China's top video-streaming website, Youku.com, is buying out competitor Tudou - that's China's second-ranked video-streaming site - in an one billion U.S. dollar stock deal. In the past, there’s been no love lost between the two rivals with ongoing legal spats over copyright and unfair competition. But with their forces combined, the companies’ CEOs are hoping for cost savings in the realm of 50-60 billion dollars, and the lion’s share of the market.

Reporter: "I’m right now in Youku headquarter office. Only last month, they were still fighting like cats and dogs over copyright of a popular Taiwanese talk show, but now, they’ve decided to get married. It seems what Chinese markets never lack of, are surprises.

It wasn’t long before the surprise merger announcement, that the two firms were locking horns in a series of courtroom battles. Tudou sued Youku for 150 million yuan for alleged misuse of copyrighted materials. Youku, in turn, slapped a lawsuit against Tudou, seeking 4.8 million yuan in compensation for losses suffered as a consequence of Tudou’s claims.

But despite all the bickering, analysts say this COULD be a match made in heaven. Beijing-based Youku is snapping up Tudou in a one billion U.S. dollar stock swap deal. And it’s all about saving on the cash that’s currently spent by video-streaming sites like Youku and Tudou, on Internet bandwidth and content. The new company will also be able to better compete against rivals like Sohu, Tencent and Baidu, as they encroach on market share.

Tech analyst Xiang Lifang said: "Under such pressure, for these leading online video companies whose profits have been shrinking in recent years, a merger may be a good choice. It can help them reduce costs and get back to profitability. Other players are faced with increasing pressure now. Some of them might choose the same path, combine resources to boost their competitiveness."

Youku and Tudou currently account for 21 and 17 percent of the Chinese video-streaming market respectively. The combined entity, which will be named Youku Tudou, will take up more than one-third of China’s online market. After the announcement of acquisition, share prices of both firms surged in U.S. markets - Tudou’s by almost 180 percent.

From fierce foes to the closest of friends, insiders say, the consolidation is a step in the right direction for the healthy development of the industry, as well as helping revive interest in the sector.