Now, there appear to be just two: 56.com, a site that raised $30 million and recently announced a partnership with the National Basketball Association, shut down without explanation on June 3. A message in Mandarin says the site is undergoing an unspecified server upgrade. The company hasn’t issued a statement on the outage, and its’ executives and investors have been strangely silent. Speculation, of course, is that the site has been shut down by the Chinese government.
Whatever it is, the downtime is killing the business and the brand, likely liquidating much of the $30 million poured into the company by Sequoia Capital and Disney’s Steamboat Ventures, among others. The Alexa graph embedded below gives a rough sense of what’s happening to 56.com’s traffic:
When 56.com first went down, attention immediately turned to the fate of competing sites Tudou and Youku. Like 56.com, neither were granted a “video licence” by the Chinese government, which has handed out 247 such licenses last month for online video sites, including state-owned TV stations, the Web site of China’s central government broadcaster CCTV, and portals like Sina.com and Sohu.com.
Yet, whatever the cause of 56.com’s downtime, and the odds that Tudou or Youku suffer the same fate, outside investors in the firms haven’t exactly been deterred. Last week Youku raised another $40 million, bringing its total to $80 million. Tudou raised $57 million in April, bringing its total raise to more than $85 million. (56.com itself raised its last $20 million in December.)
There is much that is threatening to the Chinese government from these video sharing sites. The Beijing Olympics start in a little more than a month and Chinese governent’s CCTV has exclusive rights in China, plus a vested interest in keeping Olympics video off the likes of 56.com. In addition, video from dissident groups such as the Falun Gong is banned on the sites.
Which means that it’s likely that 56.com’s investors won’t be the last ones burned. Aside from the possibility that the Chinese government will slam the door on other sites, they’re facing the same challenges as those in the U.S.: namely, turning user-generated video into an ad-supported business. Yet the potential upside is so great, there seem to be plenty still willing to roll the dice.
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