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China's online video sites, still reeling from a recent government crackdown on 4 of their most popular TV series, are gearing up for a second round of pain, with word that some of the nation's top TV stations are launching a new assault on the group of media newcomers. The latest battle in this budding war between traditional and new media has big-name TV stalwarts like CCTV and Hunan Satellite Television reportedly preparing to stop allowing some of their most popular shows to be viewed over sites operated by major online operators like Youku Tudou (NYSE: YOKU) and Baidu's (Nasdaq: BIDU) iQiyi.

This kind of move seemed inevitable, and marks the latest chapter in a war that is seeing traditional TV stations get rapidly overtaken by a new generation of online rivals. Those younger rivals are more nimble due to their private ownership, and also enjoy much lower costs since they are delivered over the Internet. What's more, the newer players are subject to far less regulation than traditional TV stations, whose programs must all get approval from the country's strict censors before they can be broadcast.

With all those advantages favoring the online sites, it was really just a matter of time before traditional TV operators rose up in revolt to try and slow a tide that was rapidly turning against them. The online video sites suffered their first big setback late last month, when Beijing regulators abruptly forced them to take down 4 popular U.S. television series from their sites (previous post). No reason was ever given for that move, but the regulator almost certainly took the action after receiving strong pressure from traditional TV operators who were rapidly losing audiences and advertising revenue to the websites.

Now media are reporting that 2 of the nation's top TV operators are directly entering the fray as the battle heats up more. According to the reports, Hunan Satellite TV, one of the nation's most successful broadcasters, plans to stop licensing several of its most popular shows to the private websites. Instead, it will give exclusive rights for the programs to its own online site, called MangoTV. Meanwhile, CCTV is also reportedly planning to withhold similar live broadcasting rights that it holds for NBA playoff games.

The same reports indicate that the online sites could also soon be ordered by the regulator to take down more of their popular imported shows. I previously said this kind of regulatory requirement was not only inevitable, but also quite reasonable. While I don't personally agree with China's strict censorship policies that require all TV shows and movies to be approved by state censors, it does seem fair that the new online video sites should be subject to the same requirements as traditional TV stations.

Shares of the major online video sites have taken a beating in the more than 2 weeks since the regulator made its initial announcement, and I expect this latest move by the traditional media will put more pressure on the stocks. Youku Tudou shares are down 20 percent over the last 3 weeks, and Sohu (Nasdaq: SOHU), operator of the nation's third largest site, is down 8 percent. Both companies, as well as Baidu, were down by even more last week but have bounced back a little in the last few days.

This latest assault from the traditional TV stations, combined with the potential censorship of more of their popular imported movies and TV series, shows the online operators are probably set for more turbulence in the months ahead. At the end of the day, traditional media players like Hunan Satellite TV and CCTV may ultimately soften their stance, since they will undoubtedly lose major licensing revenues by withholding their programs from the private online sites. But the bigger picture is that these online sites will no longer enjoy many of the advantages they previously had over traditional TV stations, which could put a damper on their revenue growth and set back their ongoing search for profitability.

Bottom line: A new assault by major broadcasters against online video sites marks the latest twist in an ongoing battle between traditional and new media, which will slow the rapid growth of the latter group.

Disclosure: No positions

Source: TV Giants Add To Online Video Woes