SHANGHAI (Reuters) - China’s largest online video company, Youku Tudou Inc, sees content costs as a portion of revenue falling next year due to industry consolidation and as costs normalize following a surge last year, the company’s president said on Wednesday.
The costs to purchase content such as TV shows and movies skyrocketed in 2011 due to intense competition in the online video sector. Content and bandwidth costs form a large percentage of the cost base of online video companies, most of which are struggling to be profitable. These high costs have led to a shakeout in the industry, with Youku buying smaller rival Tudou Inc earlier this year.
“The market is getting rationalized after going through a bubble period last year ... We expect next year our content costs will be growing much slower than revenue growth,” Youku Tudou President Dele Liu said on a conference call with reporters.
In the second quarter, content costs were the equivalent of 37 percent of net revenues, up from 25 percent in the same period last year. Youku said the increase was due to content purchased in 2011 that is reflected on this year’s balance sheet.
China is the world’s largest Internet market with over half a billion users. There are about 350 million who watch online videos.
Reporting by Melanie Lee; Editing by Chris Gallagher