Chinese social network Weibo (NASDAQ:WB) recently updated its terms of service to protect its content, and many users weren't happy. Under the new terms, users are no longer allowed to repost Weibo content on third-party apps, while Weibo gains exclusive rights to all of the user-created content hosted on its platform.

Users also aren't allowed to repost Weibo content on other sites without the company's written permission. Users immediately retaliated, arguing that Weibo had no right to copyright their posts since it didn't pay any royalties or fund the creation of user content.

A group of friends takes a selfie.

Image source: Getty Images.

Weibo was forced to backtrack with a second announcement assuring users that the company wouldn't actually "copyright" their posts. But in the same post, it stated that as the owner of the host platform, it still held exclusive "usage rights" to the content. Weibo also explained that written permission would only be required for "illegally" reposting its content on a third-party app with other software tools (like screenshots).

Why is Weibo so protective of its content?

Weibo's abrupt decision to cut off third-party apps is likely related to its recent clash with Toutiao, a popular news aggregator that scrapes stories of news sites, blogs, and social networks. In the past, users could authorize Toutiao to republish their Weibo posts. But Weibo's parent company, SINA (NASDAQ:SINA), accused Toutiao of illegally reposting those stories.

SINA saw this ecosystem intrusion as a disruptive threat since Toutiao has 120 million daily active users (DAUs) on its own, compared to 159 million DAUs on Weibo. If more users rely on Toutiao for their daily news, the relevance of SINA's portals and Weibo's microblogs could fade.

Toutiao responded by severing all its content-sharing links with Weibo, and Weibo users lost the ability to post to Toutiao. Instead of negotiating new content sharing agreements with Toutiao, Weibo decided to double down by cutting off all cross-posting apps to avoid another content-sharing clash.

But was that the right move?

Weibo's decision to protect its ecosystem makes sense, but it could also block a lot of incoming traffic. Users who clicked through Toutiao or other apps to a Weibo story might have been encouraged to sign up for a new account.

For example, Twitter (NYSE:TWTR) once allowed its tweets to appear in Google's search results between 2009 and 2011. However, Twitter didn't renew that deal due to opposition from former COO Ali Rowghani, who claimed that the social network needed to protect its own content.

But in 2015 Twitter renewed the deal, admitting that Google users who clicked through Twitter's tweets could potentially sign up for new accounts. Twitter now allows its posts to be republished on Facebook for similar reasons.

Weibo, which is often called the "Twitter of China", now faces a similar dilemma. Does it allow its posts to be spread through third-party apps and search engines? Or does it cut off the third-party players to protect its content?

Can Weibo afford to alienate its users?

Unlike Twitter, Weibo isn't starved for growth. Its monthly active users (MAUs) rose 28% annually to 361 million last quarter. Analysts expect its revenue and earnings to respectively rise 66% and 99% this year.

Yet that growth has been overshadowed by several controversies. In late June, Chinese regulators ordered Weibo to halt its live video and audio broadcasts until it obtained a newly introduced broadcasting license.

In August, regulators accused Weibo and other popular social media platforms of spreading "violence and terror, false rumors, obscene pornography and other content that endangers national security, public safety, and social order." In early September, Weibo demanded that its users register their real names on the site -- which could pacify regulators but stall its user growth.

Why investors should be cautious

Those problems, combined with Weibo's recent clashes over content usage rights, could make its platform much less attractive to new users. If Weibo's growth slows down, its stock -- which rallied nearly 160% this year and trades at 121 times earnings -- could fall.


Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Sina. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Facebook, and Twitter. The Motley Fool recommends Sina and Weibo. The Motley Fool has a disclosure policy.