On 29 December, 2007, 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) which required those companies that provide such video/audio service over internet must be SOE (State Owned Enterprise) or majorly hold by SOE. Later, a black list was created, 25 websites were asked to shutdown and 32 websites were warned including Tudou and other top video sharing websites. This regulation created a license headache for those websites and their VC investors.

However, at late night of 2008/2/3, MII and SARFT announced a new policy which made clear that for those websites that were in business before the announcement of the regulation (2007/12/29), if they hadn’t conducted any illegal behavior, they could re-register and go on with their business. It’s so dramatic, as from hell to heaven. In fact, the regulation plus the policy created an entrance barrier for those newly created websites. In the following one year, only several big video sharing websites will be left among 100+ peer websites. VCs already invested a lot continued to put in more money to secure that they will be last winner. So far 23 websites got the license, Tudou announced getting $50M+ D-series investment on 2008/4/22, it was said that Youku got about $30M and 56.com got about $25M.

In 2008, there will be plenty of M&A among video sharing websites and only a few large ones will share the whole market.