China steps up Internet video control

No deals have been announced, but analysts expect private operators to be allowed to function beyond Thursday's deadline while they negotiate.

"They are still talking," said Dick Wei, a JP Morgan technology analyst in Hong Kong. "They feel so long as they are talking to the government they are not really facing that much urgency."

Still, companies and investors face uncertainty. A Tudou spokesman, Gong Xiaoli, declined to say whether it has worked out its status. "It is not convenient for us to make any comment on the issues related to the new regulation," Gong said.

Spokespeople for 56.com and the popular sites Sohu.com and Sina.com, which have video-sharing sections, did not immediately respond to requests for comment.

The major U.S.-based video site YouTube.com also has a Chinese-language service. But its computers are outside China, putting it beyond the reach of the new rules.

Entrepreneurs faced similar challenges earlier when Beijing said only Chinese citizens could hold a Web site license, seemingly shutting out foreign investors. Companies coped by making their Chinese employees the official owners of China-based sites while revenues were channeled to investors abroad.

Online video revenues are modest but growing by nearly 100 percent a year, while investors are pouring money into sites.

The government-sanctioned Internet Society of China is forecasting total revenues of $22 million this year — nearly double the 2007 level — and $40 million in 2009.

Yukou says it raised $40 million in November. In total, Clark says eight companies have taken in $190 million since 2005.

"We don't think the government is trying to stop the industry," said Analysys's Yu. "At the end of the day, we think the companies operating in China in the online video-sharing market can find a legitimate approach to be compliant with the regulation. We don't think it's a big issue."

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