Upon completion of the 100 per cent stock-for-stock transaction, the combined entity will be named Youku Tudou Inc, representing the "largest user base, most comprehensive content library, most advanced bandwidth infrastructure and strongest monetisation capability within the [online video] sector in China," said Victor Koo, founder, chairman and chief executive officer of Youku.
Gary Wang, Koo's counterpart at Tudou, added that the transaction "further strengthens our market position", referring to the combined company's clout with advertisers and industry partners.
Under the terms of the deal, Youku's ex-competitor Tudou.com will retain its brand identity. The agreement sees Youku and Tudou shareholders owning stakes of approximately 71.5 per cent and 28.5 per cent, respectively.
To draw ad spending from brand owners, the two US-listed online video rivals have in the past spent money on copyrighted content, which was also the bone of contention between the duo. Youku and Tudou, both unprofitable, have accused one another of infringing on exclusively licensed content. From now on however, they will share the costs of content acquisition.
To the media industry and brand advertisers, this means Youku Tudou now holds bigger power over the market, and will be able to inflate its online video advertising prices.
"It will be more difficult to negotiate the ad prices, which will go up quite significantly, between 30 to 50 per cent in the near-term", according to Aegis Media's Meg Chen, who is executive vice president of digital investment management at the agency. The impact on online media inflation is not immediate, but may filter through after two quarters, Chen said.
Together, the companies will control more than one-third but less than half of China's online video ad market. Before this, Youku had 21.8 per cent market share as of the fourth quarter and Tudou took 13.7 per cent, according to Analysys International.
Chen pointed out that Tudou's advertising rates used to be cheaper than Youku's in the smaller player's bid to gain a bigger slice of the pie.
The consolidation has made the choice of online video platform easier for advertisers, as Youku's Koo put it. During a joint conference call, executives stated that the combined company will provide different options to advertisers for better pricing leverage.
To Chen, those options may take the form of branded content partnerships. To neutralise the impact of more expensive ad prices, online marketers should also diversify their strategies to consider other channels like PPTV, PPS and Qiyi, she advised.
Analysys research expects overall online video ad revenue to increase to US$3.1 billion (CNY19.8 billion) by 2014.
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