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Alibaba Pushes Further Into Entertainment -- Update

Jul 15, 2014 00:30:00 (ET)

By Kathy Chu and Juro Osawa
Chinese e-commerce giant Alibaba Group Holding Ltd. is making a major push into entertainment to capture a share of what it thinks will be the next boom market in Chinese consumption online.

Although Alibaba has shared only parts of its vision publicly, interviews with roughly two dozen people who have been approached by the company or are familiar with its strategy say that its plans span from taking stakes in Chinese film studios and commissioning original material to acquiring the rights to TV shows or films from inside and outside the country.

On Tuesday, Alibaba announced a deal with U.S. production studio Lions Gate Entertainment Corp. to make available on Alibaba set-top boxes offerings such as the "Twilight" hit vampire movie series and the TV show "Mad Men." The partnership beefs up Alibaba's entertainment menu as China's Internet-savvy consumers are increasingly going online to watch TV shows, videos and movies.

"Alibaba is a tremendously successful and dominant partner to have in China," said Jim Packer, Lions Gate's president of world-wide television and digital distribution. "They touch millions of consumers now."

Mr. Packer said that though Lions Gate has been licensing its movies to Chinese online services for years, this is the first time it will be curating its own selections. Lions Gate and Alibaba aren't planning any capital tie-ups, said one person familiar with the details of the plan.

The entertainment industry is a logical next battleground for Alibaba, whose online shopping sites handled $248 billion of business last year, and which is preparing for a U.S. listing that could be one of the largest in history, analysts say. Alibaba and other Chinese rivals such as Internet giant Tencent are trying to find new avenues to get Chinese consumers to open up their wallets.

Alibaba declined to comment.

Alibaba has already made a few important steps toward its goals, paying more than $800 million in June for a majority stake in Chinese film and production studio ChinaVision Media Group Ltd., which it subsequently renamed Alibaba Pictures Group. In April, Alibaba announced a tie-up with Internet TV operator and license holder Wasu Digital TV Media Group. Last year, Wasu and Alibaba jointly launched a television set-top box using an operating system developed by Alibaba. Alibaba also has Tmall-branded set-top boxes.

"This is a real knockdown, drag-out type battle in terms of Internet supremacy--trying to capture the hearts and the pocketbooks of Chinese consumers," said Peter Schloss, a Beijing-based media-industry veteran and investor.

In 2012, China became the world's second-biggest movie market, behind the U.S. Revenue from China's film market, including box-office receipts, is expected to grow 33% this year to $5.94 billion, six times more than in 2009, according to market research firm EntGroup.

At the same time, China's more than 600 million Internet users are increasingly watching videos online, especially on smartphones. The number of people who watched or downloaded videos on their mobile phones last year rose 84% to 247 million, according to a January report from the China Internet Network Information Center. The figure is expected to grow as Chinese mobile carriers adopt faster fourth-generation networks that are more suitable for video viewing.

One challenge for Alibaba will be showing investors that it has sizable growth opportunities outside China's e-commerce industry, where it is the dominant player, according to David Wolf, managing director of the global China practice for Allison + Partners LLC, a marketing and consulting firm.

Alibaba's huge trove of information about online shoppers may give it an edge, since it can parse consumer tastes and tailor entertainment to respond, according to Chris Bremble, founder and CEO of Base Media Group, a special-effects company.

In recent days, Alibaba has approached film studios in China about creating or acquiring films and TV shows it can stream online, according to people familiar with Alibaba's plans. Alibaba is also looking to stream international film and video, other people familiar with Alibaba's plans said.

The e-commerce giant has also approached film studios in China with proposals to invest in them. In exchange for stakes in those studios, Alibaba, in some cases, offered them both cash and a stake in Alibaba Pictures Group, according to one person familiar with the discussions.

Executives representing Alibaba in those discussions included the head of Alibaba's investment arm, according to the person. Alibaba told some studios that it could help fund their film projects, as well as distribute and promote them, this person said. Alibaba could sell and promote movie tickets on Taobao, its online bazaar of 7 million merchants, the person recalls being told.

Alibaba is also creating a film fund and courting strategic and financial investors, to minimize its risk as it invests in movies, according to people familiar with the matter. The size of the fund is still being determined, the people said.

"The biggest [entertainment] funds and investors in China are saying that if you don't have a relationship with [the Internet giants] you're going to be left behind," said one person familiar with the film fund.

One of Alibaba's hopes is to stream TV shows, movies and other material it develops or licenses over its TV sets or set-top boxes, as well as allowing consumers to shop through those devices, according to people familiar with the matter. Last year, Alibaba announced plans to jointly develop Internet-connected TVs with manufacturer Skyworth.

Alibaba is also exploring the option of using online video company Youku Tudou as a streaming platform in the future, said one person familiar with the matter. Alibaba and an investment firm co-founded by its founder, Jack Ma, spent $1.22 billion in April to buy an 18.5% stake in Youku Tudou.

Alibaba has floated the idea of developing an interactive online show that will allow viewers to click on the clothes of the actors to purchase them, according to people familiar with the plans.

Lilian Lin, Sonja Cheung, Dean Napolitano and Joanne Chiu contributed to this article.

Write to Kathy Chu at [e-mail] and Juro Osawa at [e-mail]


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July 15, 2014 00:30 ET (04:30 GMT)


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