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China’s Online Vid Surge Both Lures, Scares Outsiders

As more sellers emerge, the need for content grows, but piracy remains an issue

Competition in China’s online video sector is intensifying, and the prize is a stake in the world’s fastest-growing platform for movie and TV content. Locals and Westerners alike could reap huge paydays, but big challenges remain, notably a need to find the right business model and to win over a culture steeped in piracy.

China has a population of 550 million webizens, many of them who are glued to tablets or smartphones as they ride public transit; mobile Web users last year totaled 420 million, up nearly 18% from the previous year.

The newest entrant in the hunt for eyeballs is Baidu, the nation’s biggest search engine, which this month bought the file-sharing service PPS Net TV for $370 million.

After having grabbed a majority stake in loss-leading online video unit, iQiyi, in an earlier bid to take advantage of the booming digital delivery market, this most recent acquisition means that Baidu will license a greater number of TV shows and movies from local and foreign production studios.

A chief rival to Baidu is China’s biggest online video company, Youku Tudou, which was formed by the all-stock merger in early 2012 of China’s two dominant video-sharing sites.

The merged company is focusing on providing licensed content, which is good news for Hollywood and for every other overseas shingle that is trying to break into China.

Youku Tudou is cranking up its library of U.S. content, which features mainstays such as “Desperate Housewives” and “Glee,” and will include skeins like “Vampire Diaries” and “Modern Family.”

The org said local auds’ consumption of U.S. TV had seen a 400% increase from 2011 to 2012. Average views for single episodes reach as high as 2.5 million.

In response to the Baidu announcement, Youku Tudou president Dele Liu said: “After the success and synergy created by the Youku Tudou merger, increasing consolidation was inevitable throughout the video industry. We are happy to see this purchase go forward; we expect this acquisition will further rationalize the industry.

Liu added that the growth in the online vid biz offers an opportunity to develop the sector further. “It is our hope to provide the latest films to our viewers so that we can effectively compete with piracy,” Liu said.

China is often cited as being the center of the world’s biggest intellectual property rights thieves, and government officials plead for greater understanding, saying the country has had only three decades to introduce copyright protection that the West has had hundreds of years to implement.

It remains easier to buy pirated content in China than to buy the real thing.

Charles Zhang, topper of online giant Sohu, said that piracy needs to be overcome if the webcasters are to realize their full potential.

Online content theft undermines the promising work of our local screen community, and prevents the depth of investment that will improve our online offerings even further,” he said.

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