Autonomy, the British search technology specialist, yesterday ramped up its effort to dominate China's fast-growing online video search market by signing a partnership with CCTV, China’s state broadcaster.
Under the terms of the deal, the OpenV video search service, jointly owned by Autonomy and a number of Chinese content providers, will gain exclusive access to millions of hours of content from the world's largest Chinese-language television group.
Users are able to search for pieces of video content, ranging from news to drama, by typing in search terms, much in the same way they would in a traditional Internet search engine. OpenV, which Autonomy claims is the leading video search service in China with 1 million users a day, aims to make money through advertising and has started to work with agencies including WPP, AC Nielsen and Chang Rong.
Dr Michael Lynch, Autonomy’s chief executive and founder told Times Online: "In China, this kind of advertising model is relatively young. But if you are bullish on video search and on the prospects for the Internet in China, where we are seeing phenomenal take-up of broadband, it's not hard to imagine that this can be a significant earner."
Autonomy has opted to give up equity in OpenV in order to bring Chinese companies on board, a move that has reduced its stake in the venture to 40 per cent from 49 per cent.
The attraction of Chinese cyberspace and its massive pool of potential consumers has long been clear. Dr Charles Zhang, the chief executive of Sohu.com, China's largest web portal, said earlier this year that there could be as many as 200 million Chinese Internet users, a figure would place China neck-and-neck with the US.
Together with search and email, online video is being seen by Wall Street analysts as one of the three pillars that will support the online advertising industry. The faith being placed in Internet video was recently demonstrated when Google paid $1.6 billion for YouTube, an American online video site that downloads more than 100 million videos a day but is yet to turn a profit.
The leader in online search advertising, Google has tried to bolster its presence in China by changing its name to "Gu Ge" in the communist state.
But Dr Lynch said that Autonomy, which is based in Cambridge, has targeted China as the group feels that the West's large Internet players, which include Google, Microsoft and Yahoo!, do not enjoy the same "brand momentum" as in their domestic markets. "It is easier for us to rise above the noise in China," he said.
He added that some western companies have been "arrogant" in assuming they could enter China on their own terms and without Chinese partners. "We have been in China for six years and we realise that you have to understand the country to do business there. Co-operation means we have exclusive right to large chunks of Chinese content, which we are very pleased about."
The OpenV service will be available on a syndicted basis through several Chinese Internet sites including CCTV.com, the largest Chinese TV broadband site, QQ, China's largest community site and XinHua net, the official Chinese news agency site. OpenV is offered as both a branded service and as a "white label" technology that groups can integrate into their own sites.
However, analysts today said the revenue opportunities afforded by OpenV remained unclear. Analysts from Credit Suisse said in a note: "The revenue potential of the joint venture remains very difficult to predict, although it is clearly to be mainly based on an advertising model."
News of the CCTV deal came as Autonomy released a strong set of third-quarter figures, ahead of expectations. The Cambridge-based group said turnover jumped 137 per cent to $60.23 million in the three months to the end of September following last year’s takeover of US rival Verity.
Pre-tax profits for the period surged 220 per cent to $15.92 million, also boosted by new contract wins.
On the third quarter figures, Deutsche Bank analysts said in a note yesterday morning: "Trading momentum remains solid and margin leverage is showing through." However, they added that the strong figures were already accounted for in Autonomy's share price. The group trades at almost 30 times estimated 2007 earnings.
Shares in Autonomy fell 3.3 per cent, or 16.75p, at 496.25p on profit taking in morning deals.
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