China’s Youku Tudou Reports Bigger Than Expected Loss

Leading Chinese online TV company Youku Tudou reported a bigger than expected loss last year, while revenues increased above expectations and revealed that the SEC was investigating certain aspects of its past accounting.

Youku Tudou, in which e-commerce giant Alibaba has an 18.5 percent stake, saw net revenues rise 33 percent to $649.5 million year-on-year, while the net loss in the full year was $143.2 million, compared to $93.6 million in 2013.

Hollywood closely watches firms like Youku Tudou, as they have been buying overseas content. The industry is currently waiting to see the impact of new rules for online video firms that require overseas films and TV for streaming to go through the same censorship process as traditional routes. The new rules are due out on April 1 and include measures requiring the censorship of entire seasons of TV shows in advance.

The company reported strong growth in its subscription-based and pay-per-view services, with consumer revenues up 649 percent at $11.2 million in the fourth quarter.

Victor Koo (AP/Invision)

Victor Koo, chairman and CEO of Youku Tudou, said the group’s large and growing multi-screen video user base underpinned its innovation efforts and growth strategy.

“We began to diversify and improve the monetization of our leading brand, traffic and content offerings in addition to advertising. As a result, consumer revenues achieved outstanding 473 percent year-on-year growth in 2014,” he said in a statement.

“We have put in place a multi-business unit and content center structure supported by new hires that add complementary skill sets to our talent pool, creating an agile and innovation-driven organization. For 2015, we expect to see further growth of our platform as we continue to invest to strengthen our leadership in China’s online video industry,” said Koo.

Bandwidth costs were $43.9 million in the fourth quarter of 2014, representing 22 percent of net revenues, as compared to 20 percent of net revenues for the corresponding period in 2013.

This increase was primarily attributable to the increase in traffic and higher resolution quality of video content.

Content costs were $97.2 million in the fourth quarter of 2014, representing 48 percent of net revenues as compared to 39 percent of net revenues for the corresponding period in 2013.

“This increase was primarily due to expansion of our video content portfolio to support our new business growth initiatives,” Youku Tudou said.

The group said that it had received queries from the Securities and Exchange Commission regarding its historical financial statements.

The queries related to revenue recognition for multi-element arrangements, accounting for barter transactions and how the company values licensed content.

“The company currently expects to resolve the staff’s comments and file its 2014 form 20-F by the end of April 2015,” Youku Tudou stated.

Earlier this month, the group revealed that it had restructured its business to form two new units, Heyi Studios and Innovative Marketing, and announced the appointment of the former China head of the Havas agency, Edward Su, as chief operating officer.