After last year's surge in copyright fees for films and TV dramas, market participants expect a price fall.
But Youku.com Inc, which owns China's largest video website, isn't waiting for that to happen. Instead, it's adding to its content pool by producing original movies and TV dramas.
So far this year, Youku hasn't bought a single movie or TV drama copyright, Zhu Xiangyang, chief editor of Youku.com, said at an event last Wednesday.
Public data show that other websites haven't done much copyright buying this year. This, said Zhu, shows a return to rationality.
"Buyers are in a much more cautious mood," Zhang Fan, an analyst with domestic research company Analysys International, told China Daily. He expected this situation to last until mid-year, to be followed by a 20-percent slump in copyright prices in the second half.
Rising demand from video websites such as Youku is believed to have pushed up copyright prices last year, which resulted in higher financial burdens for such websites.
Youku's fourth-quarter loss widened 32 percent to 49.65 million yuan ($7.9 million). The company said the rise reflected higher copyright prices and purchase volumes.
But Youku's move to produce more of its own content is independent of copyright purchase issues, said Frank Wei, senior vice-president of operations of Youku.com Inc. Instead, it aims to meet the tastes of China's Internet users and fill out its product portfolio.
"Youku began to develop original content in 2008, when the price of TV dramas had not yet risen," Wei said.
In 2008, My Chief and My Regiment, a major TV hit, sold at just 300,000 yuan per episode. The price soared to a record of more than 1 million per episode the next year.
Wei said original Web content - dramas, micro-movies and movies - was "totally different" from shows produced for TV and cinema because of their length, subjects and methods of promotion.
Youku's in-house movies are much shorter than those screened in cinemas. A theatrical release usually runs for about two hours, while a micro-movie runs 10 to 15 minutes and an online movie lasts 40 to 45 minutes, reflecting web users' viewing habits.
Youku also avoids fantasies, epics and thrillers, themes often favored by conventional movies. Youku Original, a branch specializing in original content production, focuses on everyday topics such as love and work.
Old Boy, an online movie produced by Youku, is an example. Featuring nostalgic themes targeting the post-1970s generation, a key online audience, it became a hit in 2010 with a record 30 million online views.
The success of Old Boy encouraged Youku to develop movies and dramas that focus on concepts like youth, happiness and beauty.
This year, it invited four big names in the film industry - Ann Hui, Gu Changwei, Tsai Ming-liang and Tae-yong Kim - to make micro-movies.
Youku also seeks to match these directors' online efforts with their theatrical releases.
For example, following the screening of Ann Hui's critically acclaimed A Simple Life, a 20-minute micro movie by her entitled My Way was released on Youku.
"It is a good interaction," Wei said.
Youku isn't the only website making original dramas and movies. Major online video providers such as Baidu's iQiyi.com, Sohu's TV section and LeTV.com have piled in with big budgets.
But analysts said these efforts haven't become profitable yet. Internally developed content only brings a small portion of video websites' traffic and advertisements. For Youku, about 5 to 10 percent of its traffic comes from this activity, said Wei.
But this segment is already breaking even, according to a manager at Youku Original.
"For Youku and other sites, self-production's main role is brand building and part of the differentiation strategy," said Zhang.
By comparison, acquiring other content producers and owners could be more efficient.
Last month, Youku surprised the markets by buying its main rival, Tudou Holdings Ltd, which has the second-largest market share in online video market.
Tudou had spent heavily on copyright purchases. The move is believed to have increased Youku's inventory of licensed content, as well as its bargaining power to bring down copyright prices and raise ad rates.
Youku and Tudou still operate separately but analysts expect further integration. Youku declined to comment on the merger and its effects.
Youku's ad revenue grew 132 percent last year to 897.6 million yuan, according to its financial report. Wei said he was "very confident" about this year's ad revenue growth.
Another example of buying a copyright holder took place in January, when Youku spent 113 million yuan to purchase Trade Lead, an overseas copyright agent. The deal was only disclosed recently in a filing to the US Securities and Exchange Commission.
The purchase gave Youku ownership of Dongyang Tianshi Culture Communication Co Ltd, a content maker and distributor that owns more than 10,000 hours of dramas and movies' online copyrights.
"It was a cost-effective package deal," Zhang said.
"We need a constant supply of premium content. To serve this end, we can either own the content itself or own the institutions making or owning premier content," Wei said of the deal.