Baidu, China’s largest search engine, will sell its loss-making subsidiary video streaming business iQiyi. With Baidu’s own CEO offering to buy it out, iQiyi will be able to go independent under Baidu’s control without affecting the financial performance of the NASDAQ-listed Baidu Inc.
Baidu announced last Friday that it has received a non-binding offer to acquire its 80.5 percent stake in the online video company iQiyi from Baidu CEO Robin Li and iQiyi CEO Gong Yu, based on a valuation of USD 2.8 billion for the video streaming company. The buyers expect Qiyi to remain a strategic partner of Baidu after the deal, according to the announcement.
A report by Morgan Stanley said this buyout offer can boost the valuation of iQiyi’s stock, reported Sina Tech on Monday.
The buyout offer signifies the company’s acceleration of its plan to remove its VIE structure and return to China’s main board. iQiyi’s founder and CEO Gong Yu told Bloomberg in 2014 that his company plans to launch an IPO offering within three years. Its return to the main board of China would also draw more funds from sources other than Baidu, increasing its competitive edge.
With the completion of the deal, Baidu would avoid a RMB 1.6 billion loss created by iQiyi in 2016, which accounts for 9% of its total revenue, according to the report.
Baidu shares rose 4.1 percent to $147.21 in premarket trading last Friday, according to Reuters.
Launched in 2010, the video streaming market leader iQiyi, formerly known as Qiyi, focuses on professionally produced media and entertainment content. Baidu invested USD 45 million in iQiyi in 2011, followed with a move to buy out the controlling stake in this company in the following year. In 2013, Baidu purchased another video streaming platform PPS with USD 370 million and combined it with iQiyi to intensify rivalry with the merged Youku Tudou. Baidu also brought in Xiaomi to invest USD 300M in iQiyi in November 2014, according to CrunchBase.
iQiyi not only generates money from ads, but also from its paid-subscriber service. Gong claimed last December that the number of paying VIP members on its platform has reached ten million, double the number announced in June of the same year. However, for now, this does not save it from the net loss situation that has lasted for six consecutive years. This has been a common scenario for Chinese video streaming platforms in recent years.
According to our previous report on Chinese video streaming sites in 2015, those companies are now racing to raise big funds to provide quality content, mostly by signing exclusive content distribution deals with film producers to acquire licensed content and by producing their own content.