By Cate Cadell
BEIJING (Reuters) - Beijing has shut down online video services of three popular Chinese media sites in a swift action that unleashed financial shockwaves and posed a firm warning to the country's online video industry: clean up, or close down.
China's internet shares tumbled after news of the unusually harsh clamp down spread, with Weibo Corp's down 6.1 percent, while SINA Corp, which has a stake in Weibo, fell 4.8 percent. That amounted to a combined $1.3 billion knock to the market value of both companies.
The Twitter-like service Sina Weibo, popular online video site ACFUN and news portal iFeng.com will have to stop video streaming services that violate the country's regulations, the TV and film watchdog said on Thursday.
"This will provide a clean and clear Internet space for the wide number of online users," the State Administration of Press, Publication, Radio, Film and Television said in a brief statement on its website.
While the move is likely to send a chill through China's booming online entertainment industry, analysts expect the country's social media providers will be able to adjust to a tougher regulatory environment although with more limited content offerings.
Beijing tightly controls its internet space and bans content that it deems politically threatening or damaging to China's national identity. It has increasingly taken aim at the country's booming internet industry.
The TV and film watchdog did not give a timeline for the ban, but analysts say it is more than likely the services will open again with beefed-up oversight.
"Instead of a slap on the wrist, it's a slap all the way up the arm, the neck and the head. But it's still a slap, it's not a kill shot," said Beijing-based director of Marbridge Consulting Mark Natkin.
It follows the controversial shuttering of 60 popular celebrity gossip social media accounts last week by China's cyberspace authorities, who said the sites catered to poor tastes and did not "actively propagate core socialist values".
In May, it released regulations for online news sites and network portals that expanded restrictions on content and required all services to be overseen by party-sanctioned editorial staff.
Several online video portals, including iFeng, have been publicly reprimanded in the last six months for conducting live-streamed interviews and other news gathering activities without state authorization.
"I think this [recent] ban is much more serious than the ones before," a former iFeng employee, who worked at the firm until recently and declined to be identified, told Reuters.
"The video department is a very important part of (iFeng). When the live stream service was reprimanded previously, it was a great blow. Now, they will feel even more nervous."
iFeng.com did not respond to a request for comment while ACFUN released a statement on social media saying it would attempt to remedy the issues.
Weibo said it was communicating with relevant government authorities to understand the scope of the notice.
Users of the video sites took to Weibo's microblog on Friday to share their frustration.
"In general, I think the network does require some governance," said one commenter. "But the way they are doing it just shouldn't be so absolute."
(Reporting by Cate Cadell and Lee Chyen Yee; Editing by Elaine Hardcastle and Christopher Cushing)