Youku Tudou Inc., the leading portal for video-streaming in China, stated on Thursday that it is looking to invest 10 billion yuan ($1.61 billion) in the next three years for Web-based content, as part of its initiatives to expand sources of income beyond advertising.
The company has been receiving a steady flow of income from marketing using Web-based content, according to a press release they sent to the Global Times on Thursday.
Web-based content comprises original content, professionally created content, and user-generated content.
Revenues from content marketing as well as subscription-based services "will surely surpass that from advertising" within three years, said Youku Tudou. This endeavor veers away from the traditional business model currently being used by many local video-streaming sites.
Advertising is still the primary source of income for Youku Tudou.
The advertising revenues of the U.S.-listed company increased 43 percent year-on-year in the first quarter of 2015, equivalent to $144 million or 78.3 percent of their total income.
Zhang Yi, CEO of iiMedia Research, informed the Global Times on Thursday that video-streaming websites must diversify their income-generating methods, as the business model for advertising presents a weak growth.
China's video-streaming sites produced 4.1 billion yuan from advertising during the first quarter of 2015, dropping 21.9 percent compared to the previous quarter, as reported by market research company Analysis International.
The online video-streaming sector is led by Youku Tudou with 21.2 percent share, followed closely with a 19.6 percent share from its main rival iQiyi, which is supported by Internet giant Baidu Inc. Third in rank is Tencent's video segment with 14.1 percent.
The major threat to Youku Tudou's top rank would be Tencent's video division, as it is more favored by advertisers that are keen on WeChat, Zhang said.
In a press conference held in Beijing, the company changed its name to He Yin (Chinese for "united as one"), which Zhang explained that it was meant to show the complete merging of Youku and Tudou, which formed as one in 2012.
Zhang also noted that during its first stages, the company "did not have a thorough integration, especially in terms of management, resulting in a slow strategic adjustment. Youku Tudou, a forerunner in self-generated content, did not invest enough in comparison with its rivals."
Other companies have also explored opportunities in Web-based content marketing. An example is Sohu.com Inc. which released a self-produced drama with 16 episodes in 2014, with each episode costing 1 million yuan.
"Unlike copyrighted content, Web-based content is more effective in helping video sites differentiate themselves and enhance user loyalty. And self-produced content can give companies more possibilities to develop new business models than copyrighted content," Liu Cuiping, research director of Entgroup International Consulting, told the Global Times.
Over 70 percent of Alibaba's online products are embedded in Youku Tudou's video-streaming websites, allowing viewers to shop while they watch online.
Youku Tudou also partnered with China's leading online travel agent Ctrip.com, together with investments in five other companies from various segments, such as education and mobile gaming.