Now Showing in China: Bears

DreamWorks Animation's (NYSE: DWA  ) Kung Fu Panda movies are now streaming where they belong -- in China.

Youku.com (NYSE: YOKU  ) is entering into an online distribution agreement with the theatrical animation studio to make DreamWorks Animation's Kung Fu Panda film franchise available through the Chinese video website.

This is a win-win deal. It will be the first time that any DreamWorks Animation movie is available legally in mainland China in streaming form. It's also a victory for Youku. The popular streaming site launched Youku Premium as pay-per-stream venture in beta last year, making it official when it got Time Warner (NYSE: TWX  ) to contribute hundreds of the studio's biggest movies earlier this summer.

Let's hope the Hollywood infusion helps. All but $1.2 million of Youku's revenue this past quarter came from display advertising. In other words, it's not selling a whole lot of premium video.

China loves going to the movies. The populous nation is IMAX's (NYSE: IMAX  ) largest market outside of the United States, with 177 screens either open or contracted to open. But will the Chinese pay up for video on smaller screens?

Investors have turned on China's Internet video darlings. Tudou (Nasdaq: TUDO  ) continues to trade below this month's $29 IPO price, even after formalizing a deal today for SINA (Nasdaq: SINA  ) to acquire a 9% stake in the company. Youku has shed 64% of its value since peaking four months ago. Neither company is profitable at the moment, but both are growing their top lines quickly.

A wisecracking panda won't turn Youku into a lean, mean, profitable machine overnight. However, if it's the catalyst for parents to set the right example by paying up to Youku Premium to entertain their kids, this simple two-picture deal may be more important than investors think in coloring Youku's bigger picture.

If you want to keep an eye on China's booming video-sharing market, add Youku.com or Tudou Holdings to My Watchlist.