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Laid Off Ku6 Employees Seek Government Intervention

National Business Daily, 5/24/11

According to a former employee of Shanda Interactive's (Nasdaq: SNDA) online video subsidiary Ku6 (Nasdaq: KUTV), recently dismissed staff have requested that the Haidian District Labor Bureau in Beijing investigate Ku6's recent round of layoffs. The impact of the layoffs has also begun to affect Ku6 operations, reportedly leading several advertisers to begin questioning Ku6's stability and even go so far as to terminate contracts and demand compensation.

On May 22, approximately 70 former and current Ku6 employees organized a press conference in Beijing, at which they alleged that Ku6 began withholding medical insurance, social security, and other benefits earlier this year. In response to these allegations, Ku6 HR director Yu Peng said that CEO Zhu Haifa, who was appointed in March this year, moved to remedy the situation after he discovered payments were being withheld.

Further, Ku6 employees remain dissatisfied with severance packages offered in recent layoffs. Prior to this, Ku6 calculated severance compensation according to a "N+1" formula, with N representing the number of years an employee had been with the company. In addition to the N+1 compensation package, Ku6 also offered sales staff an extra payment equivalent to three months of commission based on accounts receivable.

According to Yu Peng, of the 130 recently laid off employees, 20 have already reached an agreement with the company and voluntarily resigned.

However, one current employee within the company revealed that to date more than 30 client sales representatives have been laid off and the channel sales staff has been reduced to two. The source claimed that both Ku6's operations center and planning center have seen massive layoffs of their own, with the number of staff remaining at the two centers down to 9 and 5, respectively.

One current employee said that Ku6's reasoning behind layoff decisions has also been unusual, noting that "last quarter's top-ranked channel sales representative was among those dismissed." The source added that "the channel sales team plays the key role in securing accounts receivable, but leaving channel sales with a staff of two implies that there isn't any accounts receivable work to be done, which means grave losses coming for the company."

Waves stirred up by the layoffs have reached Ku6 advertising clients. Another current employee revealed that Ku6's sales operations have become completely paralyzed and all current projects have come to a full stop. Doubts regarding the future of their cooperation with Ku6, and in some cases, even lost contracts and demands for refunds, have come from a number of advertising clients and their agencies, including China Mobile (NYSE: CHL; 0941.HK), BMW, Pepsi, Coca-Cola, Nice Group, Procter & Gamble, Ogilvy & Mather, MediaEdge and Hylink Advertising.

In response to the aftermath, a Ku6 spokesperson said that company executives have entered discussions with advertisers and a statement will be made pending progress of the talks.

Editor's Note: For more information on this topic, please see "Ku6 Promises No Additional Layoffs This Year," MD 5/20/11 issue.

Keywords: Shanda Internet online video Ku6 SNDA HR Zhu Haifa KUTV Yu Peng

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