China’s Two Largest Online Video Firms Merge in Deal Worth $1 billion

Youku.com, led by founder and chairman Victor Koo, has agreed to acquire second-ranked Tudou in a deal valued at more than $1 billion.

China’s largest online video company Youku.com has agreed to acquire second-ranked Tudou Holdings in an all-stock deal valued at more than $1 billion.

The deal between the companies, which have been engaged in legal battles focused on alleged copyright infringement, will create a new online content giant in the world’s largest Internet market with more than 450 million Web users. The consolidation comes at a time when online video remains a fragmented space in China.

Both players, whose stocks are listed in the U.S., reported losses for 2011 amid higher costs for content and online bandwidth,Reuters said.

“This creates China’s biggest video site, but it doesn’t create a YouTube,” independent analyst Bill Bishop in Beijing toldReuters. “They still have less than 50 percent market share.”

Youku, led by founder, chairman and CEO Victor Koo, has a market share of 21.8 percent, with Tudou accounting for 13.7 percent, Reuters said, citing research firm Analysys International.

Some predict that more consolidation is needed given a range of other companies, including Sohu.com, Baidu and others.

“We know online video is way too competitive. There are 10 players where there should be only one to two,” Michael Clendenin, managing director of RedTech Advisors in Shanghai told Reuters. “After this merger there are still too many players in the industry.”

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