Youku Tudou, Huawei Join Internet TV Crowd

In a move that seemed almost inevitable, leading online video site Youku Tudou (NYSE: YOKU  ) and top telecoms equipment maker Huawei have joined hands to create a set-top box for Internet TV, with plans to launch the product later this month. I'm calling the move inevitable because Youku Tudou was one of China's only major online video sharing services that had yet to launch an Internet TV initiative, and Huawei was one of the few remaining hardware makers without such a plan. This alliance looks potentially interesting as it combines two leaders in their respective areas, though their relatively late arrival to the game could put them at a slight disadvantage.

According to the latest reports, Youku Tudou and Huawei will release their set-top box, called the Joy Box, on April 21. The pair are joined in their alliance by China International Broadcasting Corp, which is a Beijing-based state-owned traditional broadcaster with a relatively short history, based on my research on the Internet. If that's the case, CIBC is probably being included for its government connections as Chinese video sites need all of the assistance they can get due to increasing signs that new Internet TV products may fall under the same regulatory rules as traditional TV stations.

Youku Tudou will be the main supplier of programs for this new Internet TV product, which will offer more than 7,000 TV shows, movies, and videos produced by the venture's partners. Users of Youku Tudou's current online premium service, which costs $3.20 a month, will become one of the primary initial targets for the new product. They will be eligible to receive a limited amount of free programming over the new set-top box service as part of their existing premium memberships.

Critical move in march to profits
No price has been announced yet, but it's likely to be similar to other recent products that cost anywhere from $100-$300. Youku Tudou had hinted that it was moving in this directly last summer when media reported it had formed a new Internet TV unit that would operate separately from its core video-sharing business.

Such a move is critical for the money-losing Youku Tudou, as it will make its products more accessible to a much wider audience that watches video on TVs rather than computer screens. However, it's also worth noting that Youku Tudou is rather late coming to this space. Its chief rival iQiyi, the video service owned by leading search engine Baidu, announced an Internet TV product last year in partnership with top TV maker TCL. The e-commerce leader Alibaba also announced a similar tie-up with TV maker Skyworth. Others in the space include industry veteran LeTV, smartphone sensation Xiaomi, and PC giant Lenovo.

With that kind of a crowded field, Youku Tudou will have to work hard to differentiate itself and find an audience for its product. With that said, this new initiative does appear to have a good chance of success. Both Huawei and Youku Tudou are leaders in their spaces and have strong histories for good product development. What's more, Youku Tudou owns a rich library of content and has a strong existing audience for its current premium online service. We'll have to get a look at the actual product and its pricing before we say too much more, but I would give this new product a better than 50% chance of success. One might expect to see it sell more than 100,000 units this year alone.

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