Youku Tudou's transformation puzzle: 1.77 billion yuan in cumulative losses in four years after listing

It is reported that the video traffic of Youku and Tudou is about 10 times different, which determines the current loss of Tudou, and the loss figure is about 200 to 400 million.

On September 18, according to industry insiders, "the State Administration of Radio, Film and Television has issued an ultimatum to all Internet video companies regarding the incident of video websites removing TV apps: all video websites and TV apps must be removed by September 21. If they fail to do so, their Internet audio-visual licenses will be revoked and their servers will be shut down."

Regarding the "delisting", Youku Tudou Group (hereinafter referred to as "Youku Tudou") responded: We have learned of the radio and television instructions. In the OTT business, the group has always adopted a broad cooperation approach, cooperating with the state's formal license holders, strictly abiding by national policies and regulations, and providing genuine and healthy content and superior user experience.

As the leader of the domestic online video industry, Youku is winning the attention of capital giants by leveraging its traffic advantage of ranking third among global Chinese applications (QQ is first and WeChat is second).

On April 28, Alibaba and its Yunfeng Fund spent US$1.22 billion on a strategic investment in Youku. Alibaba holds a 16.5% stake and Yunfeng Fund holds a 2% stake.

For Youku, it not only received financial support from Alibaba, but also received support from Alibaba's other resources in return. Its strategic concept of transforming into a "multi-screen ecosystem" is also unfolding.

However, while Youku CEO Victor Koo is trying to tell Wall Street a new story, there is an indisputable fact: Youku has not achieved annual profits since its listing in 2010. As of June this year, Youku has accumulated losses of 1.771 billion yuan. Before and after the merger with Youku in 2012, Tudou has also been stuck in the quagmire of losses.

According to video industry analyst Li Rui (pseudonym), the video industry will continue to lose money for a long time in the future and will be difficult to achieve profitability in at least three years. "The most important thing at present is to invest heavily to gain users."

Marriage with Alibaba

On the afternoon of April 28, a piece of heavy news disturbed the seemingly calm video industry. Youku Tudou announced a strategic investment and partnership with Alibaba. Alibaba and Yunfeng Fund acquired Youku Tudou A-share common stock for US$1.22 billion, of which Alibaba held 16.5% and Yunfeng Fund held 2%.

The marriage between Alibaba and Youku seems to be a perfect match, but in fact, both parties value cooperation on big backend data more.

In the era of mobile Internet, traffic entrances have become the most valuable gold mines.

According to industry insiders, if Alibaba wants to ensure its development in mobile e-commerce, it must have sufficient mobile traffic at the front end. Judging from the two Internet companies Weibo and Youku acquired by Alibaba, their mobile traffic is relatively large, and their traffic ranks among the top in the Internet industry.

According to Li Rui, Youku ranks third among the top three Chinese apps in the world. And this huge traffic advantage is the most important reason why Alibaba chose Youku.

From another perspective, if Alibaba does not invest in Youku, then Tencent or Baidu may acquire Youku, and this is a result that Alibaba does not want to see.

As we all know, among the three Internet giants, Tencent's core is products, Baidu's core is technology, and Alibaba's core is platform influence. What Alibaba can do is to make good layouts in various industries and deepen its influence by occupying a position. Once Youku is acquired by the other two of the three giants, Alibaba will become extremely passive in the video field.

From Youku's perspective, Alibaba's introduction can bring more advertisers to Youku, but in a deeper sense, both parties intend to connect the backend data. Once this link is connected, there will be a lot of room for improvement in the precise delivery of advertisements.

According to an industry insider who wishes to remain anonymous and who spoke to a reporter from Financial Weekly (http://www.lczb.net), similar to the cooperation between Alibaba and Weibo, some columns on Youku now have advertising links related to the column content, and users who log in to Taobao and Tmall can shop while viewing.

"In this way, sellers on Taobao and Tmall will naturally become Youku's advertisers. In the past, Youku's advertisers were mostly large brand manufacturers. Alibaba has brought new advertisers to Youku, with higher accuracy." The above person added.

