By Li Zhiguo

On August 20, the Youku-Tudou merger was passed in a conference of both companies' shareholders held in Hong Kong. The Youku Tudou Inc is now officially established.  

Earlier on July 17, 2012 New York time, the Form F-4 registration statement Youku submitted to the SEC began to take effect, and SEC had approved the Youku-Tudou merger agreement. The new company Youku Tudou Inc will keep the Youku and Tudou brands, continuing to occupy the 1st and 2nd positions in the online video industry. Victor Koo, Chairman of the Board and CEO of Youku Tudou Inc said that: "In the era of the integration of the three networks and multiple terminals, Youku Tudou Inc after the merger will embrace historic opportunities, work hard to realize its dreams, provide the best video experience and service to users, create more values for our clients, and build up an esteemed company". The merger of Youku and Tudou follows two principles: first, orderly unification and division, and second, gradual change instead of sudden change.

Victor Koo explained that: "We don't seek changes, but some optimization will naturally occur through the process. The architecture will be adjusted. There will be unification and division, the direction being scale development and professionalization. The principle of unification is: what requires scale development will be unified, such as media cooperation, and technology backstage, etc; what needs to be differentiated will be divided, such as brand positioning, self-produced content, and page style, etc".

Yu Zhou, senior vice president of Youku Tudou Inc and Chief Strategy Officer of Tudou, said frankly that: "We have always upheld the principle of "people before work". As far as human resources are concerned, jobs and labor division are decided by talents and suitability, instead of the place of your origin. The platform of the company will be bigger after the merger, and that would mean bigger space for employees' career development".

Wang Wei, founder of Tudou.com, would serve as a board director in the Youku Tudou Inc, and take part in important decision making. He said that: "Continuing to complete the consolidation would remain the main work for some time to come. The Youku Tudou merger means a brand-new development phase for Tudou, and Tudou's unique genes and brand would have a bigger stage to present themselves".

"When we were considering a merger, we thought Tudou was the best in terms users volume, brand influence, income, and cash reserve. After the merger, we will continue to tap Tudou's potential, improve its competitiveness, increase investment in it, and accent its differentiation. As more resources are shared, the percentage and length of viewing time of Tudou's loyal users would further increase. When optimum resource sharing is achieved, the competiveness of the new company would be significantly improved", said Victor Koo.

Youku and Tudou are the 1st and 2nd ranking online video brands in China. After the merger, their video user coverage rate approaches 80 percent. The differentiation of viewership and content positioning and the traffic and user volume brought by their rich contents will provide their clients with the most effective marketing combination.

After the merger, Youku and Tudou will achieve synergy is numerous aspects, including video copyrights purchase, bandwidth servers purchase, back-stage data consolidation, search, media library, and advertisement publishing.

Liu Dele, president of Youku Tudou Inc, believes that: "Advantages of the company after the merger include: first, the Youku Tudou synergy effect would reduce the cost of both companies effectively, making the growth of cost lower than the growth of income. The sooner the synergy effect is achieved, the sooner the company will begin to make profit. Second, after the advertising systems of both companies are integrated, advertisers can cut the cost that they put in both platforms, and this can be achieved only on Youku Tudou's combined publishing. And third, after optimum resource sharing is achieved, the competiveness of both companies will further improve, and their positions in the first and second places will be reinforced".

The Youku Tudou merger attracts even more attention due to the uniqueness of the case: firstly, the merging of the top two companies of the online video industry involves huge value; and secondly, the merger is achieved through 100 percent stock swap without involving any cash in the process, which makes it the first of such case in China's internet merger history. 

For the industry, the Youku Tudou Inc would play a positive and guiding role in promoting the licensing price of the video industry to go back to a reasonable level and promoting the scale and healthy and orderly development of the video industry.

Liu Dele said that: "Take content cost as an example, the cost has dropped noticeably compared with last year, and it would continue to fall back to a reasonable level. First of all, the industry as a whole has passed the bubble phase. Everyone is now more rational in copyrights purchase. The changes from fighting one another to buy exclusive copyright to copyright group purchase and copyrights swap push the fall in copyright price. Secondly, the economy is not very good now, and it's impossible for copyright price to remain overrated in such an environment. Thirdly, the merging of Youku and Tudou accelerates the process of copyright price's falling back to reason. Moreover, Youku and Tudou will continue to uphold their cooperation and win-win spirit, their cooperation with the upstream and downstream will be closer".

The merging of the two companies, both of who have the longest history, greatest technology prowess, and richest contents in the video industry, will create huge platform traffic, a more outstanding technology product system, rich and comprehensive content library, and expanding brand advantage after the two companies achieve full-scale synergy. It will mean better and faster video experience for the users.

Industrial insiders believe that the Youku Tudou Inc, who owns a huge user group, diversified contents, and powerful technology platform, will lead the reform of China's next-generation online video and create a new internet industrial landscape.