China's Youku.com raises $30m despite threat of ban

One of China's most popular online video sites received a US$30 million [m] investment despite its failure so far to receive operations approval from China's online regulator.

On Monday Youku.com received the investment, plus a $10 million [m] equipment loan, the company said.

Youku.com, along with China's other two top online video sites, Tudou.com and 56.com, were conspicuously absent from a June 18 list of 247 Web sites approved by the State Administration of Radio, Film and Television (SARFT). Google's YouTube was also absent from the list. Google did not respond to a request for comment as to whether it applied for approval for YouTube to operate in China.

A Youku.com representative said by telephone the company expected to receive SARFT approval "in the next few weeks," but declined to comment further.

Online video sites are particularly sensitive in China as they are seen by the government as offering unvarnished views of news events, including the May 12 Sichuan earthquake and a recent riot in Guizhou province. The media in China is tightly controlled by the government, with all broadcasters owned and operated by the state.

"Youku's recent successful round of funding is yet another indicator that despite continued and serious regulatory uncertainty, investors remain hopefully optimistic that the sector will exist long enough to find a business model," said David Wolf [cq], CEO of Wolf Group Asia, a Beijing-based consultancy. Youku accepts display advertising and also sponsored content. Some Chinese online sites also play short video ads ahead of requested clips.

Analysts see Youku as one of the safer bets for investors among China's top video sites. "Youku is the only one of the big three that has not been shut down or suspended at all," said Jeremy Goldkorn, editor of English-language Chinese media blog Danwei.org. "Many industry insiders believe that their team has excellent government relations, meaning they will eventually be able to get formal approval. Their investors are either confident of the same thing, or at ease with the adventure part of venture capital."

Even before the June 18 list appeared, 56.com became inaccessible. It remains offline, with its only accessible page a message to users attributing the current interruption to an expansion of its services. The company has not made any other public statement regarding the closure, and SARFT has specifically announced that the site has been shut down.

Youku's announcement Monday made no mention of the situation, instead saying that it had entered into various agreements with state broadcasters including Shanghai TV, Beijing TV and Jiangsu TV.

Last week, research firm Pacific Epoch reported that SARFT-approved site Ku6.com ("ku" is Mandarin Chinese slang for "cool") -- which features a communist hammer and sickle in its logo -- also received $30 million [m] in financing. The report said Ku6 would announce details this week, but it has not done so yet.

In March, Tudou.com was the target of a SARFT investigation, according to Chinese media reports at the time, but operations were never interrupted.

The IDG News Service is a Network World affiliate.