Three of China’s leading online video sites have clubbed together to reduce costs and help compete against industry rivals Youku and Tudou, which last month announced a deal to merge.

Sohu, Baidu joint venture iQiyi and Tencent have formed an alliance which will cover content licensing and broadcasting. The deal will allow the firms to reduce the cost of content through “rational pricing”, the trio confirmed to Bloomberg.

Intense competition has seen the price of content rise massively for China’s online video services and, with the Youku-Tudou merger set to through in the third quarter of the year, the firms are acting to strengthen their position.

The move from Youku and Tudou had been rumored last year but largely came as a surprise, given that the firms were engaged fresh legal conflict. The consolidation will give the newly formed company greater market share but, more importantly, will see it make huge cost savings.

The pooling of resources is expected to save $60 million, according to Youku, which could see the combined firm post profit, something that Youku and Tudou have struggled to do thanks to expensive licensing and infrastructure costs.

Youku and Tudou grabbed the most advertising revenue amongst China’s video sites in the final quarter of last year, 21.8 percent and 13.7 percent respectively, ahead of Sohu (13.3 percent) and iQiyi (6.9 percent), according to Analysys.

Tencent’s video service is one of many that the company runs, each of which link up to its hugely popular QQ messaging service and make use of its considerable infrastructure. The service has seen a 70 percent rise in advertising, quarter-over-quarter, according to Technode.

Further proof of the impact of Youku-Tudou comes from sitw traffic data from Enfodesk, put together by Tech In Asia, which shows that the collaboration will have a strong lead, which would account for 35.5 of visits based on Q4 2011.

china video Chinese video sites team up to reduce the cost of content, in response to Youku Tudou merger