China will take a new step Thursday to tighten control of the Internet when rules go into force limiting online video-sharing to state companies. But regulators, wary of hurting a fast-growing industry, are expected to let private operators work around the restrictions.
The rules are aimed at expanding a Chinese censorship system that tries to block Internet use to spread dissent while promoting it for business and education. Communist leaders are especially anxious about unflattering video showing up online ahead of the Beijing Olympics in August, a major prestige project.
"It seems to be that political content is the foremost concern," said Duncan Clark, chairman of BDA China Ltd., a research firm in Beijing.
The rules came in a surprise announcement Dec. 29, just four weeks before they take effect — a move possibly driven by urgency about getting controls in place ahead of the Summer Games.
Online video has exploded in popularity in China, which has 210 million people online and says it expects to surpass the United States this year as the world's biggest population of Internet users.
Sites such as Tudou.com, 56.com and Youku.com say they get as many as 100 million viewers a day, a scale that rivals China's biggest state TV channels. Some offer full-length television programs, but many popular videos are created by amateurs. The companies have raised tens of millions of dollars from investors.
"Online video is increasingly becoming a sizable media platform," said Edward Yu, president of Analysys International, a Chinese technology consulting firm. "They are trying to attract users who traditionally watch TV and might now get their programming online."
China enforces the world's most extensive system of Web monitoring and censorship and has issued a welter of regulations in response to the rise of blogging and other trends. Operators are required to monitor Web pages and bulletin boards and delete content deemed subversive.
But online video's stunning growth appears to have caught regulators by surprise, possibly prompting the rushed release of rules that are unusually strict by the standards of earlier controls.
The potential for embarrassment was highlighted in December when a female Chinese sportscaster grabbed the microphone at a state television event to announce Olympics coverage plans and accused her husband, also a broadcaster, of adultery.
A 2 1/2-minute video of the Dec. 28 event appeared on dozens of Web sites in China and abroad. Tudou — named for the Chinese word for potato — said it was one of the site's most-watched items.
Under the new rules, video sites require a license that only state companies can obtain. That is in line with regulations that require all Chinese media to be state-owned. But it is a break from other online content rules, which compel private companies to enforce censorship but let them operate on their own.
There is no word yet on how amateur videos will be handled — whether makers must register, who will censor content or whether they are allowed at all.
People who follow the industry say they expect companies to be allowed to comply by working out partnership deals with state-owned newspapers or TV stations.
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."