As online video sites suffer financially through the cost of acquiring copyrights for television dramas and shows, the rapid rise of tablet PCs, smartphones and even Internet-enabled TVs are considered be the white knight riding to the rescue.

A pay-per-view model will soon prevail as the industry searches for new digital revenues to offset tumbling advertising sales. But this will not be achieved without a boom in all those terminals, said Vincent Tao, chief executive officer of PPTV, a leading online TV media company in China.

"For audiences, mobile terminals such as the iPad and its derivatives successfully extend the timeline of TV programs, while stationery terminals such as Internet-enabled TV sets or set-top boxes expand the space for online watching," Tao told China Daily in an exclusive interview.

Unlike video-sharing sites that provide Web-based services, PPTV is a peer-to-peer video download application based on client software installation. It offers both live streaming and video-on-demand TV programs.

A former executive at Microsoft, Tao believes this year will witness the fast take-off of family terminals. To beef up its business, PPTV has aligned with two companies that hold the license for running online TVs.

That said, instead of crouching on the sofa holding a laptop, viewers can now enjoy simple access to PPTV's vast resources as they turn on their televisions.

Currently, gains from advertisers can hardly compensate the costs that big sites spend aggressively on licensing content, producing original programming and buying the bandwidth necessary to store and broadcast content.

In the latest attempt to combat soaring costs, Youku Inc announced this month it would merge with its biggest domestic competitor, Tudou, in a stock swap valued at an estimated $1.1 billion.

"We intend to lead the next phase of online video development in China with a larger user base, the most comprehensive content library, the most advanced bandwidth infrastructure and the strongest monetization capability within the sector," Victor Koo, Youku's chairman and chief executive, said in a statement.

The move will allow the pair to pool resources, as both companies are struggling to generate revenue and profit because much of the content is free.

But according to Tao, the likes of Apple's online marketplace have in effect facilitated a charging model to grow from the edge to mainstream.

"Imagine you invite your friends home to join you in watching a movie in your living room. How could you resist paying 5 yuan for the show while you guys chat and laugh? People, especially the younger generation, are used to paying for a premium quality service," Tao said.

Last year PPTV received funding of $250 million from Softbank Corp to bolster its fast-expanding business. As a result, sales jumped fourfold in 2011. While Tao said the company is not eyeing an imminent initial public offering, it is financially and legally prepared to file the petition.

The company has established some 250 data centers nationwide to cater with its soaring number of registered users. In February alone the number rose by 30 percent month-on-month. It currently has 240 million PC Internet users and 30 million users on tablet PCs and smart phones.

According to Tao, the PPTV application held a strong position in Apple's App store last year. It topped the popularity stakes in video-sharing applications, and ranked third among all programs after Tencent QQ's Instant Messenger and the popular casual game Fruit Ninja. Seventy-seven percent of iPhone and iPad users have installed PPTV's application on their devices.

PPTV has long positioned itself as providing professionally produced content, or long videos, as opposed to the user-generated content model, or short videos from ordinary users that Youku and Tudou appealed to. Therefore, content purchase has always been a cornerstone in which the company heavily invested.

It has almost monopolized all Korean TV dramas over the next three years, accrued one-third of exclusive copyrights for TV series from the Chinese mainland, and close to two-thirds of entertainment shows from Taiwan.

In a similar move to lure viewers, Youku spent 152 million yuan over the past three quarters on content purchases, nearly doubling its total in 2010 of 82.7 million yuan, according to its financial reports.

Charles Zhang, founder of search engine Sohu and its chairman and chief executive officer, said in July that the copyright purchase market is now filled with bubbles caused by fierce competition. The price of an episode of a TV series has risen from several thousand yuan a few years ago to as high as 800,000 yuan.

PPTV is also moving toward self-made TV shows. The cooperation between PPTV and Hunan Satellite TV, which co-launched a reality show featuring the everyday life of contestants competing in a talent show called Happy Voice Girl, has yielded sizable earnings for PPTV. High advertisement return is certainly cheering, but what Tao values more is the increasing user "stickiness".

During the 72 days the show lasted, contestants lived in a castle and their life, training and rehearsals were broadcast on PPTV, a time span too long for TV shows. The site also established interactive rounds for contestants to have more chances to communicate with fans.

"The profit margin will remain low if online video media solely relies on advertising because the soaring cost of purchasing content will erode much of the profit gained. That's why we need to produce something really unique that makes viewers willing to spend money," Tao said.

To better shore up the business and further integrate its resources, PPTV will co-launch a Chinese-Korean entertainment show with Shanghai-based Dragon Satellite TV in March.

China's online video sector enjoyed prosperous growth over the past few years. Youku and Tudou combined took 35 percent of the advertising income while PPTV took 6.5 percent, according to information technology consultancy Analysys International.

Tao said PPTV and the likes of Youku Tudou have differentiated target audiences and therefore do not necessarily compete with each other. PPTV attracts viewers that are consistently engaged in a TV series, whereas Web-based sites provide easy access for "light" users.

(Source: China Daily)