×
You will be redirected back to your article in seconds

Why Alibaba’s IPO Matters to Hollywood

As China's e-commerce giant seeks a possible $150 billion flotation it is building an array of video and internet options and moving upstream into content

HONG KONG — The proposed share sale in the U.S. of Chinese e-commerce group Alibaba is one of the biggest stories of the year in financial circles. But the company’s importance to the entertainment industry has yet to be fully appreciated.

The interest from Wall Street is understandable. With the company Tuesday confirming that it plans to raise an initial $1 billion, and analysts speculating that the likely corporate valuation will be in the $150 billion to $200 billion range, their interest is clear. It should lead to fat fees for its brokers, investment bankers and advisers.

Alibaba already boasts gross revenues that are larger than e-Bay and Amazon combined and the company is said to account for a significant fraction of all mail in China. But the importance is bigger than the data.

The company will have a profound impact on the media and entertainment scene in China and internationally, as it expands from e-commerce into online video, Internet TV and even film production.

The company is in an unmatched position to take part in the expansion of the Chinese (and Asian) entertainment scene, which is growing at huge speed. Theatrical box office growth exceeds 25% and the country’s online video operators are seeing advertising expanding faster still.

Alibaba and its founder Jack Ma, acting through his Yunfeng private equity fund, have moved to directly and indirectly be part of this growth.

In recent years they have assembled share stakes in: Huayi Brothers Media, China’s largest private sector film and TV group; and Media Asia, the 20-year-old company that is a mainstay of the Hong Kong movie industry.

In recent weeks they announced plans to buy a majority stake in Chinavision, a mainland Chinese, Hong Kong-listed film producer that last year had a big piece of Stephen Chow’s $200 million hit comedy “Journey To The West.” When that deal completes, Alibaba is expected to build out Chinavision’s content production activities.

Laying out its broadcast ambitions, Alibaba also is paying $1 billion for a minority stake in Wasu Media, the Internet TV group and content arm of cable network giant Wasu.

And in March, the company launched Yu Le Bao, a crowdfunding site for entertainment ventures. Its first projects were a quartet of movies — “Tiny Times 3,” “Tiny Times 4,” “Wolf Totem” and 3D fantasy “Impossible” — and “Mofan Xueyuan,” the world’s first celebrity-themed, large-scale social-networking game in which fans can interact with movie star Fan Bingbing.

Backing up this push into content is Alibaba’s massive distribution and commerce network. The company is one of China’s largest primary vendors of cloud computing space and is a major portal for selling and booking theatrical movie tickets.

“The influence of Internet innovation on the cultural industry is no longer restricted to movie ticket sales, but has expanded to investment and content production,” says Liu Chunning, president of Alibaba’s digital entertainment business group.

Alibaba’s moves in online video will be closely watched. This is the sector that has the potential to complement or even eclipse theatrical cinema in China. With China substantially under-screened, especially outside the largest cities, online video delivered by cable networks or mobile devices has the potential to reach hundreds of millions of Chinese viewers who can’t go to the cinema or don’t wish to pay high prices for movie tickets. Online video can also offer a wider range of film titles than any multiplex and there are signs that an art-house sector may blossom online.

Alibaba and Yunfeng last month agreed to pay $1.22 billion for an 18.5% stake in Yukou Tudou, the U.S.-listed company that is currently China’s online-video market leader.

At the moment, online video in China skews heavily toward an advertising-supported business model, but as it moves towards subscription and transactional models Alibaba has answers there, too. Its Alipay unit, which has been the subject of corporate arguments between Alibaba, Yahoo and Softbank, is likened to eBay’s PayPal service. It has the ability to facilitate micropayments by millions of small consumers. Youku Tudou can anyway be seen as a mobile play.

Sitting at the nexus between Chinese theatrical film, e-commerce and online video, Alibaba is in a position to make a difference in Hollywood. Not only do Wasu Media and Youku Tudou have direct content relationships with the major studios, the group has influence over the secondary markets.

