In the latest in a string of entertainment industry acquisitions,
Alibaba said Monday it will jointly take an 18.5% stake in New
York-listed Youku Tudou for $1.22 billion, alongside an investment
vehicle linked to Chairman Jack Ma.
In March, Alibaba acquired a majority stake in ChinaVision Media, a film
and television production studio. Earlier this month, a separate
investment vehicle owned by Mr. Ma and another Alibaba co-founder took a
20% stake in Wasu Media, an Internet television company with a small
cable network. Add the three deals together, and that is a $3 billion
As Alibaba gears up for a massive initial public offering, a picture is
emerging of an ambitious, vertically integrated video strategy
encompassing content creation, broadband distribution and online
streaming. Just how the pieces fit together, including the role played
by Mr. Ma's investment vehicles, remains unclear.
Youku is one of China's top Internet video sites, combining
user-generated and professional content. But it faces intense
competition from search engine Baidu's video unit, as well as
diversified Internet giant Tencent Holdings and New York-listed portal
Sohu.com, both with their own video services.
The next logical step in China's Internet deal frenzy could be a video
tie-up between Tencent and Sohu, since the two companies are already
allied in search. Tencent was earlier in talks with Youku over a
possible investment and will want to keep toe-to-toe with Alibaba.
Regulatory risks hang over the entire sector. Chinese censors recently
pulled four popular U.S. television shows from the Web, including one,
'The Good Wife,' which Youku had the rights to. Last week, Beijing
stripped portal site Sina Corp. of some publishing licenses over
pornographic material, sending shares down 10% over two days.
Wife)的播放權。上周，中國政府吊銷了新浪公司(Sina Co., SINA)的《互聯網出版許可證》和《信息網絡傳播視聽節目許可證》，導致其股價在兩天內下跌10%。
Nor is Youku coming cheap. The deal will be done at $30.50 per share,
26% higher than Youku's closing price on Friday. But because Youku will
issue new shares in the transaction, this understates the premium that
Alibaba is paying. Youku as a whole will be valued at $6.6 billion, 63%
above its Friday market cap, or 13 times 2013 sales for the loss-making
Alibaba is already asking investors to support what could be the biggest
IPO in U.S. history. Now it will also ask them to invest in a hastily
agglomerated video strategy. Alibaba needs to make the case why.