with a 17.7% share of the market, Tudou is the only online-video sharing site that is profitable, says the Shanghai Daily.
It is no small feat, given the complexity of China’s internet sector. Video-sharing sites often run foul of Chinese censors, who block material deemed socially or politically undesirable. YouTube, for instance, is inaccessible in China.
But, so far, Tudou has been able to stay on the right side of the regulators by employing a vetting system that checks every upload to the site. It has some 100 people dedicated to ensuring that each of the 50,000 new videos reaching the site daily does not contain content barred by the government.
“There is a 15- to 30-minute gap between when a video is uploaded to the site and when it is shown,” says Wang.
Competition in the industry is also cut-throat, thanks to a flood of start-ups, as well as other well-funded companies like Sina and Sohu, taking their shots at the market. According to data from Shanghai advisory firm RedTech Advisors, venture capitalists have poured $815 million into the sector since 2004.
The majority of the money Tudou raised, says Wang, goes into infrastructure like bandwidth and servers to keep up with the growing number of internet users.
The country’s video sharing sites are also quickly evolving. Unlike YouTube, Chinese sites are not so much about “sharing” homemade user-generated content (UGC) as about delivering internet TV (i.e. showing professional content such as movie clips, TV series and music videos licensed from partners). These days, Tudou estimates as much as 40% of its content is premium, non-user generated, like popular television shows from Hong Kong and Taiwan.
“The industry’s future direction has opened up,” Wang told the Wall Street Journal in August. “Two to three years ago it was about building a distribution network and enough bandwidth for growth. It’s not about bandwidth and traffic anymore.” The future direction, says Wang, is to transform Tudou from a distribution platform into a media company, producing and distributing its own content: “We’ve been positioning ourselves as a media house [and] there’s a lot of expertise to be developed,” says Wang. “We believe this is not something about the short term. It’s going to be a long marathon, so it’s very important to be strong and cover all the angles and make sure we will still be in a leading position in two or three years.”
Analysts agree it’s a good move for Tudou. The chance to develop its own content gives the mainland site greater control over production costs and can probably save money on the bidding for the licenses for content from other markets, says RedTech Managing Director Michael Clendenin.
It will not be long before Wang finds out if his bet pays off. Tudou recently debuted its very own made-for-internet series That Love Comes, a pop melodrama appealing to the younger online audience. The 12-episode series, which features Taiwanese heartthrob Cheng Yuenchang, cost Rmb6 million ($899,000) to make. So far, the response amongst netizens is generally positive.
The future of his video-sharing business, Wang told Beijing Business Today, will also become more reliant on mobile and tablet devices. Tudou already has an application that works with Apple’s iPad. It is also developing applications for iPhones and handsets running Google’s Android operating system. In fact, Wang hopes that all 38 million videos available on Tudou will be available for viewing on these mobile applications within a month – an endeavour that even he admits requires significant resources.
So how is he going to accomplish all that? Lu Yang, senior manager of public affairs of Tudou.com, told Asian Business Leader: “Wang has his dreams but he also has a plan on how to achieve those dreams. If he wants to make a million dollars, he will have already thought of several ways of making that money. His head works like a computer sometimes.”
And Wang finally revealed his plan last week. The Financial Times reported that Tudou is preparing an initial public offering with hopes of raising at least $100 million. The company said it expected to complete the IPO on the Nasdaq exchange within the next six months – a schedule that would make it the first Chinese internet video-sharing site to go public.
Youku, the company’s main competitor, has indicated in the past that it too aims to go public, but has declined to comment on either the timing or size of a potential IPO.
“Going public is an unavoidable path for Chinese internet video sites,” said Zhao Xufeng, an analyst at iResearch. “The IPO will strengthen Tudou in the current fierce competition in the Chinese internet video market.”
Video killed the radio star; will Tudou kill the TV station too?
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