With foreign investors providing financial support, Chinese video websites are gearing up to jump out of the red.

Online video viewing is experiencing a rise in popularity as young Chinese look for a wider variety of programs than are offered on television. As of the end of June 2009, China had 338 million Internet users, two thirds of whom watched videos online, according to a survey by the China Internet Network Information Center. The success of video websites attracted advertisers willing to dole out large sums of cash to have their products posted on sites frequented by a high volume of netizens. International venture investors have since started pouring money into the Internet sector of China in search of the next Youtube.

The most-visited Chinese video-streaming site, Youku.com, for instance, raised $40 million from investors Brookside Capital Partners, Sutter Hill Ventures, and Maverick Capital in December 2009, bringing its total amount of private equity funding to $110 million. Meanwhile, the video-sharing site Tudou.com reportedly completed its fifth round of venture financing, raising $400 million.

However, the seemingly buoyant sector continues to spill red ink largely due to heavy broadband access costs, according to a report by the Shanghai-based consulting firm iResearch. The video sites have also started paying higher prices for professional content as they try to dismiss criticisms about hosting pirated videos uploaded by users.

In an attempt to diversify its revenue sources, Youku launched a beta mobile portal to tap the 3G mobile market in 2009 while Tudou focused its investments in original program manufacturing.

Gary Wang, CEO of Tudou.com said the sector will maintain torrid growth in the next three to four years, adding his firm will break even in 2010.