China's Youku and Tudou's shareholders back merger plan

Updated on: 2012-08-20 || Source: bbc.com

Shareholders of China's two largest online video firms, Youku and Tudou, have approved their plan to merge and create the biggest online video firm in China.

The plan, announced in March, will see Youku acquire rival Tudou via a stock swap deal valued at $1bn (£640m).

Rising costs of acquiring and streaming video content have seen losses widen at both the companies.

Their merger is likely to cut costs as well as boost their market share.

The joint operation is expected to help the firms cut costs in areas such as copyrights, bandwidth and server purchases.

According to some estimates, the tie-up may help the firms save between $50m to $60m over the next 18 months.

Break even?

At the same time, the combined entity is expected to have a market share of more than 35% giving it more bargaining power with potential advertisers.

That is likely to help increase their revenues and help reduce their losses.

Earlier this month, Youku reported a net loss of 62.8m yuan ($9.9m; £6.3m) for the April to June period, compared with a loss of 28.1m yuan during the same period last year.

Meanwhile, Tudou said that its net loss for widened to 154.7m yuan during the second quarter, from 78.9m yuan during the same period last year.

Liu Dele, President of Youku, was quoted as saying by China Daily that the merger was likely to help the firms turn around their fortunes.

"The faster we achieve synergies, the quicker we can break even," he said.

'Biggest issue'

While the merger is expected to have a positive impact, analysts said the firms were likely to face challenges.

The two firms have been fierce rivals for years and have even taken each other to court.

"One of the biggest issue is going to be integration of their businesses," Josh Ong, China editor of The Next Web told the BBC.

Mr Ong said that as the firms came together and joined their various operations, some jobs may be lost.

"Who stays and who gets the ticket, is going to be a tricky one for the management," he said.

At the same time, after the two firms announced their merger in March, various other players in the sector have been trying to join forces as well, which is likely to make the competition stiffer.

Earlier this year, Baidu's iQiyi, Sohu and Tencent announced plans to form an alliance to offer online video services in China.

"They are not in a position to create a monopoly as the size and might of the competition is also increasing," said Mr Ong.

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