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China’s Largest Video Site, Youku, May Acquire Tudou

There’s speculation on the internet in China today that online video pioneer Tudou is no longer aiming for an IPO and is considering selling, with rival Youku as a possible buyer.

With the rising cost of content licensing and pressure from investors, Tudou may look for an exit if this report is a valid one. Tudou was the first streaming video site to become popular in China, going online roughly around the same time as YouTube did. Its popularity has only been rivaled by Youku, which was successful in going public last year.

We reached out to both companies this afternoon, but both declined to comment on the the possibility of a sale or acquisition. What a surprise

It’s much like a battle between Facebook vs MySpace. Only one will survive. But for video streaming, the game differs slightly.

YouTube was losing money until Google’s massive $1 billion acquisition turned it around. Google managed to monetize it thanks in large part to its huge advertising network. Video-streaming sites are tough to maintain. The amount of money spent simply maintaining the servers and infrastructure usually dwarfs the ad money it brings in. That’s why YouTube had to bring in other revenue sources like movie rentals into its business model. With a high burn rate it’s hard to for Tudou to continue, especially when it is still a private company. Tudou did intend go into IPO but nothing has so far materialized. Youku, however, had an IPO which helped raise $203 million.

The interesting fact is that Youku has a higher burn rate. It lost $25 million in the first nine months in 2010 while Tudou lost about $12.5 million. Both sites claim to have 200 million visits per month. No matter how you look at it, Tudou seems to be a better choice for investors. There must be a problem problem with Tudou, which only the internal staff would know.