In fact, long before Alibaba invested in Youku, there were rumors in the market that Tencent would enter the market. As for why Alibaba was chosen instead of Tencent, Xu Hao, a senior Internet industry analyst, said that it was mainly based on one reason: to ensure the independent development of Youku.

Li Rui revealed to the reporter of Financial Weekly, "Tencent actually wants to integrate its Tencent Video and Youku Video, and control Youku by acquiring shares. As Gu Yongqiang grew up in Hong Kong, he has a more independent style. He hopes that Youku can develop independently and does not want to be controlled by others."

On the other hand , when Alibaba entered the game, Jack Ma met Gu Yongqiang's request for independent development. Although Alibaba and its subsidiary Yunfeng Fund invested 1.22 billion yuan, the combined shareholding ratio of Youku is about 18.5%, but the right to speak is still firmly controlled by Gu Yongqiang.

Loss of 1.7 billion in 3.5 years

After embracing Alibaba, Youku not only obtained funds, but also received support from Alibaba's other resources. Youku's strategic vision of transforming into a "multi-screen ecosystem" was thus laid out.

However, while Youku CEO Victor Koo was trying to tell a new story to Wall Street, the indisputable fact is that Youku has not achieved annual profits since its listing in 2010. As of June this year, Youku's accumulated losses were 1.771 billion yuan.

In the view of more industry insiders, Youku's fundamental problem is that its business model, which relies on advertising revenue, cannot achieve profitability.

Compared to when it first went public in 2010, after four years of rapid development, Youku's total revenue has increased nearly 10 times, and its total assets have also grown from 2.19 billion yuan in 2010 to 18.013 billion yuan in the first half of 2014.

From the end of 2010 to the first half of 2014, Youtu's total operating income was 387 million yuan, 898 million yuan, 1.796 billion yuan, 3.028 billion yuan and 1.659 billion yuan respectively. Although its total operating income is growing rapidly, its net profit is also going further and further down the road of loss.

According to Youtu's financial report, from the end of 2010 to the first half of this year, its net profit was -205 million yuan, -172 million yuan, -424 million yuan, -581 million yuan and -389 million yuan respectively. In three and a half years, Youtu has lost a total of 1.771 billion yuan.

"At present, it is not just Youku that is losing money. Other video websites including Tencent and Baidu are also losing money. It's just a matter of how much they lose."

In the opinion of Xu Hao, a third-party video industry analyst, taking Youku as an example, an important reason for the loss is that the cost of purchasing copyrighted content accounts for 40% or even higher of Youku's operating income, plus other expenses such as bandwidth costs. When calculated in this way, the entire fiscal year is a loss.

"It is worth noting that with the sudden rise of video websites such as iQiyi and Sohu , it has indirectly become an accelerator of Youku's losses," he added.

A set of data can illustrate this: According to the financial report, Youku's revenue in the second quarter of this year increased by 27% year-on-year, while in the first quarter and the fourth quarter of 2013, the figures were 36% and 42% respectively.

The declining revenue growth rate also made Youku’s management uneasy.

In fact, through its quick marriage with Alibaba, Youku hopes to improve its advertising business through cooperation between the two parties in big data, but in the view of more industry insiders, this is unlikely to become a key factor in reversing the overall situation.

In the view of more industry insiders, Youku's fundamental problem is that its business model of relying on advertising to increase revenue means it cannot turn a profit.

"The current development status of domestic video websites is that all videos on each video platform can be watched for free, and it is impossible to turn losses into profits by relying almost entirely on advertising to earn revenue," said Xu Hao.

In Xu Hao's opinion, in order to achieve profitability and reduce costs, it is also necessary to explore other profit models, such as a user payment model.

Xu Hao gave an example, saying that the international Internet giant Netflix spends money to purchase professional video content or produces videos by itself, but charges different fees to subscribers. Video websites such as Youku and iQiyi have not grown big by relying on the content payment model.

It is understood that the current proportion of Youku user payments to revenue is conservatively estimated to be less than 20%, and there is still a lot of room for improvement in the future.

