Most Internet giants in China anticipate the cultural and entertainment industry will grow into the next billion-dollar-revenue market.

On Wednesday, e-commerce giant Alibaba Group Holding Ltd and Internet company Tencent Holdings Ltd said they would increase their stakes in local film maker Huayi Brothers Media Corp. Industry insiders said a new round of integration is underway in the entertainment industry after the Alibaba, Tencent and Xiaomi moves.

Xiaomi and its online video partners will be able to produce more self-made video programs to compete with traditional television networks and other online streaming video providers, analysts said.

"Xiaomi has a straight forward playbook," said Tian. "The company has gathered sizable hardware users and it will be easier for it to distribute content to end users via the Xiaomi-branded smartphones."

Xiaomi, the current No 2 in Chinese smartphone market, is on track to overtake Samsung Electronics Co Ltd to become the largest vendor, said Tian. Samsung is facing tough competition from a slew of local vendors like Xiaomi, Lenovo Group Ltd and Huawei Technologies Co Ltd.

By the end of July, nearly 290 million Chinese people were using mobile devices such as smartphones and tablets to watch videos, while the number was about 140 million in July 2013, Tian said.

According to Analysys International, Samsung controlled 15.4 percent of the market at the end of the second quarter, with Xiaomi just behind at 12.4 percent.

Luo Lan, a researcher with Analysys International, said: "As Xiaomi consolidates its position in the hardware market, it is time for the company to make more investment in other segments to beef up its ecosystem."

Statistics from industry consultancy iResearch Inc showed that the turnover of Chinese online video market had reached 7 billion yuan in the third quarter, a jump of more than 83 percent year-on-year.

Advertising remains the major revenue earner for local video sites with more than 60 percent of the industry's total revenue coming from advertisements.

Xu Hao, an analyst with iResearch, said as Internet TV usage increases in China, online advertising will play an even bigger role in driving revenue.

"Mobile video streaming is a major investment platform for Chinese advertisers," Xu said.

Video sites are also eager to find hardware partners to reach out to more audiences. They are heavily invested in self-made content to get an upper hand in competition, said Xu, and need someone to write the cheques for such investments, said Xu.