Olympics 'to boost online video'

China's online video market is expected to double its revenues this year, boosted by the coming Olympic Games, although the industry is likely to register slower growth in the years to come, figures from domestic research companies showed.

Total revenues from the market are forecast to reach 12.6 billion yuan ($2 billion) this year, more than doubled from what they were a year ago, according to iResearch.

"As the Olympics Games and UEFA European Championship begin, online video advertisements will become even more valuable. We have reason to believe the growth rate of the industry will reach its peak in 2012," said the company in a research note.

Another Beijing-based researcher, Analysys International, gave a forecast of a 95.5 percent growth rate this year.

The online video market has been developing vigorously over the past five years as an increasingly large number of people became online viewers. More than 60 percent of the country's Internet users - 325 million people - were online viewers by the end of last year, according to the China Internet Network Information Center.

The opportunity to translate user base into revenues was amplified in 2010 when the FIFA World Cup in South Africa enabled China's online video websites to generate as much as 900 million yuan from advertisements on programs related to the event, according to industry figures.

Major online video players, including Sohu.com Inc and Tudou Holdings Ltd, have begun to prepare for this year's Olympics Games through programs related to the event.

However, while the Games are expected to add to online video companies' revenues this year, their growth rate has showed signs of slowing down after years of rapid development.

Year-on-year growth is forecast to drop to 41.8 percent next year and even lower in 2014, at 18.1 percent, compared with 101.5 percent this year, according to iResearch.

Meanwhile, the number of online viewers is expected to grow by only 12.7 percent in 2014 to 612 million, compared with an almost 90 percent growth in 2008, said Analysys International.

This trend will push online video companies to provide differentiated services to attract and keep users, said industry insiders.

"It is impossible for the market to expand rapidly like it did before as it enters a stable growth curve," said Xu Weifeng, president of PPStream Inc, a Shanghai-based online video company.

"Online video websites need to develop into a large scale, in terms not only of user base but also in the differentiation of the services and functions they provide," he said, adding that the company has incorporated more functions into the website, such as social services and e-commerce.

"If the user base does hit its ceiling in the future, online video websites will have to work on the revenues they get from each user and advertiser," said Ge Chengzhi, sales operation director of Iqiyi.com, the online video arm of search giant Baidu Inc. He added that revenues from user pay services are expected to grow faster than those from advertisements, which is the main revenue generator for online video websites.

Many of the market players remain in the red because they spend a lot more than they earn on copyright purchases, daily operations and bandwidth.

However, the cost is expected to get lower because companies have formed alliances to jointly purchase copyrights, which used to be "irrationally expensive" they said.

Late last month, Sohu, Tencent Holdings Ltd and Iqiyi, previously fierce rivals, announced they will jointly purchase copyrights as an alliance, which will enable each of them to pay only one third of the price.

This came after a surprising marriage between the two biggest players, Youku.com Inc and Tudou, in March.

Pony Ma, Tencent's chairman and chief executive officer, said earlier that there will be further adjustments in the industry over the next one to two years. There are seven major players in the market after Youku and Tudou's merger and some are likely to fall behind, he added.

Youku and Tudou jointly took up 35.5 percent of the market in the fourth quarter of 2011, followed by Sohu's 13.3 percent. Baidu's Iqiyi ranked a distant fourth with 6.9 percent, according to Analysys International.