China video firm 56.com eyes breakeven next year

Chinese video-sharing Web site 56.com expects to break even next year as it continues to seek new content partners to drive up its viewer numbers, its chief financial officer said on Tuesday.

56.com is competing with Tudou.com and Youku.com to become the "YouTube" of China, and expects investors to become more cautious about pouring money into the sector after Beijing issued warnings to several firms last week.

"The government really just wants to send a message," Chief Financial Officer Jay Chang said in an interview.

"They realise that this industry is becoming larger and larger -- you need to put out some regulations so you have some normalcy in how things are run. I think the blacklist is part of that process," added Chang who previously worked at Tom Online.

Last week, Chinese authorities ordered 25 video-sharing Web sites to halt operations and issued warnings to dozens of others, in a bid to curb pornographic, violent and political content.

Venture capital firms such as Sequoia, IDG and Steamboat have poured into the Internet sector in China -- by some estimates now the world's biggest Web market -- in search of the next YouTube, which was acquired by Google Inc for $1.65 billion in 2006.

56.com says over 100 million of its videos are viewed daily, and has content partnerships with the U.S. National Basketball Association and Hunan TV. It has over 35 million registered users and a staff of 130 in its offices in Beijing and Guangzhou. A number of 56.com's managers come from Tom Online and Netease.com Inc . 56.com is backed by Sequoia, Intel Capital and Steamboat Ventures, and raked less than $1 million in revenue last year, Chang said.

"We're still definitely burning money every month -- hopefully our (break even) target is in the '09 period," he said.

Revenue at video-sharing sites is still mainly driven by advertising, which makes venture capital funding highly sought after until firms figure out more ways to turn clicks into income.

China, home to the world's biggest Internet market in terms of users, will have an online population of 300 million by the end of this year, according to official estimates, up from 230 million at the end of February.

Advertisers with 56.com include Google, China Mengniu Dairy Co Ltd <2319.hk> and Intel Corp .

"Most of the content on our site is user-generated content, but more and more now we're working closely with large content partners like the NBA," said Chang.

Chang ruled out an initial public offering in the near-term, but said that would be an "eventual" plan.

"There's a lot of business model issues we still need to work out," he said.