The next frontier for Internet TV, like many other features of the modern world, appears to be China.

Statistics are the basis for this claim, as the citizens of the planet’s most populous nation have in recent times registered an average of a monthly 300 million hits to websites that offer streaming of Chinese TV dramas, Japanese and Korean sitcoms, and even American films and television series such as “Twilight” and “Gossip Girl.” Live streaming of the recent World Cup also drew a huge online audience.

Analysts suggest that the younger generation in China are even starting to favor free online laptop-viewing over TV sets, perhaps seen as a way to avoid the heavily-regulated TV networks that need to meet state approval before shows can be aired.

It is a momentous shift in viewing habits that have not gone unnoticed by authorities, meaning that there is now a tighter oversight of online video sites, and state-run networks are currently forming their own Internet TV sites in an effort to retain control over what viewers can watch online, and to claim back some of the audience.

Almost in direct competition now, the country’s major Web portals and search engines, such as Baidu, are hurrying themselves to form competing video sites, and plan to license content from the US and elsewhere.

“Everyone wants to get in on this market now,” says Li Yifei, chairwoman of VivaKi, the digital media division of the advertising giant the Publicis Groupe. “Suddenly there’s a change of attitude because people are watching a lot of online video.”

While Internet TV in the United States is in a nascent state, in China, it is already drawing a huge share of the world’s biggest Internet market, where an estimated 400 million people are on the Web. A market research firm based in Shanghai, iResearch, says advertising on Internet TV and Web video sites is expected to reach $346 million this year, up from $83 million in 2008. Big video sites like Youku, Tudou, KU6 and PPTV are spending aggressively to license content, produce original programming and buy the bandwidth necessary to store and broadcast content.

A similar discussion is playing out in the United States, where YouTube is searching for ways to make money from traffic on a site largely devoted to user-generated content and where Hulu.com — the free online video hub created by NBC Universal, the News Corporation and Disney — is also trying to grow.

Even Advertisers are warming to the idea of Internet TV, seeing that it is now ‘more like TV’. In China, though, Internet TV occupies a unique position largely because it serves as an alternative to what many consider bland state-run programming.

Global media companies like Disney are often restricted from winning television programming slots and are allowed to show only a limited number of films in China. Piracy is rampant in China, and TV viewership among young people is in decline.

That may explain why Internet TV is booming in China. While most early video sites here focused on user-generated content — or amateur videos posted by users — many of those sites have recently evolved by offering licensed content, in-house productions, and plenty of pirated films and television series that are uploaded to the sites by users, within hours of their overseas release, and often with Chinese subtitles. As a response, the websites are making attempts to licence content, and prevent piracy, as part of plans to improve relations with state broadcasters.

But some analysts say illegal content is a major factor driving traffic to Internet TV and video sites and a taboo topic for the industry. Still, the analysts concede that Internet TV and video sites are gradually moving toward more original and licensed content, with some companies competing fiercely to buy popular Chinese and Korean television series. One thing is for certain, the federal government will not be shutting down any Chinese pirate streams anytime soon.

Anita Huang, a spokeswoman for Tudou, based in Shanghai, says the company is positioning itself as a Chinese version of HBO.

Vincent Tao, chief executive of PPTV, which is a licensed content provider, said his company was streaming NBA. games and producing original TV dramas. “We are going to spend more to acquire foreign content,” he said. “We now have a deal with Warner Brothers.”

Strong challenges from newcomers to Internet TV could create a series of messy battles over the next few years. For instance, Baidu.com recently formed Qiyi, and if Baidu begins directing most video searches to its own site, that could harm other sites, since Baidu is China’s dominant search engine.

“Advertising agencies really want to transfer their advertising budgets to online video sites, there’s no question about it,” Alan Yan, founder and chief executive at AdChina, said. “But first, the video sites need to solve some of the copyright issues on the content.”

There is no doubt that regular TV will remain as a staple in all countries, but the online innovations are looking to be making heavy inroads to compete with tradition, and it seems that there are none more so than in China that could make a breakthrough in this ongoing battle.

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