In China, MySpace is owned and run by a joint venture between News Corp.'s MySpace, IDG and China Broadband Capital Partners but has had little traction so far. MySpace entered China after other social-networking sites such as QQ and MSN Spaces were established and has had little luck getting the Chinese to switch sites.
The deal expands MySpace.cn's online offering to include user-generated video content -- a much-in-demand feature for social networks, said Beijing-based Youku CEO Victor Koo, who founded the site in December 2006 after running leading Chinese portal Sohu.com.
But it's unclear how much freedom video-sharing sites in China will enjoy. The MySpace deal was announced as Youku's chief rival Tudou was hit by malicious speculation about a shutdown that was widely reported on blogs and in Chinese and foreign media.
Earlier this month the site ceased operations for about 24 hours "to change servers." Reports that the company was shutting down were incorrect, said Dan Brody, Tudou's Beijing-based VP-business development.
The mere suggestion that Tudou could be easily closed down by the government underlines the precarious nature of China's media, particularly as sensitive issues such as Tibet and Darfur are raised in the months leading up to the Summer Olympic Games in Beijing.
"I view [the rumors of a shutdown] as an attempt by the Chinese government to control the online video sites like Tudou and Youku," said Shaun Rein, managing director of China Market Research Group in Shanghai. "[Chinese authorities hope] to spur consolidation towards a few key players that are most willing to play by the rules of the Chinese government to delete videos that the government does not want and to have enough in-house oversight/censorship teams."
Late last year, government regulators issued new rules for user-generated online video, restricting operations to state-controlled enterprises and requiring local YouTube-like sites to report and delete unapproved content. Last month, the government backpedaled with a revised statement that allows existing players to stay in business as long as they don't violate laws.
Both Youku and Tudou claim to be the market leader among Chinese online video-sharing sites, each with more than 100 million video views a day. YouTube is tiny in China and is regularly blocked by media censors, most recently when the site posted news videos about the bloody crackdown on protests in Tibet.
Catching 'Desperate Housewives'
Peer-to-peer video sites are particularly popular among young Chinese because they offer better programming than government-approved TV fare. Chinese sites allow videos lasting up to 60 minutes, far longer than upload limits on YouTube. That means whole episodes of shows such as "Desperate Housewives" and "24" can be watched online for free just hours after they air in the U.S.
Marketers have noticed the traffic. PepsiCo, KFC, Motorola, Nike, Adidas, Sony others began using online video-sharing sites last year. They do short pre-roll spots, wallpaper ads and seed their TV spots.
That may not last. Less than 5% of ad spending in China goes to online media, and fixed costs like servers are high. Online video-sharing sites, supported so far by venture capital, are bleeding money, Mr. Rein said.