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China’s Baidu Receives $2.8 Billion Offer for Online Video Giant iQIYI

Baidu, China’s leading search engine operator, says that it has received a non-binding offer to buy iQIYI, a majority-owned subsidiary which is one of the Middle Kingdom’s leading streaming video platforms.

The offer comes from Baidu co-founder Robin Li Yanhong and Gong Yu, founder of iQIYI.

Baidu owns 80.5% of iQIYI and reports that the offer values the entire unit at $2.8 billion.

Online video has boomed in China where traditional media is tightly controlled by government and where, until recently, theatrical distribution of movies was limited to the biggest cities.

The major players have been engaged in an arms race to acquire exclusive content in film, TV and latterly sports. The competition for content has ensured that most of the platforms remain loss-making, even though they claim hundreds of millions of monthly users.

Those losses have sparked a process of consolidation within the sector. Youku and Tudou merged some four years ago. The combined Youku Tudou, which is iQIYI’s most direct rival, is now in the process of being acquired by Alibaba for over $4 billion.

A significant part of iQIYI’s business model was its close links with the search functionality of Baidu. iQIYI  said that it will remain a “strategic partner of” and seek “business cooperation agreements” with Baidu following completion of the separation.

iQIYI has also been in the vanguard of moves to convert casual viewers into paying subscribers. Last year it announced that it had over 5 million subscribers, many of whom were attracted by its in-house developed web-video series. But, in an example of increasing regulatory interest in the video sector, the State Administration of Press, Publishing, Radio, Film & Television ordered iQUIY to take off air a popular series which involved both time travel and gender change.

NASDAQ-listed Baidu said that it has formed a special committee to evaluate the offer. Baidu will report its 2015 and fourth quarter results on Feb. 25.

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