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China exerts new control over Internet videos, but analysts say leeway likely in new rules

January 30, 2008

HONG KONG (AP) – China wants to exert more control over Internet videos with recently issued rules that restrict video sharing Web sites to state-controlled companies, analysts say.

But analysts also believe the new order, issued Dec. 29 and scheduled to take effect Jan. 31, won’t kill off private video-sharing Web sites completely and that officials may allow them to work around the new regulations given the amount of foreign investment such sites bring in.

Foreign-based video sharing Web sites like YouTube are not likely to be affected, experts say, because they don’t have operations in China – although they may continue to be blocked in China occasionally.

”It’s a very clear message these Chinese film governing authorities have decided to send – that they’re taking this stuff seriously and they’re going to regulate it,” Jeremy Goldkorn, editor-in-chief of, a Web site that covers Chinese media issues.

The new rules may mean that such China-based Web sites have to cooperate with state-owned companies, he said.

Dick Wei, a Hong Kong-based technology analyst for investment bank J.P. Morgan, said the sites could form partnerships with TV stations or newspapers, which in China all are state-owned. He said the state entity could own the content to satisfy regulations while the two partners split the profits.

Goldkorn doesn’t believe Beijing will shut down private video sharing Web sites entirely because that might spook foreign investors and some believe the new rules already make these Web sites less attractive to potential buyers, such as Internet giants like Google Inc., which bought YouTube in 2006 for US$1.65 billion.

One of China’s major Web sharing Web sites,, says it raised US$40 million (euro27 million) in American and Chinese venture capital funding as of November.

Kaiser Kuo, group director of digital strategy at advertising agency Ogilvy China, said the new regulations are a response to the popularity of Internet videos – at the cost of traditional media like state-run broadcaster CCTV.

”They’ve suddenly lost control of one of the main state organs of propaganda and obviously the party (Chinese Communist Party) is not going to like that. So it’s only natural they would want to reassert some control in this new and increasingly popular form of media,” he said.

China ranks as the world’s second largest Internet market with a total audience of about 164 million, including people who surf the Web from public computers, according to the research firm comScore Inc.

Only the United States, with about 182 million Internet users, boasts a larger online audience.

Any China-based Web sites already require a government license that is only issued to Chinese majority-owned companies. The new regulations go a step further, requiring a state controlling interest in any video entertainment Web site. founder Victor Koo doesn’t appear too worried about the new policy.

”It is not currently clear how big the impact is to the online video space as this will depend on the interpretation and the implementation of such policy guidelines,” he said in an e-mail to The Associated Press, adding that Youku’s legal advisers are in touch with the government.

Internet self-censorship already exists, with private Chinese Web sites hiring their own censors to delete sensitive content – like footage of protests or pornography, Goldkorn said.

Youku’s Koo said his company has ”24x7 content approval procedures to ensure that no porn or politically inappropriate content appear on our Web site.”

China also censors or blocks Web sites based abroad for politically sensitive content – like information about the Chinese military’s brutal crackdown on pro-democracy protesters in Beijing’s Tiananmen Square in 1989.

Goldkorn said YouTube may be blocked occasionally – but otherwise the San Bruno, California-based company falls outside the jurisdiction of the new rules. YouTube runs a Chinese-language Web site, but none of its video-hosting computers are located in China.

Kuo said, however, Chinese video sharing Web sites are already making limited profits and the new rules may worry or prevent possible foreign buyers.

”A lot of them were probably hoping that a Google or YouTube would come in and swoop them up. It’s going to suddenly make it very difficult for that to happen,” he said.

J.P. Morgan’s Wei said the new rules clarifies policy.

”In the long term, it is a good thing for the industry because it clarifies what and who and how the industry can do video sharing.”

”I think some smaller players probably are going to be affected. But I think for the leaders in this space … I’m relatively comfortable they are going to work closely with the government and have a meaningful business,” he said.

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