Beijing reins in online video

56.com, one of China’s biggest online video sites, was forced offline on 3 June, reportedly on orders from the State Administration of Radio, Film and Television (Sarft). Three weeks later, at the time of going to press, it remained offline.

The break in service is the most severe to hit the sector to date. Rival site Tudou went offline for one day in March, again following reports of a run-in with Sarft.

The issue revolves around the content available on the sites. New regulations introduced at the beginning of the year require online video sites to gain Government licences. To do that they must abide by strict rules regarding the content that can be posted.

On 23 June Sarft unveiled a list of 247 websites approved to host audio-visual content online. Those sites include portals such as Sina, Sohu, NetEase and Tom.com, though the big three standalone video sites - 56.com, Youku and Tudou - were not among them.

According to Shaun Rein, managing director of research firm CMR and a former venture capitalist, the licence awards are indicative of how the Government wants the sector to develop. Licences have been given to established portal sites that already have a history of co-operation with the Government and a long relationship with those in authority.

“The authorities are cracking down on the sector to make sure these sites play ball with them,” he says. “The same thing happened with blogs and bulletin boards.”

Rein argues that the disruption to 56.com could have commercial implications. Unlike established portals such as Sina and NetEase, the standalone video sites have yet to develop an effective business model. Whereas the portals can absorb online video into a broader online offering, Youku, Tudou and 56.com are trying to develop an advertising platform exclusively around online video.

“Commercially the break to 56.com is damaging for all the standalone sites,” says Rein. “Advertisers plan their campaigns six months in advance and will be wary of this sort of disruption.”

56.com and Tudou declined to comment. However, Victor Koo, CEO of Youku, said the Government regulations would benefit the sector in the long term . “The fact that there are some guidelines is good,” he said. “It will reassure advertisers.” He added he was confident Youku would win a licence, though it may take six months before there is “clarity” in the market.