Baidu, China's biggest web search provider, is acquiring the online video service of PPStream for US$370 million, ratcheting up the competition with internet video market leader Youku Tudou.
The purchased business will become a separate brand under Nasdaq-listed Baidu's own online video service, iQiyi. The transaction, which will close this quarter, will create the country's largest online video platform by number of mobile users and viewing time, according to Baidu spokesman Kaiser Kuo.
It will also accelerate consolidation in the mainland's fragmented online video industry, following Youku's acquisition of its main rival, Tudou, last year in a deal worth about US$1 billion.
Figures from iResearch forecast total online video revenue on the mainland to reach 13.7 billion yuan (HK$17.3 billion) this year, up from 9.5 billion yuan in 2012, and audience size, excluding mobile users, to grow to 483 million this year, compared with 445 million last year.
The mainland had 1.15 billion mobile subscribers at the end of March, which is the possible audience for online video services.
In February, Robin Li Yanhong, Baidu's chairman and chief executive, said the company was optimistic about iQiyi's prospects because it had "established a firm position in mobile" and was well-recognised by advertisers.
Li said: "We will continue to aggressively invest in the video space to make sure that iQiyi will continue to be successful."
Based in Shanghai, privately held PPStream also provides online video search and has developed so-called peer-to-peer online streaming video software.
PPStream technology allows for the simultaneous and smooth broadcasting of a live video stream to hundreds of thousands of broadband users.
Kuo said the deal marked the first time a traditional online video site that offers licensed content had acquired a peer-to-peer streaming video provider.
Gong Yu, chief executive of iQiyi, said the merger will improve the experience of users and "deliver better marketing value and a wider range of options for advertisers".
"PPStream engaged investment bank China Renaissance to assist throughout all the negotiations with Baidu."