In addition, Youku Tudou also pinned its hopes on mobile video. Youku released its latest mobile traffic data report, which showed that as of August 2014, according to the statistics of video APP downloads on mainstream Android platforms compiled by the Bida Consulting Data Center, Youku Tudou's mobile downloads had reached 1.326 billion times, a monthly increase of 159 million times and a month-on-month growth rate of 13.57%.

However, there are also views that making money is not the purpose of the current video industry, and "enclosing land" is the most important thing.

Even some optimistic people in the video industry have confessed that it is normal for video websites to lose 100 to 200 million yuan a year, because this is a fast-growing market, and as long as the market share does not drop, there is no problem.

"Different companies have different goals at different stages. Youku now focuses more on long-term development." Li Rui believes that the competition among domestic video websites is fierce, and the first thing to do now is to consolidate their existing market share. Because since ancient times, the winner is the king, and when the market share is large enough, its revenue will come naturally.

Potatoes are still mired in losses

On August 23, 2012, Youku announced that it would acquire Tudou.com by exchanging all its shares for the same. According to a rough estimate, the transaction value could reach US$1.04 billion, setting a record for the largest stock-exchange merger and acquisition in the Chinese Internet market. Since then, a new company has been born in the Chinese Internet industry, namely Youku Tudou Group.

It is understood that after the merger, Youku Tudou is still divided and ruled.

After this adjustment, the resources of Youku and Tudou Group are divided into two parts. One part is basic resources, which are aimed at the company's internal business units (BU) and provide horizontal support for BU units; the other part of resources is business resources, including Tudou and Youku.

Basic resources are controlled by the group, represented by four committees: the Group Management Committee, the Group Product and Technology Committee, the Group Marketing Business Committee, and the Content Market Committee. Horizontal resources are controlled by BUs, including Youku and Tudou. BU businesses are rooted in basic resources.

After the adjustment, the Group Management Committee includes Gu Yongqiang, Liu Delu , Yao Jian, Xu Ge, etc., with Gu Yongqiang and Liu Delu serving as co-chairmen.

The two BUs are Tudou and Youku. Wei Ming is the president of Youku, fully responsible for Youku's content, marketing and Youku's product development team. Yang Weidong is the president of Tudou, fully responsible for Tudou's content, content marketing, marketing and Tudou's product development team.

After the merger, Youtu's total assets also made a qualitative leap, rapidly expanding from 2 billion yuan at the beginning of its listing to 10.793 billion yuan. However, behind the glory, Tudou, which was merged, is still mired in losses and unable to extricate itself.

"In fact, judging from the current market effects, the merger of Youku and Tudou has not achieved the expected market results." Zhao Huan, head of a video company, told the Financial Weekly reporter that this was because the market environment was not good in 2012, and the content overlap between the two platforms was too high at the beginning of the integration.

It is understood that in order to seek differentiated development, Tudou is now taking a youthful route.

Judging from the content played by Tudou, Tudou now tends to play trendy content such as Japanese anime, Korean dramas, etc.

"But we should realize that the number of young people who watch Japanese anime and Korean dramas in China is small after all, and this group of people is mainly concentrated in first-tier cities and those under 20 years old." Zhao Huan believes, "In addition, the competition pressure from industry video giants such as iQiyi is also very high, so in the short term, the internal and external environmental pressures of Tudou should not be underestimated."

Facts have also proved that for Tudou, which is taking the younger route, the rice of youth is not so easy to chew.

It is understood that the video traffic of Youku and Tudou is about 10 times different, which determines the current loss of Tudou. The loss figure is about 200 to 400 million.

However, some market insiders believe that Tudou is now betting on the future 10 or 20 years from now, when these young people will become the backbone of society and potential consumer users.

In this regard, the reporter of Financial Weekly also tried to interview the relevant person in charge of Youku. According to the person in charge of its marketing department, after the merger of Youku and Tudou, the advertising business is centrally managed and calculated by Youku Group, and only the overall financial report data is considered in terms of revenue.

In other words, only insiders of Youku and Tudou know the profitability of these companies.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.