CRI听力:Web Video Leaders in Surprise Marriage

Youku.com Inc, the country's top online video provider, agreed to buy its main rival, Tudou Holdings Ltd, in a stock-for-stock transaction.

Although the two faced off earlier in a copyright dispute, analysts say that their surprise merger appears to be a rational response to the problems that online video websites have in making ends meet.

Internet expert Xiang Ligang states that the deal comes as the companies are battling for market share, spending heavily to buy licensed content.

"The merger of these two companies is mainly caused by the market environment. China's online video industry is experiencing hard times, with huge costs and investment but low profits. On top of this, they face challenges from Tencent and other video websites."

The costly battle for dominance left both companies in the red last year. Youku reports a net loss of more than 170 million yuan, down 16 percent from the previous year, while Tudou has a net loss of over 510 million yuan.

Tudou, which went public in August on the NASDAQ, consistently traded below its IPO price of 29 dollars each.

Affected by this merger news, Youku and Tudou stock rose Monday on NASDAQ, especially Tudou which soared 150% since opening to reach about 37 dollars per share. Youku rose by 10%.

Chen Yijia, financial commentator for Reuters, says that many investors believe the new company will have a better performance.

"A strong video platform will be set up after the merger, and it will attract more advertisers. Also, it will raise the advertising charges. Some of the contents provided by Youku and Tudou are the same, so the money spent on copyright purchases will fall. On top of this, the disputes between the two companies will not be an issue after the merger, which is good news for the merged company."

However, the new company will still face fierce competition with portals that provide similar services.

Youku had about about 22 percent of China's online video market in the last quarter, followed by Tudou with less than 14 percent. They are closely followed by Sohu.com Inc, with 13 percent, and other rivals in the industry include Baidu Inc and Tencent Holdings Ltd.

Expert Xiang Ligang predicts that the merger of Youku and Tudou will bring further integration in China's video industry.

"After the merger, other companies in this industry may have more pressure. They may find a way out by finding partners and forming their own mergers."

The merger is expected to be completed in the third quarter of 2012, but Tudou's website and the brand will not change.

For CRI, I'm Wang Wei.