Chinese online video firms, Tudou in $1-bn all stock merger, China's largest online video company, today struck a deal  to acquire its rival Tudou Holdings Ltd in an all-stock deal valued at more than $1 billion.

The merger of China's top two video websites would create a dominant company with a 35.5-per cent market share in the domestic $267 million online video market.

Both companies that are listed in the New York Stock exchange said that Youku shareholders and ADS holders will own 71.5 per cent of the new company to be named Youku Tudou Inc, and Tudou shareholders and ADS holders 28.5 per cent.

Both companies, which earn revenues through advertising and are currently experimenting the subscription models, are fighting to gain users and grab license content.

Both companies, which reported losses last year due to high costs for Internet bandwidth and programming, were involved in a legal battle earlier this year alleging misuse of each other's content.

With nearly 400 million viewers in China, Youku holds 21.8 per cent of the domestic online video market, Tudou holds 13.7 per cent, 13.3 per cent, and the rest hold just single-digit market shares.