April 12, 2012 (Sebright Chen) Known as the biggest and second biggest online video company in China, Youku Inc. (NYSE: YOKU) and Tudou Hold. Ltd. (NASDAQ: TUDO) signed an agreement on March 11th to merge via a 100% stock swap. According to the statistics form iResearch, people in China spend watching online video from Youku Inc. (NYSE: YOKU) and Tudou Holding Ltd. (NASDAQ:TUDO) 42.2% of the time. They have mastered about 35% market share in China in terms of visitor numbers, which may incur a new monopoly in Chinese online video industry.
As we can see from the global market share chart below, Youku Inc. (NASDAQ:YOKU) and Tudou Ltd. (NASDAQ:TUDO) together make up the second largest piece of the pie among single brands. The restriction for Google's (NASDAQ:GOOG) video in China will accelerate the formation of a future monopoly.
Data Source:omScore Video Metrix
There are also other firms in this industry: Ku 6 (NASDAQ:KUTV), Sohu Video (NASDAQ:SOHU), Sina Video (NASDAQ:SINA), etc. After the merger of Youku Inc. (NASDAQ:YOKU) and Tudou Ltd. (NASDAQ:TUDO), there is a big possibility that other online video companies to merge in order to survive in a cut throuat competitive environment. Expected benefits from the merger of Youku Inc. (NASDAQ:YOKU) and Tudou Ltd. (NASDAQ:TUDO) are lower operating cost for the two combined. Additionally, Youku Tudou will have the best resources from all aspects, including video source, web platform and technical support. Other online video companies will need to make adjustment to their operation structure in order to adapt to industry changes after the creation of Youku Tudou. The merger will be helpful to the brand building process of Chinese online video service companies. Youku Tudou will be known by most of online video users in China. The new Youku Tudou will occupy 3.5% market share in global online video industry, the brand will be recognized by more global users. If their merger do lead to a "merger period" among Chinese online video companies, it will also lead to the globalization of these companies. Lots of small online video companies are not recognized by customers. People use their service but cannot remember their names. As the merger goes on in the future, China will have more well known brand around the world. Quality of online video services in China will also improve. Accompanied by the globalization, companies will have to find out their specialties in this industry and create a patent delegates its brand. It will become nearly impossible for small online video companies to compete with Youku Tudou without their own tweaks in the future. New skills and platform will be discovered during this process, more different industries will get involved in online video industry in order to improve the quality of online video experience. The communication between different industries will become more often. In summary, the merger of Youku and Tudou will incur crucial adjustment in Chinese online video industry structure. These possible changes include the future merger of other Chinese online video companies, the globalization of the whole industry, and the improvement in video and service qualities.