Youku looks inward for growth in original media

Youku isn't the only website making original dramas and movies. Major online video providers such as Baidu's iQiyi.com, Sohu's TV section and LeTV.com have piled in with big budgets.

But analysts said these efforts haven't become profitable yet. Internally developed content only brings a small portion of video websites' traffic and advertisements. For Youku, about 5 to 10 percent of its traffic comes from this activity, said Wei.

But this segment is already breaking even, according to a manager at Youku Original.

"For Youku and other sites, self-production's main role is brand building and part of the differentiation strategy," said Zhang.

By comparison, acquiring other content producers and owners could be more efficient.

Last month, Youku surprised the markets by buying its main rival, Tudou Holdings Ltd, which has the second-largest market share in online video market.

Tudou had spent heavily on copyright purchases. The move is believed to have increased Youku's inventory of licensed content, as well as its bargaining power to bring down copyright prices and raise ad rates.

Youku and Tudou still operate separately but analysts expect further integration. Youku declined to comment on the merger and its effects.

Youku's ad revenue grew 132 percent last year to 897.6 million yuan, according to its financial report. Wei said he was "very confident" about this year's ad revenue growth.

Another example of buying a copyright holder took place in January, when Youku spent 113 million yuan to purchase Trade Lead, an overseas copyright agent. The deal was only disclosed recently in a filing to the US Securities and Exchange Commission.

The purchase gave Youku ownership of Dongyang Tianshi Culture Communication Co Ltd, a content maker and distributor that owns more than 10,000 hours of dramas and movies' online copyrights.

"It was a cost-effective package deal," Zhang said.

"We need a constant supply of premium content. To serve this end, we can either own the content itself or own the institutions making or owning premier content," Wei said of the deal.