Youku and Todou merge to create China’s answer to Youtube – |

The new company will only show licensed content, which is bound to lead to intense interest from Hollywood production companies competing to exploit the latent – but rapidly expanding – Chinese movie streaming market.

Youku – China’s biggest online video firm by revenue – won approval from shareholders to acquire their main competitor and second biggest player Tudou to form Youku Tudou Inc.

Beijing-based Youku has about 21% of the China market, versus 11.5% for Tudou, according to estimates by Analysys.

The merger will help reduce content licensing and network costs, and generate savings of as much as $60 million annually Youku said in March, while extending the two companies’ dominance over lead rival websites run by Baidu and Tencent.

Youku and Tudou emerged in China to fill the breach left by Youtube, the video player owned by Google which has periodically been illegalised by the Chinese government.

Youku and Todou began as copycats of Youtube’s business model, but has latterly focused on providing licensed content compatible with Chinese law.