For Chinese Online Giants, All the Web’s a Stage: Baidu, Alibaba and Tencent have set sights on the entertainment industry as the Internet’s next frontier

June 9, 2014 Leave a comment

06.02.2014 11:44

For Online Giants, All the Web’s a Stage

Baidu, Alibaba and Tencent have set sights on the entertainment industry as the Internet’s next frontier

By staff reporters Liu Ran and Qu Yunxu

When Tencent Holdings signed a contract with novelist and Nobel laureate Mo Yan in 2013, the Internet and messaging services provider raised the stakes in a race to dominate China’s online entertainment market.

But the stakes had been raised many times before Mo, the 2012 Nobel in literature winner, agreed to cooperate with Tencent’s entertainment content initiative. And today’s three-way competition between Tencent, search engine Baidu Inc. and e-commerce leader Alibaba Group shows no signs of slowing.

Each company in recent months has been busy trying to top the other in the entertainment arena through acquisitions and tie-ups in the fields of online video, publishing, TV, music and gaming.

Baidu has been in the race the longest, while Alibaba is the newest kid on the block, having started a digital entertainment business in September.

Since January, Alibaba has rolled out a mobile gaming website, bought out a film company called ChinaVision Media Group and secured an alliance with online video leader Youku Tudou. The moves have helped Alibaba gain solid footholds in a variety of digital entertainment outlets, with the goal of linking each to its e-commerce platforms.

Tencent’s two-year-old digital entertainment division is deeply rooted in gaming and more recently branched into online comics, movie production and websites that provide writer-reader interactive publishing services.

Tencent’s plan calls for building businesses with key intellectual property, and then developing the businesses into franchise operations. Moreover, the company plans to use its popular messaging service, WeChat, as a marketing tool in the realm of digital entertainment.

Baidu, meanwhile, bought video websites iQiyi, PPS and the app store 91 Wireless between 2012 and 2013. It’s working to consolidate these and other services, products and mobile Internet outlets. Baidu owns a lot of intellectual property, but needs outlets and apps to help turn these into cash.

While trying different strategies and focusing on unique needs, each company has eagerly joined the race for movie viewers, readers and gamers. Their efforts parallel a coming-of-age for the country’s online entertainment industry.

‘Fan-Driven’ Business

“The Internet economy is transitioning from one that is driven by traffic to fan-driven,” said Liu Chunning, vice president in charge of digital entertainment at Tencent.

Baidu and Tencent sources echoed that observation.

The companies’ recent actions speak louder than words. One unique business move came March 26, when Alibaba rolled out an investment product called Yule Bao, which means “entertainment treasure,” tied to the film industry.

Online consumers can invest as little as 50 yuan for starters in a fund run by the Guohua Life Insurance Co. The money goes into a trust that finances filmmakers, earning investors up to 7 percent a year and a chance to meet movie stars, the company said.

The first batch of Yule Bao products provided financial support for four movies that are expected to be blockbusters at the box office.

Some analysts have criticized Yule Bao as form of crowd-funding, a system that lets investors pool money outside the regulated financial system. Securities regulators have been tightening controls on crowd-funding to prevent fraud and illegal fund-raising, raising questions about Yule Bao.

Alibaba executives have insisted Yule Bao is not crowd-funding, but rather an insurance-linked investment and marketing service that caters to movie fans. “This is the age of entertainment, and fans are the king,” said the Alibaba source.

The critics’ voices have since been drowned out by investor enthusiasm. Yule Bao’s initial product sold out in just three days, attracting more than 237,000 investors.

Participating in Yule Bao was as easy as clicking a mouse. The product’s sign-up system was embedded in the Taobao Wallet app for Alibaba’s e-commerce website Taobao.com. The service brings buyers to Taobao, generates traffic on the mobile end, and opens doors to movie ticket sales and franchising.

Tencent also has a plan to turn entertainment lovers into paying customers. Its next step is expected to be the purchase of about 20 percent of a South Korean celebrity management agency called KeyEast Entertainment Co. Ltd., a source said.

KeyEast represents actor Kim Soo-hyun, who is famous in China as the lead in a hit TV show called My Love from the Star. The stake in a celebrity management company could give Tencent access to more celebrities and copyrights, and eventually clear the way for television and video production, said Sun Yi, a media industry investor.

Baidu also sees potential in this kind of collaboration with the stars. In early May, it announced a partnership with SM Entertainment giving Baidu the rights to offer SM-artist-produced music and videos on the mainland.

SM, a Seoul-based talent agency and record label, will let Baidu post SM artists’ online communities on Baidu Tieba, which has close to 1 billion registered accounts (a person can own more than one) segmented into about 8 million groups on different topics. It plans to co-produce shows catering to the Chinese audience.

 

Filed under Macro Trends, TMT Trends

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