Rhea Liu
China’s Youtube, Youku Tudou’s stock price increased 23% to USD 25.09 on the New York Stock Exchange, after the company received a Friday offer for a buyout from e-commerce giant Alibaba for USD 26.60.
Alibaba invested USD 1.22 billion in Youku Tudou last April and held 18.3% of Youku Tudou’s circulating shares as of June 30th. Alibaba claims prominent shareholders of Youku Tudou, including CEO, Victor Koo, reached an agreement in support of the acquisition. Collective voting rights held by supporters of the deal account for 59.3% of the voting pool.
Joseph Tsai, Alibaba’s Executive Vice Chairman, and a few of Alibaba’s executives were reported to have said through a Friday conference call that Alibaba would benefit from Youku Tudou’s digital content distribution channels, pertinent advertisements and media resources, and accumulated consumer data in media and entertainment.
Jack Ma and Victor Koo. Photo from IBTimes.
Based on the enthusiasm expressed in the conference call, it seems the deal would prove a net benefit for Alibaba, considering that the price per share is 13% lower than what Alibaba paid last April.
However, Youku Tudou, is not really in a position to bargain at the moment.
According to Youku Tudou’s latest financial report, it reported a net loss of RMB 342 million (USD 55.2 million) for the second quarter 2015 up 108% compared with RMB 142.3 million for the same period last year. In the past year, Youku Tudou’s total losses have reached USD 219 million. In fact, Youku Tudou has never reported an annual profit.
Graphics created by Rhea Liu at AllChinaTech. All rights reserved.
Meanwhile, two of the company’s rivals are rising. Video site, iQiyi, benefit greatly from traffic brought in by key investor, Baidu, and Tencent Video also receives significant numbers of redirects from QQ and WeChat.
Youku Tudou is losing its leading position in the market. It now receives 21.17% of total revenue from China’s online video advertising market, followed closely by Baidu-backed iQiyi with 19.59% and Tencent Video with 14.11%, according to Analysys International, a Chinese market research agency. Analysys’ real-time tracker also indicates Youku Tudou has over 150 million yearly active users while iQiyi and Tencent each have 120 million.
Graphics created by Rhea Liu at AllChinaTech. All rights reserved.
Whilst Youku Tudou is under increasing financial pressure its competitors are seemingly surging forward. Xiaomi last year invested RMB 1.8 billion in Baidu-backed iQiyi and Tencent established two production companies in September. Youku Tudou tossed USD 120 million in the second quarter 2015 – almost half its quarterly income – despite this it did not manage to acquire sole broadcasting rights to several of China’s most popular entertainment programs including the Voice of China.
Chinese online video websites have large-scale overlap in terms of users and demand for exclusive content. Though acquiring rights to exclusive content is increasingly a source of financial strain, the cash-burning battle has to be continued to maintain market share.
Graphics created by Rhea Liu at AllChinaTech. All rights reserved.
The abundant cash reserves of Alibaba will be an ideal accompaniment to Youku Tudou helping it continue to purchase exclusive content in the fight against its rivals. If Alibaba and Youku Tudou complete the deal successfully, China’s online video market will then be realigned to resemble the common “three party” BAT structure, as seen in many other Internet sectors on the mainland.
FYI, net revenue is not “net income”. Youku has a net loss, not a net income.
Thanks for your post. It’s been revised accordingly.