China's Youku Tudou Posts Lower Quarterly Loss

Quarterly highlights include the establishment of its Heyi Pictures film unit

Chinese online video giant Youku Tudou reported a strong rise in third-quarter revenues and continued a trend of narrowed losses and said the establishment of its new film unit, Heyi Pictures, was a highlight of the quarter.

Youku Tudou's net revenues were $180.3 million, a 29-percent increase over the same quarter last year, while net losses were down 17 percent at $29.6 million. Consumer revenues grew 473 percent year-over-year, while the group also completed a $300 million share repurchase in the quarter.

Chinese tech firms are currently making major inroads into the entertainment industry. The Internet giants Baidu, Alibaba, which owns a 16.5 percent stake in Youku Tudou, and Tencent are all setting up entertainment units, and buying and making content.

Earlier this week, mobile phone manufacturer Xiaomi said it had partnered with Youku Tudou to jointly invest in the production and distribution of online video content and movies.

Chairman and CEO Victor Koo said the group made positive progress improving the effectiveness of multi-screen advertising solutions and growing the group's new consumer revenue streams.

"The new marketing solutions we announced with Alibaba through our strategic cooperation on big data places us uniquely at the forefront of new trends in digital advertising," Koo said in a statement.

There was strong growth in its new consumer businesses, while the Youku mobile video app was now ranked the second-most-popular mobile app in terms of user time spent after Tencent's WeChat, he said.

"We believe these investments, such as in headcount increase and marketing for new consumer businesses and our original content productions, will help us further capitalize on the opportunities ahead of us in the multi-screen Internet era, and structurally step up the monetization of our mass user base and brand leadership," he stated. 

The group's president Dele Liu said a key highlight for the quarter was the establishment of Heyi Pictures, which he said would allow them to incubate content IP, "scale up content from micro-movies to silver screen movies and grow fan communities that can support films and new consumer monetization model."

"Our recent deals on the production of Internet-based adaptations to television blockbusters Big Brother and The Voice Kids in 2015 are testament to the growing convergence in online and offline media and entertainment," said Liu.

Advertising net revenues were $160.5 million in the third quarter, up 32 percent, while consumer revenues, which mostly come from the group's subscription-based and pay-per-view services, were $6.8 million in the third quarter of 2014, a 473 percent increase from the corresponding period in 2013.

Bandwidth costs as a component of cost of revenues were $37.4 million in the quarter, representing 21 percent of net revenues in the period, unchanged from the same quarter last year.

Content costs as a component of cost of revenues were $81.8 million in the third quarter of 2014, representing 45 percent of net revenues compared to 58 percent of net revenues for the same period in 2013.

Youku Tudou also said that CFO Ge Xu was resigning for personal reasons.

Looking ahead to the fourth quarter, the group expects net revenues between $190 million (1.15 billion yuan) and $200 million (1.22 billion yuan).

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