Access denied

Few likely experienced the ups and downs that Victor Koo did over the past New Year holiday.

Two weeks after research firm AC Nielsen confirmed that his video-sharing website Youku.com had reached the same daily video views of YouTube, the former chief operating officer of Sohu.com was told that he may have to shut down his site by the end of January.

"We will actively seek solutions with the government and will keep in touch on the latest details of the regulation," says Koo, founder and CEO of Youku.com.

Koo's anxiety comes from a new regulation jointly released by the State Administration of Radio, Film and Television (SARFT) and the Ministry of Information Industry on December 29.

The regulation states that websites which provide video programming or allow users to upload videos in China must obtain a government license and applicants must be either State-owned or State-controlled companies.

That wording is crucial as most video sharing sites in China are privately held and funded by foreign venture capital firms.

"I don't believe the Chinese government wants to see the country's online video market die," Wang Ran, CEO of China eCapital Corp, a domestic private investment bank, writes on his Weblog.

"In the end, I think the current major video sharing websites may be forced to form partnerships with the State-owned media companies while still keeping some operations independent."

Liu Bin, chief analyst from BDA China, says he believes that the release of the new regulation shows that the government is serious about regulating the online video industry.

"But I don't think the major websites will die," he says. "On the contrary, the regulation is good news for big players as smaller ones may be forced to shut down."

In China, the online video market is dominated by several big sites, such as Tudou.com, Youku.com and 56.com, which over the past few years have received hundreds of millions of dollars from venture capitalist firms encouraged by Google's $1.65 billion acquisition of YouTube in 2006.

Fierce competition in the industry led to many video sharing websites in China tacitly allowing individual users to upload copyrighted films, violent videos or even porn clips in an effort to increase their view numbers.

"On the Internet, we see a lot of violent videos that show the details without any editing or commentary. I don't think that is appropriate, especially considering the fact that one-third of China's Internet users are students," Huang Weiqun, an official from SARFT, said in a CCTV program five days after the new regulation was released.

According to China Internet Network Information Center, China had 162 million Internet users by the end of last June. Among them, over half are younger than 25 years old.

On January 3, SARFT posted a notice announcing that it had suspended the screening license of Lost in Beijing, a domestically made movie that contains rape, prostitution and explicit sex scenes.

The film, known as Apple in China, was before licensed after the deletion of 20 minutes of footage.

But the producers distributed the deleted scenes on the Internet, which have become among the most viewed on many video-sharing websties.

Due to the dark side of video-sharing websites, analysts say the new regulation may receive support from the public, especially parents who are increasingly concerned about their children's possible addiction to the Internet as well as exposure to violent and pornographic content.

Yet, some are also raising their eyebrows over the validity of the regulation.

Yu Guofu, chief lawyer of Sam Partners Law Firm, alleges it runs counter to China's Administrative Licensing Law, which took effect in 2004.

The law is part of the effort of the government and lawmakers to streamline administrative approval procedures and removes restrictions considered unnecessary.

"According to China's Adminis-trative Licensing Law, ministry regulations are not qualified to set up licensing systems," he says.

As well, as private companies dominate the market, allowing only State-owned companies to broadcast and stream online videos may also raise the question about fair competition.

Some industry observers say the new regulation will be challenged in the short term and may not work in a long run.

Video-sharing websites may be able to survive by partnering with licensed State-owned companies or even "borrowing" licenses from State-owned businesses, says Fu Xinghua, analyst from Beijing-based research firm Analysys International.

That could result in more irregularities similar to what happened in the mobile phone industry.

Before the regulation was scrapped last October, a company had to secure a license from the government to make and sell mobile phones in the country. But after the first batch of licenses was issued in the 1990s, few new ones were awarded.

As a result, some new market entrants had long been borrowing licenses from approved companies, with some of those mainly profiting through leasing their licenses.

Liu of BDA China says the new SARFT regulation contains many "ambiguous statements" which could result in such irregularities.

(China Daily 01/14/2008 page2)