Youku Tudou Inc (ADR) (NYSE:YOKU) continues to flesh out its content.
China’s leading video-sharing website operator announced an exclusive partnership with Hong Kong Television Broadcasts Limited that will bring more than 2,500 hours of the broadcaster’s dramas and classics to Youku Tudou’s popular streaming platform.
The two-year deal also makes Youku Tudou the only place to catch TVB’s content across many mobile devices. The two companies will also explore the potential for original content.
Stateside investors have seen this happen a lot lately.
Content is king — so, checkmate
Netflix, Inc. (NASDAQ:NFLX) routinely strikes exclusive deals with content creators for its popular premium streaming service. The push into original content that began last year with Lilyhammer has exploded in a good way with last month’s wildly successful House of Cards.
One can argue that Youku Tudou is gearing up to be the Netflix of China, but it’s not. Youku Tudou is more along the lines of Google‘s YouTube. It relies on an ad-supported model to monetize most of its content deals.
That’s a problem. Youku Tudou Inc (ADR) (NYSE:YOKU) is growing quickly — revenue climbed 30% for the combined Youku and Tudou to $102.1 million in its latest quarter — but profitability has been elusive. Analysts don’t see Youku Tudou turning a profit until next year.
Yes, the company does sell premium content on an a-la-carte basis. It has struck deals with major movie studios in China and abroad for content that it sells on a per-stream basis. However, that’s been working out about as well as Google’s attempts at getting YouTube users to pay up.
Shares of Youku Tudou soared 30% the day that it announced Youku Premium. That was two years ago, and ad revenue still makes up more than 90% of Youku Tudou’s revenue mix.
Be the Netflix
If Youku Tudou Inc (ADR) (NYSE:YOKU) wants to make some serious money, perhaps following Netflix instead of YouTube would be the smarter approach.
Despite the rampant piracy and reluctance to pay for content, China’s still the world’s most populous nation. Why wouldn’t you want to take a shot?
There’s clearly an opportunity here — and Netflix doesn’t want it.
“It’s unclear in the long-term how it might work for us in China,” Netflix CEO Reed Hastings said in a Wall Street Journal interview last year, fielding a question on the service’s plans to expand beyond the 51 countries where it now has a presence. “If you said almost everywhere other than China, I’d be pretty confident we’d be there in less than 10 years.”
With China at the end of Netflix’s global wish list of expansion targets, Youku Tudou has a real shot to matter here. The big hurdle will be educating the consumer, but that was an even more daunting task for Netflix when it introduced streaming in 2007.
Now that Netflix has 33.2 million streaming accounts worldwide — and more than 6 million of those residing in 50 different countries outside of the U.S. — there’s less to prove. Premium subscriptions work as long as you’re willing to work with hardware and software partners to make it as accessible as possible.
Netflix’s original streaming service was tethered to Windows PCs. That was it. Mac support, video game consoles, and mobile apps came long after.
China still has a long way to go, but the infrastructure for a premium streaming service is a lot better in 2013 than it was here six years ago.
Youku Tudou Inc (ADR) (NYSE:YOKU) is the top dog when it comes to video-sharing in China.
Last year’s combination of Youku and Tudou created a market leader with roughly a third of the online video market. If Youku Tudou doesn’t take the lead to push through a Netflix-like service, somebody else will.
Can you imagine how things would’ve played out here if YouTube had been the one to beat Netflix to premium streaming? What if it were YouTube that got its buttons on Blu-ray remote controls or began lining up content deals while they were still cheap?
Investors would be happier, at least. The stock was rocked earlier this month after Youku Tudou was forecasting a 22% sequential dip in revenue for the current quarter. Steady subscription revenue would help smooth that out.
Youku Tudou Inc (ADR) (NYSE:YOKU) can be more than what it is today. It’d better realize that before somebody else does.
The article Can Youku Tudou Be the Netflix of China? originally appeared on Fool.com.
Longtime Fool contributor Rick Munarriz owns shares of Netflix. The Motley Fool recommends Google and Netflix. The Motley Fool owns shares of Google and Netflix.
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