Chinese Internet giants Alibaba Group Holding Ltd. (BABA) and Tencent Holdings Ltd. (TCEHY) are increasing their stakes in a Chinese film and television production company, Huayi Brothers Media Corp. The move signals the growing importance of the entertainment sector to China's largest Internet players.
Huayi’s Twin Strategic Alliance
Huayi is one of China’s top film studios. It is involved in the production of major titles like Dragon Blade, a historical drama starring Jackie Chan and slated to hit theaters early next year.
Huayi is set to raise a total of 3.6 billion yuan ($588 million) from four investors including the investment firms owned by Alibaba and Tencent executives.
Alibaba Executive Chairman Jack Ma and another Alibaba executive already hold a 4% stake in Huayi. The latest investment will increase the total stake for Ma and his investment firm to 8.1%
Meanwhile, an investment firm owned by Tencent Chief Executive Pony Ma along with other executives already has a 4.9% stake in Huayi. The recent investment will also raise Tencent’s stake in Huayi to 8.1%.
As a result, both Alibaba and Tencent executives will become the second-largest shareholders in the company, after Huayi’s two founders who jointly hold a 27% stake.
According to Huayi, both the Internet giants can invest in movies produced by it by contributing 5% to 10% of the entire budget of each movie. It also said that it has plans to co-produce five films with the two firms over the next three years.
Alibaba, Tencent and the Entertainment Sector
Alibaba’s investment in Huayi is in line with its strategic focus on digital entertainment. In June this year, Alibaba purchased a 60% share in Chinese film production company, ChinaVision Media Group Ltd and renamed it Alibaba Pictures Group.
Earlier this year, Alibaba also invested in online video company Youku Tudou Inc., which also produces video content Alibaba also runs movie-ticketing services via its Taobao marketplace and mobile apps.
Huayi and Alibaba will collaborate in online ticketing via Alibaba’s Taobao market, enabling customers to make advance purchases of movie tickets for Huayi films.
Huayi, will ensure that all products related to the films — music, games and books— will be sold on Alibaba platforms first.
On the other hand, Tencent, whose main business is online games, is also venturing into films. In September this year, the company launched its movie business division called Tencent Movies+. In the filings, Huayi mentioned that Tencent could develop games based on its movies.
Tencent and Huayi will collaborate on games, publishing products and comic books. The deal excludes feature movies.
If Tencent expands into TV series production, with titles based on its games or publishing products, Huayi will also have the first look rights.
Where is the B in “BAT”?
Chinese Internet giants Baidu (BIDU), Alibaba and Tencent are together known as the BAT group.
It’s but obvious that Baidu is also striving to make a mark in the entertainment sector like its arch rivals.
The company’s online video streaming portal iQiyi recently unveiled its own in-house film production studio iQiyi Pictures. The studio plans to co-produce seven domestic films and one Hollywood movie in 2015.
Looking Ahead
The deals indicate Chinese Internet giants’ continued efforts to make a mark in online entertainment as they seek to attract more users to their platforms.
In China, the world’s second-largest movie market in terms of revenues after the U.S., Internet users are watching more movies and videos online, motivating industry players to work more closely with film companies.
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