Booming Demand for TV on the Internet in China

Every month, about 300 million people in China are using a computer to watch Chinese TV dramas, Japanese and Korean sitcoms, and even American films and television series like “Twilight” and “Gossip Girl.” Live streaming of the recent World Cup also drew a huge online audience.

Analysts say young people in China are even starting to favor free laptop-viewing over TV sets, in part as a way to make an end run around regulators, who often bar state-run TV networks from broadcasting shows that do not meet the approval of the Communist Party.

It is a momentous shift in viewing habits that has not gone unnoticed by the authorities in Beijing. They are tightening oversight of online video sites and also pushing state-run television networks to form their own Internet TV sites in an effort to retain control over what viewers can watch online.

In addition, the country’s big Web portals and search engines — including Baidu — are scrambling to form competing video sites, many of which plan to license content from the United States and elsewhere.

“Everyone wants to get in on this market now,” says Li Yifei, chairwoman of VivaKi Greater China, part of the advertising and communications giant the Publicis Groupe. “Suddenly there’s a change of attitude because people are watching a lot of online video.”

While Internet TV in the United States is in a nascent state, in China, it is already drawing a huge share of the world’s biggest Internet market, where an estimated 400 million people are on the Web. A market research firm based in Shanghai, iResearch, says advertising on Internet TV and Web video sites is expected to reach $346 million this year, up from $83 million in 2008.

Big video sites like Youku, Tudou, KU6 and PPTV are spending aggressively to license content, produce original programming and buy the bandwidth necessary to store and broadcast content.

On Thursday, when many of the industry’s leaders gathered at the China Digital Media Summit in Shanghai, the future of video Web sites was one of the hottest topics.

A similar discussion is playing out in the United States, where YouTube is searching for ways to make money from traffic on a site largely devoted to user-generated content and where Hulu.com — the free online video hub created by NBC Universal, the News Corporation and Disney — is also trying to grow.

Advertisers are warming to the idea of Internet TV.

“There used to be a joke about the Internet in the advertising community. They said, ‘We’ll advertise when it starts to look like TV,’ ” says Michael Galgon, former global chief advertising strategist at Microsoft. “Well, now it’s starting to look like TV.”

In China, though, Internet TV occupies a unique position largely because it serves as an alternative to what many consider bland state-run programming.

Global media companies like Disney are often restricted from winning television programming slots and are allowed to show only a limited number of films in China. Piracy is rampant in China, and TV viewership among young people is in decline.

That may explain why Internet TV is booming in China. While most early video sites here focused on user-generated content — or amateur videos posted by users — many of those sites have recently evolved by offering licensed content, in-house productions, and loads of pirated films and television series that are uploaded to the sites by users.

For instance, some of America’s most popular shows, including “CSI,” appear on Youku.com and Tudou.com just hours after being broadcast in the United States, usually with Chinese subtitles.

Analysts say they do not know how much of the Internet TV content is pirated, but the fact that many of the sites continue to broadcast pirated television shows and films is a complicating factor. Most executives for the video sites say they are licensing a growing share of content and trying to stop users from uploading pirated content to their sites.

“Through various agents, we have purchased and are going to purchase more copyrighted content from foreign countries,” Victor Koo, the founder and chief executive at Youku, said in an e-mail message. On the issue of pirated foreign movies uploaded by users, he added that the site had been working with the Motion Picture Association of America to improve its monitoring.

But some analysts say illegal content is a major factor driving traffic to Internet TV and video sites and a taboo topic for the industry. Still, the analysts concede that Internet TV and video sites are gradually moving toward more original and licensed content, with some companies competing fiercely to buy popular Chinese and Korean television series.

Anita Huang, a spokeswoman for Tudou, based in Shanghai, says the company is positioning itself as a Chinese version of HBO.

Vincent Tao, chief executive of PPTV, which provides licensed content, said his company was streaming N.B.A. games and producing original TV dramas. “We are going to spend more to acquire foreign content,” he said. “We now have a deal with Warner Brothers.”

Strong challenges from newcomers to Internet TV could create a messy battle over the next few years. For instance, Baidu.com recently formed Qiyi, and if Baidu begins directing most video searches to its own site, that could harm other sites, since Baidu is China’s dominant search engine.

“Advertising agencies really want to transfer their advertising budgets to online video sites, there’s no question about it,” Alan Yan, founder and chief executive at AdChina, said. “But first, the video sites need to solve some of the copyright issues on the content.”