In 2012 its Taobao unit, which operates as a virtual shop window for thousands of small businesses, signed a memorandum of understanding directly with the Motion Picture Assn. of America to promote sale and distribution of legal audio-visual content. It agreed to make SMEs remove copyright infringing content and require them to hold publication licenses. The recent moves into online video mean that driving down piracy becomes a question of self-interest for Alibaba as well as one that benefits Hollywood.

Investment in Chinese companies represents significant risk for overseas investors. Companies are subject to regulatory controls that are intrusive by U.S. standards and may even appear arbitrary, and business models change rapidly.

Alibaba also comes with extra issues; management seems determined to use a share structure that provides it high levels of control and may make board members impossible for investors to remove.

Popular on Variety

More Biz

  • Kevin Spacey Trial

    Massage Therapist Who Accused Kevin Spacey of Groping Dies

    The massage therapist who accused Kevin Spacey of sexually assaulting him during a session in October 2016 has died, according to a court filing. No further information was disclosed. The anonymous massage therapist filed suit in September 2018, alleging that Spacey had forced him to grab Spacey’s genitals and tried to kiss him during a [...]

  • Comcast Xfinity Flex

    Comcast Drops $5 Monthly Fee for Xfinity Flex Video-Streaming Set-Top for Broadband Customers

    Comcast will hand out one free set-top box for broadband subscribers to access Xfinity Flex, its video-streaming product for internet-only customers, as it looks to punch up the value of its high-speed internet business. Brian Roberts, Comcast’s chairman and CEO, announced the new strategy at Goldman Sachs’ Communacopia conference Wednesday in New York. “One of [...]

  • Red Bull Music to Stage Festivals

    Red Bull Music to Stage Festivals in Atlanta and Chicago Next Month (EXCLUSIVE)

    Red Bull Music today announced two U.S. music festivals taking place next month: Its first-ever festival in Atlanta — featuring Teyana Taylor, Denzel Curry, Ari Lennox and others, taking place Nov. 1-15 — and a return to Chicago, which stars Lupe Fiasco, Tierra Whack, Jamila Woods and more, and runs Nov. 17-30. The festivals are [...]

  • Taylor Swift performs at Amazon Music's

    Why Isn't Taylor Swift Doing a Big U.S. Tour for 'Lover'?

    Industry chatter was buzzing for weeks: Why hasn’t Taylor Swift announced a tour yet? Her new album, “Lover,” is a hit; she’s already performed on TV and did a ten-song set at a blockbuster Amazon Prime concert in New York in June, and she and her band clearly are ready. And yet touring industry insiders [...]

  • Sully

    Georgia Attorney General Closes Probe of 'Sully' Tax Credits

    The Georgia attorney general’s office has closed a criminal investigation into Warner Bros.’ use of tax credits on the Clint Eastwood film “Sully,” after state revenue agents declined to pursue the case. The state prosecutor’s office opened a criminal probe two years ago, after a whistleblower alleged that the production had claimed more than $600,000 [...]

  • Spotify logo is presented on a

    Spotify VP Paul Vogel Talks Subscription Prices, Label Licenses, Podcasts

    The annual Goldman Sachs Communacopia Conference gives representatives from major companies the opportunity to present to the investment community, and Paul Vogel, Spotify’s VP and head of financial planning & analysis, treasury and investor relations, spoke on the streaming giant’s behalf on Tuesday morning. While many of his comments were statements frequently heard in the [...]

  • Women in Animation Logo

    WIA Partners With Animation Mentor, Toon Boom to Expand Scholarship Program

    Women in Animation has partnered with Animation Mentor and Toon Boom to expand the organization’s WIA Scholarship Program with workshops and software packages. WIA scholarships are given to animation students with a financial need and who demonstrate talent and passion for animation that will lead to a promising career in the field. The Animation Mentor [...]

More From Our Brands

Access exclusive content