We’ve been very hard on the online video industry in China on Editechial (coverage), and that is not changing until a true revenue model starts to develop.  Today the leading online video site in China, Youku, announced that they secured an additional $40 million dollars, $30 million in venture funding and a $10 million dollar technology loan.

I’ve sat down with Youku founder and CEO, Victor Ku, on two occasions and I have nothing but respect for him as an individual.  In fact he was probably the most brilliant executive I met while in China last winter.  However there is still no revenue model for any of the online video sites in China and eventually the money will dry up.  Youku is not even close to profitability and with the combining factors of high bandwidth fees and low CPM’s from video ads, it is mathematically impossible for any online video site in China to become successful (sans VC money of course).

This $40 million dollar injection takes Youku to approximately $80 million dollars in funding since launching the site just 18 months ago, in January of 2007.  What is this new round of funding going to do?  In a statement today, Ku says,

“With the new funds, we will be deepening our service to users, advertisers and media partners to give them the best and largest platform in China to distribute video content online.”

It is true that online video in China is expanding at the fastest rate of anywhere in the world.  However without significant changes to both the advertising rates and bandwidth fees, the industry could be headed for a sizable bubble.