China’s online space has long been one of rare industries where there is not big state-owned players present – Baidu, Inc. ((ADR) NASDAQ: BIDU),Alibaba.com Limited (HKSE: 1688), Tencent Holdings Limited(HKG: 0700 | (ADR) PINK: TCEHY), etc. are all private companies. People often speculate if and when this will change (just last night I had such a conversation with a friend who works in VC). Well, this has just become true for the online video sector.

China’s state-owned media giant China Central Television (CCTV) has just launched China Network Television (CNTV.cn), which is an aggressive foray into the online video space by any measure. Previously, CCTV has been content with offering ad-hoc streaming of important programs on its website and partnering with internet properties such as Sina. CNTV is a dramatic development as it is essentially trying to move all of CCTV’s content online (think Hulu, but 10 times more aggressive).

The site, which will officially launch on Monday, Dec. 28th, is already accessible. At launch, the site offers 5 distinct “channels”:

1. a 24-hour news channel,
2. a sports channel,
3. a general entertainment channel,
4. a user-generated-content (UGC) channel (think Youtube clone), and
5. a video-on-demand (VOD) channel.

In addition, CBOX (in Chinese), a software client, is available for download (though right now the link seems to be broken, so I haven’t been able to test it).

The 24 hour news channel and the sports channel (titled “5+”, as CCTV5 is the sports channel under CCTV) require a plug-in to view. 5+ currently only has some ads (it’s 7am Monday as of this writing, so the channel hasn’t officially launched yet), whereas the news channel is currently streaming CCTV News. I think these two channels will offer some forms of original programming going forward, and not just stream TV content. I’m not sure if the plug-in is based on some form of P2P technology (as used by competitors PPLive and PPStream), but at 7am the news channel isn’t streaming that well, so there are some technical issues to resolve. The entertainment channel, the UGC channel and the VOD channel utilize Adobe Flash.

The UGC channel, named CNTV Xiyou (grapefruit, I have no idea why it’s named as such…), looks and feels like any other online video site. As can be expected, there isn’t a lot of content right now, but I did see clips from other television stations uploaded – not sure how CNTV will handle piracy, but this will likely be a very sensitive issue due to CNTV’s state-owned background.

Personally I found the VOD channel, CNTV Bugu (cuckoo, again, no idea why it’s titled this), to be the most interesting. The service has two components – a live component and a database of programs. Right now, live streaming of 51 TV channels (CCTV properties and a range of the most popular provincial channels such as Beijing TV) is available. For the database, it seems to be CCTV’s ambition to make all of its programming fully searchable and watchable online, and Bugu is the first step in that direction. The database has a impressive collection already – I just watched the 30-minute news from September 14th. There are also some films, courtesy of CCTV6 (the movie channel), for example All Quiet on the Western Front, though again there could be some copyright issues involved (when CCTV purchased the license for the film, did it also include online broadcasting rights?).

CNTV’s launch has serious implications for the space. It’s an aggressive entry into all the sectors of online video. While UGC sites like Tudou (in Chinese) and Youku (in Chinese) might feel the pain less (CNTV in this regard is just another Youtube clone; there is not differentiation – yet), properties like PPLive (which has recently renamed itself PPTV) and PPStream which heavily rely on traditional TV resources will certainly be strongly challenged. One of CNTV’s stated goals is to make CCTV’s 20 channels fully viewable online, and since CCTV is the monopolistic player in many fields (sports for example – there are few competitors to CCTV5), this will make CNTV the go-to property for a lot of viewers. Of course, a lot depends on the actual execution, but it’s safe to say that the landscape is about to change.

Well, headlines today are certainly a surprise (at least for me – I haven’t been following this space closely). Sohu, who has just led the formation of a “Online Video Anti-piracy Coalition” (my translation) with some other web partners, has decided to sue Youku.com 50-100MM RMB (about 8-15MM USD) for copyright infringement. A quick google search shows that lawsuits in this space have been heating up – earlier this year H.Y. Brothers, the leading local private film studio, sued a bunch of Internet properties (including Sohu and Youku); and before that Youku had also sued competitor Tudou.

While it’s clearly obvious that these lawsuits are tactics to pursue vested interests, I feel they are helping to push the industry towards a more mature stage where laws and regulations are properly enforced. One reason businesses like Netflix and Hulu don’t exist in China is because the cost of piracy is so low. Of course, Chinese consumers are spoilt in the sense that they have become accustomed to the fact that almost all forms of home media entertainment are free or very cheap (thanks to piracy), so any movement to enforce adequate copyright laws will be met with consumer resistance. But it should be clear that real businesses shouldn’t be founded in the hope that they will thrive due to the piracy environment – free may be a business model, but piracy isn’t.