With over two billion users worldwide and more than 85 local versions abroad, YouTube is the leading online video-sharing platform in the world. As of August 2019, YouTube is the second-most-popular website in the world.
At the same time, censorship of the website has occurred—and continues to occur—to varying degrees in many different countries around the world, including China. YouTube was first blocked in China for over five months, from October 2007 to March 2008. It was blocked again in March 2009. Since then, YouTube remains inaccessible to users in mainland China.
- With over two billion users worldwide and more than 85 local versions abroad, YouTube is the leading online video-sharing platform in the world.
- Youkou Tudou was acquired by Alibaba in 2015, and, according to Quest mobile figures, the company was estimated to have 374 million monthly active users as of December 2017.
- YouTube actively seeks for user-generated content while Youku has increased its original content spend in recent years.
This effectively has allowed several local video-sharing portals to rise in China, including iQiyi, PPTV, Sohu, LeTv, Tencent, Baidu, and Youku Tudou, Inc. And Youku Tudou, Inc. has been looking for ways to increase its presence outside of China.
Youku Tudou was acquired by Alibaba in 2015, and, according to Quest mobile figures, the company was estimated to have 374 million monthly active users as of December 2017.
Different Business Models
YouTube actively seeks for user-generated content. Purchased by the Google operating unit of the holding company Alphabet, Inc. (NASDAQ: GOOG) in 2006, YouTube maintains an ever-growing library of videos by providing payouts of ad revenues to content creators. By saving in production costs and focusing on lowering technology infrastructure costs, YouTube has been able to increase its ad display revenues throughout the years. In fiscal 2019, YouTube generated $15.1 billion in revenue.
In 2012, Chinese video-sharing rivals Youku and Tudou combined their services in a 100% stock-for-stock merger to create the largest video website in China: Youku Tudou. Despite the merger, the new company continued its strategy to license exclusive content to attract more viewers and, in turn, more advertisers chasing larger online audiences. In the first half of 2015, Youku Tudou reported 2.75 billion Chinese yuan ($451 million) in revenues.
However, Youku had failed to generate profits for investors, reporting only one positive quarter—in the first quarter of 2015—before agreeing to be purchased by Chinese investments conglomerate Ali YK Investment Holding Ltd, a wholly-owned subsidiary of the giant Alibaba Group. Upon completion of the acquisition, Youku's ADR shares on the NYSE ceased trading as it was subsumed by Alibaba.
Quest for Profitability
Google did not publish exact revenue numbers for YouTube until February 2020 (as part of Alphabet's 2019 financial report). According to this report, YouTube had made $15.1 billion in ad revenue in 2019, $8.1 billion in 2017, and $11.1 billion in 2018. Of Alphabet's total revenue in 2019, YouTube contributed nearly 10%.
Recently, Youku has lagged behind its competitors with similar platforms: Tencent and Baidu. As a result, Alibaba has been increasing its investment in creating original content for Youku in order to increase its monthly users. Alibaba claimed that it had increased its average daily subscribers increased by 64% over the year 2018. Since then, it has been less willing to release specific figures that account for its monthly viewers.
Tencent is currently China's top video sharing company. Emarketer estimates that Youku may be able to overtake its competitor, iQiyi,
Since Alibaba's purchase of Youku, its revenues have been grouped into Alibaba's digital media and entertainment division. In 2018, this division saw a 20% year-over-year growth in revenue, to $944 million. Youku seems to be defending a growth strategy that emphasizes content spend and the creation of high-quality programs as the best way to grow its subscriber base.
YouTube seeks to become an alternative to television by creating channels of high-quality entertainment created by its most popular users, including web comedian PewDiePie and Indian music video channel T-Series. To subsidize the additional production costs and provide a more seamless and ad-free experience, YouTube is pushing its YouTube Music streaming service, available either for free with ads or for $9.99 per month, and a YouTube Premium for original video content, costing $11.99 per month.
While leveraging its top talent, YouTube is also nurturing tomorrow's star content creators by giving access to state-of-the-art production resources (referred to as YouTube Spaces) to those users with at least 10,000 subscribers. Currently, there are nine YouTube Spaces across the world with locations including Los Angeles, London, Rio de Janeiro, Paris, Berlin, and Tokyo.
In August 2015, Youku Tudou announced a 10 billion yuan (about $1.6 billion) plan to produce high-quality, user-generated videos. Under this three-year plan, the Chinese company sought to nurture 100,000 video channels by semiprofessional users who have more than 1,000 subscribers.
In the company's December 2018 quarter earnings report, the company's cost of revenue as a percentage of total revenue increased by 10 percentage points, to 50%. According to the company, this is because it has increased its original content spend.
For the first quarter of 2015 alone, Youku paid $80 million in licensing fees. Perhaps the company has learned that owning its own content gives it more power and, over time, it can save money on licensing costs.
What Are the Risks?
In their quest for higher quality user-generated content, both YouTube and Youku share the two same risks.
First, competitors are working hard to poach producers, editors, executives, and content creators away from YouTube and Yukou Tudou. For example, the former head of Hulu, Jason Kilar, launched a video startup Vessel promising content creators that they could make 20 times more revenue than with YouTube.
Second, despite its focus on content creation, YouTube and Youku Tudou continue to court distributors of premium television content. In January 2015, YouTube secured rights to content from the National Football League, Sesame Street, and Thomas the Tank Engine. In June 2015, Youku Tudou became the exclusive online video marketing platform in China for the Marvel collection of movies and TV series from the Walt Disney Co. (DIS). While such deals help attract more viewers, those same deals also make it harder for the companies to break even.
One risk that is unique to YouTube is that the North American company is missing out on the Chinese online video market. Unlike Yukou Tudou, YouTube is not comfortable with the demands of the government of China to check for what it considers inappropriate or offensive videos. While other operating units of Alphabet continue to do business in China, YouTube is not one of them.
The Bottom Line
Youku Tudou's large share of the Chinese online video market allows the company to continue growing and gaining ground on YouTube. With a new focus on high-quality, user-generated content, Youku Tudou has taken a page out of YouTube's playbook to amass more viewers. While YouTube is not able to compete with Youku Tudou directly in China, YouTube is still the dominant player in video sharing in the world. Still, Youku Tudou exists under the watchful eye of the Chinese government and its censors. The Great Firewall of China enforces strict rules that only approved videos can be uploaded and viewed, limiting it as a source of freedom of expression and objective news.