China's top search engine Baidu Inc said it plans to start a new online video channel that will provide copyrighted content to Chinese Internet users.
The company said it will form a new independent company for the purpose, which will derive its revenue from advertising and work with content providers to offer licensed video content.
Investors cheered the move as Baidu's shares rose 3.5 percent to an intra-day high of $420 on Nasdaq, before losing some of those gains to trade up about 1 percent.
Baidu said the content would include movies, TV series, sporting events and animation.
On Tuesday, Reuters quoted a source familiar with the situation as saying that Baidu is teaming up with Providence Equity Partners, an investor in U.S. video-viewing site Hulu, to set up an online video channel.
Baidu did not provide details on any partnerships in its statement on Wednesday. Providence Equity was not immediately available for comment.
Hulu, a website jointly owned by NBC Universal, News Corp and Walt Disney Co, allows viewers to stream TV shows over the net for free in the United States.
Baidu's move marks the company's latest foray into China's fragmented but potentially highly lucrative online video market -- worth 162 million yuan ($23.73 million) in the third quarter, according to data from research firm Analysys International.
Baidu is also an investor in PPLive, a Chinese website that streams licensed movies and video for free.
It was not clear if the new video channel would include online user-generated content, which is fraught with higher regulatory and licensing risks.
J.P. Morgan analyst Dick Wei said most video sites in China were still making losses but Baidu had the added advantage of being able to offer more targeted advertisements given its search technology.
The brokerage is expecting minimal negative impact from the increased costs post launch and said there was a possibility for the newly formed company to be partly financed by venture capital funding.
S&P Equity Research, which is expecting Baidu to be a minority investor in the start-up, said it does not see the venture turning profitable anytime soon.
Yu Gong, a former chief operating officer of China Mobile's 12580 business, was named chief executive of the new company, Baidu said in its statement.
(Reporting by Supantha Mukherjee and Shrutika Verma in Bangalore; Editing by Anthony Kurian and Saumyadeb Chakrabarty)