Youku and Tudou are merging together in a deal worth over £1 billion in order to cut costs and increase profitability in a struggling industry caused by rising costs.

The joining of the two video streaming companies, imaginatively named Youku Tudou, will create an industry leader with more than one thirds of the online video market. Pre-market trading this Monday saw Tudou stocks rise by more than double.

The once bitter rivals had both reported net losses last year in an overly competitive marketplace hit by both rising bandwidth and content costs. Independent analyst, Bill Bishop, said: “This creates China's biggest video site, but it doesn't create a YouTube – they still have less than 50% market share."