The company said that the purchase of loss-making Yinhekuyu will help it to build up its own variety show production team and enable greater collaboration with its other businesses. These include ticketing and promotion unit Tao Piao Piao and Alifish, its derivative products unit.
Yinhekuyu is already 20% controlled by Alibaba’s Youku streaming platform and 12% by a Yunfeng, a private equity fund previously associated with Alibaba co-founder Jack Ma. The transaction involves the sale of 60% of Yinhekuyu by founders and private investors. Youku is not selling its stake, implying that Alibaba and Alibaba Pictures will control 80% after the deal is completed.
The deal is subject to earn-out conditions, meaning that the purchase price paid could be reduced if Yinhekuyu fails to meet certain targets. Last year, Yinhekuyu recorded a net loss of RMB72 million ($10.1 million), and finished 2019 with net assets of RMB193 million ($27.5 million).
In the past two years, China’s entertainment sector has been struck by a succession of problems, including the arrival of new industry regulator, growing content controls, a new tax regime, and latterly shut down of many productions due to the coronavirus outbreak. These have led to losses and structural weakness at many companies. That is expected to push some either into bankruptcy or into the hands of larger, wealthier groups – especially those from the tech sector now encroaching on the traditional film and TV business.