On 2007/12/29, <Regulations for Audio and Video Service on Internet> was co-announced by MII (Ministry of Information Industry) and SARFT (the State Administration of Radio Film and Television) and will take effect on 2008/1/31. The object of this regulation is to control the audio and video content on website in China, it’s crucial for Chinese government especially during the year of Olympic Games when the eyes of the world are focusing on China. Since a cell phone with a camera can make each single person a journalist, the government need to control and prevent negative content on the internet.

Item 8 of this new regulation requires the juridical person of those enterprise who provide audio or video service on internet must be state owned or state controlled organization. This item brings great trouble to those YouTube style video sharing website and VCs put their money in them; if the regulation means that the VC investment is not compatible with the local laws and regulations, can the VC withdraw its investment? Originally, 2008 was deemed as the year to differentiate out the top players of video sharing websites in China (also including those P2P websites), YouKu , PPLive and 56 each got VC investment over $20M in the second half year of 2007.

Now those VCs who invested in this area need think hard to find a way to cash out. Although the regulation will take effect by 1/31, there’s no detailed explanation about this regulation from the government. Everyone is looking forward to the first case of a video sharing website who transfer the ownership to a state owned enterprise. It’s by accident that just one day before the announcement of the regulation, there is a little accident happened on the Olympics Channel Unveiling Ceremony, this is an example of what the regulation wants to control.