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'Capital Winter' hit China's video website industry
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The global financial crisis has already hit China's web-video industry hard. Because the industry is still heavily reliant on international venture capital, and the financial crisis has made overseas investors tighten their belts, these websites are experiencing heavy losses. However, according to China Securities Journal, the CEOs of several of China's leading video websites express the view that although the financial crisis is bringing a "Capital Winter" to the web-video marketing industry, a profitable Spring is not far behind.

"The situation is very similar to the events eight years ago. There are so many coincidences in the situation." The memory of the last financial crisis remains fresh in the mind of Gu Yongqiang, CEO of video-sharing website Youku.

At the start of its development, the internet was using pictures and articles as key content, and it suffered from the burst of the dot.com bubble in 2000. The huge drop in the Nasdaq index brought a sharp economic crisis to America. At that time, Gu was in charge of the operations of sohu.com. Having experienced that "Capital Winter" himself, Gu estimates that the peak of this current financial crisis will hit in the next 12 months or even sooner.

In terms of capital investment, the development of every industry encounters different phases. "Some problems are inevitable for new products in the stage of rapid growth," CEO of Point-to-Point video website Li Zhu said. "Industries and enterprises will re-examine their strategy and try to identify new means of development during any period of weak markets."

During the Capital Winter, the weeding-out of new industries will accelerate. At the beginning of the internet video industry there were more than 300 websites. However, at present there remain only 3 P2P websites and 5 UGC (video-sharing) sites. The attrition rate is expected to speed up next year.

Advertising clients will choose the media with the highest performance-price ratio for their commercial delivery because of limited budgets. With the development of technology and copyright protection, and as its popularity grows, the video website will offer this higher performance-price ratio and can expect significant growth in profits in 2009.

Gu Yongqiang identifies three factors necessary for video websites to pull through the Capital Winter: broad user base, generous reserves of capital, and fast-reacting marketing mode.

Of these three factors, fast-reacting marketing mode will be the key determinant of the profitability of video websites.

"In addition to the three elements above, video websites should concentrate on adapting policies and resolving problems of copyright as the whole internet industry's environment evolves," according to Li Zhu.

(China.org.cn by Ma Yujia, October 14, 2008)

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