Hollywood studios aim to compete with Chinese pirates online

Hollywood studios are licensing content to Chinese video sites, allowing them to stream movies legally at a low price

Hollywood films are starting to go online in China at a price low enough to lure users away from pirated copies.

On Wednesday, China's largest video sharing site, Youku, announced it was streaming the blockbuster Inception as part of the company's latest move to monetize the viewing of hit U.S. films.

The company said it had signed a deal with Warner Bros. to stream the film. The movie is available on Youku Premium, the company's on-demand paid video service.

The Youku-Warner deal is just one example of how U.S. studios have begun licensing their content to Chinese video sites to compete with pirated copies of their works.

Hollywood films in China are widely available in the form of pirated copies at prices around 7 yuan ($1) or higher, said Mark Natkin, the managing director of Beijing-based Marbridge Consulting.

Users on Youku Premium can choose to pay 5 yuan (US$0.75) or lower to watch a high-definition Hollywood film like Inception. They can also choose to pay 20 yuan ($3) to view a larger range of videos on Youku Premium for a month.

Youku would not provide details on its financial agreement with Warner Bros. But analysts say the pay-per-view service is another way for Hollywood studios to make money on their products in a country where bootleg films are rampant.

Youku and other sites such as Qiyi.com and Ku6.com shwo films such as the vampire movie Twilight for free online. Many Chinese video sites license such content from domestic and overseas studios, recouping their costs with revenue from online advertising.

Now Youku is experimenting with charging for those Hollywood films. Other Chinese sites like LeTV.com also offer low-cost subscriptions at 30 yuan ($4.50) a month to view and download films online.

But even with a low price, the legitimate versions of Hollywood films can still struggle to beat out pirated copies.

"I think that many Chinese netizens are aware of where they can find free copies of the content online and know how to download it," Natkin said.

Those online sources for pirated copies, however, have begun to dwindle. Video sharing sites like Youku are actively deleting illegally uploaded versions of popular videos from their sites in order to avoid lawsuits.

The crackdown on piracy, along with new ways to view videos online and the emergence of convenient payment methods will help services like Youku Premium succeed, said Tang Yizhi, an analyst with Beijing-based research firm Analysys International. "The environment for pay-per-view video sharing services in China has made a big turn around," she added.

Still, the market for paid video subscribers is a small one, with few users willing to put up the cash, Tang said. Youku and it's biggest competitors in the video sharing market operate largely as free online services.

Despite the number of videos it hosts and downloads it serves, Youku still hasn't attracted sufficient advertising revenue to cover its costs, prompting it to explore other revenue streams.

The company's Youku Premium platform currently has a smaller collection of films and is still in a beta version. But the content includes high-definition Hollywood movies that stream without advertisements as well as educational videos on how to use software like Photoshop.

"The subscription revenue is still minimal, but we see growth potential," said Youku spokeswoman Jean Shao. The company is also talking with other major Hollywood studios to upload more premium content, she said.

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