Chinese social media and entertainment giant Tencent is to buy control of Iflix, a Southeast Asian streaming firm with operations in 13 countries.

The move represents further consolidation of the regional streaming business in Asia, and is by far the biggest international outreach manoeuvre to date by any of China’s massive video streaming firms.

Industry sources tell Variety that content partners have been informed, and that the Iflix brand name will continue to operate for a period of at least 6-12 months. The majority of Iflix’s current staff are expected to be retained. These include Marc Barnett, who remains CEO for the foreseeable future.

“We confirmed that Tencent has purchased iflix’s content, technology and resources. This is in line with our strategy to expand our international streaming platform, WeTV, across Southeast Asia and provide users with international, local and original high-quality content in a wide range of genres and languages,” Tencent said in a statement emailed to Variety.

“The purchase comprises a strong local network across emerging markets with a wide and compelling selection of video content such as TV shows, movies and local originals, to stream or download, on any Internet-connected device. Through the purchase, WeTV will further extend our presence in the video streaming industry across Southeast Asia, to reach a broader audience base within the region and to better serve our users with better viewing experience.”

As of April 2020, Iflix had more than 25 million active users on its service, with over 2.5 billion minutes viewed per month. Despite that, and the recent collapse of its most immediate rival Hooq, Iflix was losing money heavily. It reported a 30% increase in after-tax losses to $158 million in the calendar year 2018.

Tencent is using a special purpose company to make the transaction. Deal terms were not immediately available, though the Chinese firm is understood to be paying “several tens of millions of dollars,” according to sources familiar with the agreement.

That price would be a significant discount to the valuation Iflix had expected to achieve through an IPO, and an even bigger discount to the amount of capital it had raised. In addition to founders at Malaysia’s Catcha Group, major international media firms Sky, Liberty Global and Hearst Corporation had put up $348 million over seven funding rounds. They will see only a minimal return. Iflix’s last public figures showed accumulated losses of $379 million.

Despite the large amounts of red ink, the sums involved are relatively small for Tencent, which is one of the world’s ten most valuable companies, and whose shares hit an all-time high on Tuesday. Tencent is also rumored to be seeking a vastly larger manoeuvre that would see it become the biggest shareholder in mainland rival iQIYI.

Iflix: the story so far

Based in Malaysia, Iflix saw its original mission as bringing a VOD operation to the Southeast Asia region, built on a large component of international content. That strategy needed to change when Netflix ran away with the market for English-language content. Regional streamer Viu, operating with a firmly Asian local content strategy, offered a viable alternative approach.

Iflix also suffered setbacks in Africa and the Middle East and cut its operating footprint to 13 territories: Malaysia, Indonesia, the Philippines, Bangladesh, Nepal, Thailand, Brunei, Sri Lanka, Pakistan, Myanmar, Vietnam, the Maldives and Cambodia.

There have been multiple recent signs that Iflix’s position was becoming increasingly untenable. In April, it announced lay-offs of more than 50 staff. The same month, two of Iflix’s cofounders, Patrick Grove and Luke Elliott, both from Catcha, resigned from the Iflix board. DealStreet Asia reported that they were replaced by executives from distressed asset firm Mandala. And Mark Francis, Iflix’s content chief, has announced his departure, effective from the end of June.

Management was nevertheless believed to want to avoid the fate of Hooq, its direct rival backed by WarnerMedia and Sony Television, which was abruptly shut down at the end of March by its largest shareholder SingTel.

Like Iflix, Hooq started out with the wrong content and pricing strategy, and struggled to adjust quickly enough before it was overtaken by other players and the money ran out.

Iflix had been less than two months away from conducting an IPO on Sydney’s Australian Stock Exchange, when the coronavirus outbreak occurred. That caused stock markets to crash by more than 30%, triggering a “material adverse change” clause in its relations with financiers.

With pressure building and the IPO option blocked, Iflix is believed to have sought bids from international media conglomerates and the three major streaming platforms in China: Alibaba’s Youku; the Baidu-backed, NASDAQ-listed iQIYI, and Tencent Video. Approached by Variety for comment, Iflix management declined to comment.

All three of the Chinese giants are under pressure to evolve. Struggling under the weight of their original content costs they are losing money at home, and increasingly face challenges from newer players including TikTok (known as Douyin in China), Bilibili and Kuiashou. That points them towards consolidation and also to expansion into less-developed overseas markets.

Both Tencent and iQIYI have taken preliminary steps in Asia, but the acquisition of Iflix is a leap. Tencent launched last year in Thailand, but has had little impact. iQIYI has made its app available across the region, but has only supported it in limited markets. It has a small position in Taiwan and a partnership with Astro in Malaysia.

An emphasis on Chinese and other Asian content appears to be a more viable strategy than attempting to catch up with Netflix, which had 16.2 million paying subscribers in the region at the end of 2019.