China video site Youku raises $40 million for expansion

Youku will use the money to offer professional content and mobile video services

Chinese video-streaming Web site Youku.com has raised US$40 million in new investment as the site, part of a hugely popular genre in China, looks to expand and start turning a profit.

Youku raised the funds as part of a new financing round, bringing its total amount of private equity funding to $110 million, the company said Sunday. The company also has $10 million in venture debt funding and expects to bring in up to $40 million more in additional equity funding.

Youku has become the most popular YouTube-style Web site in China since its launch in 2006. The site, like some of its local rivals, has worked to expand its offerings from user-generated clips to include professional content like TV drama series and its new funding will be partly used to syndicate more professional video. Youku has already partnered with 1,500 license holders to offer professional content, it said.

Youku will also use the new funds to produce more Web-based content and for research and development on both PC and mobile projects, it said. Youku earlier this year launched a beta mobile portal to tap China's growing number of 3G mobile phone users and start gaining revenue from a new source. China reported having nearly 10 million 3G users at the end of October.

Online video is as popular among young users in China as it is in countries like the U.S., but China has a bigger potential audience. China had 338 million Internet users at the end of June, the most in any country, and two-thirds of those people used online video, according to a government survey. Youku is the most-visited online video site in China, according to researcher CR-Nielsen.

Youku has not said when it expects to become profitable, but its total revenue for this year will surpass 200 million yuan (US$29 million), it said.

Online video sites in China have been criticized for often hosting pirated video uploaded by users. Young Chinese sometimes turn to the sites to watch popular U.S. TV series like "Desperate Housewives" or "Ugly Betty." Youku says it uses a digital fingerprinting technology to help weed out pirated content.

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