China's two leading video sites, Youku and Tudou, announced on Monday the companies would merge, creating the country's largest online video platform and dealing a blow to the companies' rivals.
Under the agreement, Tudou will combine with Youku, according to joint a statement. The new company will be named Youku Tudou Inc, and the merger is expected to close in this year's third quarter. Tudou will retain its brand and video platform.
For years, the companies had competed as China's top two video sites, but with neither dominating the market. Together, the companies will have a 35.5 percent share of revenues generated from China's online video market, according to Beijing-based research firm Analysys International.
Unlike YouTube, which relies on user-generated content, China's online videos sites have grown dependent on purchasing TV and movie licensing deals in order to attract visitors. "It's become a content arms race," said Mark Natkin, managing director for Beijing-based Marbridge Consulting.
China's Internet censor has blocked YouTube in the country since March 23, 2009.
While both Youku and Tudou were fierce competitors in the past, joining forces will allow the companies to save money in securing content deals, Natkin added. "Getting the best content is expensive," he said. "With a combined company, they only need to spend just once to get the content."
Both companies have also been faced with high bandwidth costs in order to host their vast libraries of videos. Last year, Youku had a net loss of 172.1 million yuan (US$27.3 million), while Tudou posted a net loss of 511.2 million ($81.2 million).
China's online video sites have 283 million users, according to the China Internet Network Information Center.