MSN China has reached an agreement with Sohu which will see the Chinese unit of Microsoft's Web portal feature videos from tv.sohu.com and in its instant messaging (IM) program, according to a report.

A report Monday by Sina Technology said MSN China had negotiated with many other video Web sites including Youku and PPTV before finally settling on tv.sohu.com. The Microsoft outlet last week was rumored to be venturing into the video business and in talks with Sohu.

The partnership will see Microsoft's China Web portal feature videos from tv.sohu.com on its portal as well as in its IM tool. The companies are said to be planning a media conference this week to announce the partnership, said the sources.

According to Sina, Chinese users who watch videos online account for 75 percent of total Internet users in the country. The average monthly visitors to the top 3 video sites in China is estimated to be about 200 million.

The report added that organic growth for such video sites had slowed and competition would intensify as Web entities such as Youku, Tudou and tv.sohu.com scramble for more users.

While China's video sites have yet to shed its image as destinations for unlicensed videos, some industry players are turning to more innovative services. For example, an alliance of Web video players in March set up pay-per-view services in a bid to provide authorized copies of movies as well as high-definition streaming at a reasonable price.