VIDEO: Youku, Tencent Scuffle Spotlights Video Tensions

Bottom line: A tussle that resulted in injuries to a Tencent worker by a Youku peer at an industry event reflects the big tensions that exist in China’s online video sector due to years of stiff competition that shows no signs of easing.

Wine glass incident reflects tensions in online video

Stiff competition in a wide range of online industries is pretty much par for the course in China, but a scuffle between employees of Tencent (HKEx: 700) and Youku at an industry event is underscoring just how high tensions can get. This particular case won’t really mean much for either company beyond a few sensational headlines in the next few days, and perhaps some internal emails at both companies. But it does show how tough things are in the online video space, where everyone is looking for the elusive formula for profits.

This particular story looks quite similar to another one that happened in February, in which a video of brawling take-out deliverymen from rivals Meituan and went viral. (English article) That particular story had a very blue-collar feel, since most of these deliverymen are migrants from the countryside with relatively low education and who tend to stay at their jobs for relatively short periods.

By comparison, this latest dust-up has a more white collar feel, involving more skilled office workers from Youku, owned by e-commerce giant Alibaba (NYSE: BABA), and Tencent, China’s other major internet player that is now one of the world’s 10 most valuable companies. (previous post) It just goes to show that tensions in these fiercely competitive sectors are present everywhere, both on the streets and in the kinds of ballrooms where this incident took place.

According to the reports, the incident happened at an evening gala on Wednesday when an unnamed company was premiering its latest video. Things began when a Youku employee surnamed Li for “no apparent reason” injured a Tencent female employee with a wine glass. (Chinese article) The woman was taken to the hospital, where it appears her injuries were determined to be relatively serious.

Afterwards Tencent notified Youku that it must bear legal responsibility for the incident, alleging the infliction of the injury was intentional. Tencent has also asked Youku to issue an official public apology, and to make appropriate compensation. Youku later issued its own response, saying its employee was provoked into taking the action after being insulted by the Tencent worker. (Chinese article) Anyone who wants to read more of the juicy details can follow the links to the articles I’ve given above.

Constant Tensions

In terms of big picture, this particular story speaks volumes about the state of China’s online video industry, even if the actual impact on business from the individual incident is probably minimal. The bottom line is that Youku, Tencent and others like Baidu’s (Nasdaq: BIDU) iQiyi and Sohu’s (Nasdaq: SOHU) online video unit have been locked in a brutal battle for market share for much of the last four or five years.

Adding to that are regular assaults on the industry from traditional broadcasters, who are always looking for ways to protect their traditional turf that is slowly being eroded by these more nimble, commercial-oriented newcomers. All that competition and pressures from traditional broadcasters is clearly taking a toll on the actual people inside the online video industry, creating the kinds of tensions that result in this kind of incident.

The fact that Tencent took the time and effort to issue its demands, and that Youku responded in kind, shows that this kind of clash isn’t just limited to the personal level, and that the companies are lining up behind their employees. That’s certainly good, as the companies created the kind of tensions that result in this kind of run-in, and therefore should take responsibility.

For observers like myself, this kind of story also adds a human element to the toll this kind of rampant competition takes on individuals as they work day-in and day-out in this kind of high-pressure environment. Of course the solution would be consolidation, which would create a more stable and cordial environment for everyone. But unfortunately China seems resistant to such consolidation due to too much investor money in the market, which allows these companies to keep up their ultra-stiff competition for far longer than would normally occur in more mature western markets.

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