Youku.com Buys Online Rights to 'Inception' for China

6:34 PM PST 01/04/2011 by Jonathan Landreth
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Youku.com CEO Victor Koo.

The newly-public online video company will stream the Christopher Nolan film to paying users.

BEIJING -- Warner Bros. and Youku, China’s leading online video company, have struck a deal signaling Hollywood’s latest push into the world’s fastest growing market for entertainment content, announcing on Tuesday they will stream the action thriller Inception to paying Chinese Web surfers.

Question is, how many are there? In China, where 2010 box office receipts jumped 61% on the year to reach $1.47 billion and there are 450 million Web surfers, film studios have yet to figure out how to monetize Chinese thirst for films via the Internet.

Youku.com, which calls itself an Internet television company and last month enjoyed the most successful New York Stock Exchange initial public offering in five years, is charging customers of its paid, advertisement-free video-on-demand service 5 yuan ($0.75) each to see the global blockbuster starring Leonardo Dicaprio

The film, which already grossed 456 million yuan ($69 million) in Chinese theaters from Sept. 1-Nov. 8, according to data collected by industry consultancy Artisan Gateway, also is available widely via illegal Internet download and on pirated DVDs sold across China.

But Youku CEO Victor Koo, who would not disclose how many paying customers Youku Premium now has, told The Hollywood Reporter that charging Chinese web surfers money for Hollywood films, even those already in release, still makes good business sense.

“Since we launched the paid service last year we’ve discovered there was plenty of demand from our customers for movie content but there was a bottleneck in the payment solutions.  Now we’ve sorted that out and hope that this is a beginning for something new and exciting,” Koo, who founded the company in December 2006, said over the phone from its Beijing headquarters.

Inception is not the first Hollywood film Youku’s bought to stream for pay, but it is the most current. Since the company started buying rights to imported content in 2009 -- first television, then movies -- most titles were older and cost consumers as little as 3 yuan ($0.45) on a pay per view basis.

In addition to securing the online on-demand broadcast rights to Inception from Warner Bros., Youku, also secured the online resale rights for the Christopher Nolan film, rights Koo said Youku might sell on to other online video platforms in the future.

From Youku’s dedicated Inception page, paying users can watch the famously twisty plotted film anywhere on any Internet-enabled device and share comments and film recommendations with other users.

Customers also may pay 20 yuan ($3.02) for a monthly Youku Premium subscription that includes access to some 10,000 hours, focused on lectures and self-study materials offered in partnership with ChinaEDU, Crystal Education, and other partners. Wherever possible, titles are offered in high definition.

In Sept 2010, Youku’s offering of a combination of licensed professional content, user-generated content and self-produced web video content attracted approximately 203 million monthly unique visitors from homes and offices and 56 million monthly unique visitors from Internet cafes, according to Beijing based iResearch.

In the second quarter of 2010, the four-year-old company, had a 40% share of total Chinese Internet user time spent viewing online videos, iResearch data shows.

On Dec. 8, Youku, raised about $203 million in NYSE IPO, well above the expectations of its underwriter, Goldman Sachs, and saw its first day of trading boost share prices 161%, to $33.44, the biggest first day of trade in New York since Chinese search engine Baidu’s stocks quadrupled on day one of trading in 2005.

On Tuesday, Youku’s stock closed at $35.64 per share, up nine cents or 0.25% on the day in NYSE trade. “We’re not checking the stock price daily,” Koo said, adding, “The key is to run the business.”

The Youku IPO raised the bar for the imminent U.S. listing of its closest Chinese competitor, Tudou.com, which has filed for a Nasdaq IPO hoping to raise up to $120 million.

Because the costs of content and bandwidth are rising, both Youku and Tudou are losing money; but both also are betting that U.S. investors will view pent-up demand for entertainment in China’s growing middle class as a recipe for long-term success. China's online population of 450 million surpasses the entire population of the United States.

Youku's revenue grew to 234.6 million yuan ($35.3 million) in the first nine months of 2010, up 135% from the same period in 2009. Its net loss, however, widened by 22.5% to 167 million yuan ($25.3 million).

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