China's Tencent Looks Set to Enter Online Video Market

The company's massive user base could support a rival to sites Tudou and Youku.

Tencent, China’s leading instant messaging provider and one of the world’s largest online communities, is widely expected to launch a video website in April on the heels of the 56.2% jump in annual net profit the Hong Kong-listed company reported on Monday.

Although not confirmed by the Shenzhen-based company, which claims as many as 118 million simultaneous users on its QQ instant messaging service, market observers expect that recent investments in content copyrights signal a move to follow a model.

Calls to investor relations went unreturned by the company that said 2010 net profit was 8.05 billion yuan ($1.22 billion).

Partly owned by South African media giant Naspers, Tencent currently offers video with its QQLive video player, a service that thus far has struggled to compete with Qihoo360 the video service from Baidu, China’s leading search engine.

Analysts say Tencent likely looked at Baidu’s online video success and decided to jump in by subsidizing the considerable costs of bandwidth, content licensing and marketing with revenue from other streams.

“In China, you don’t have to have been in this business for five years to win. In online video, it’s looking less like the early bird gets the worm and more like the second mouse gets the cheese,” said David Wolf, a Beijing-based media consultant.

In an apparent move toward its rumored foray into online video to reach a greater share of China’s 457 million-strong web surfing population, Tencent recently joined an Online Cinema Licensing Alliance with Chinese web video providers including LeTV and PPLive.

Alliance members agreed to share purchased and licensed content across the other members’ platforms as long as they release the content at the same time, price and picture quality.

“China Film and SARFT can’t be too thrilled about this. While I admire the private sector move to get into this space, as soon as the state broadcasters and film folk realize there’s a band of entrepreneurs siphoning away their audience, I expect there will be a reckoning,” Wolf said.