Chinese entertainment giant LeEco to build up video content in Shenzhen unit

PUBLISHED : Monday, 09 May, 2016, 7:56pm
UPDATED : Wednesday, 21 September, 2016, 9:19am

Chinese entertainment giant LeEco plans to boost its online video content through an injection of its film production affiliate Le Vision Pictures into its Shenzhen-listed arm to drive growth in paid subscribers and advertising income amid rising competition.

Leshi Internet Information & Technology, controlled by LeEco’s chairman Jia Yueting, said it has agreed to acquire Le Vision Pictures for 9.8 billion yuan (HK$11.7 billion), the Shenzhen-listed company said in a filing to the stock exchange on Friday night.

Leshi, which runs LeEco’s online video-streaming site, will issue 165 million shares at 41.37 yuan per share to Le Vision Pictures’ shareholders for a 69.6 per cent stake, and the remaining will be settled by a cash payment of 2.98 billion yuan, according to the statement.

The price of the share sale represents a 29.1 per cent discount to Leshi’s last closing price of 58.8 yuan per share. Trading in the company’s shares has been suspended since December 7 , and no schedule for trading resumption was provided in Friday’s filing.

The company will also sell new shares to five unnamed investors to raise 5 billion yuan to fund the deal. The proceeds will also be used to replenish working capital and contribute to new film production projects.

Huang Guofeng, an analyst with internet consultancy Analysys International, said the acquisition will allow Leshi to diversify its online content to attract more users and also benefit LeEco’s mobile device and smart TV business.

“Users are now accustomed to the paid membership model which means that they are more willing to pay for good online content. Not only Leshi, other online video websites are also expanding their content to grow subscribers,” Huang said.

Together with iQiyi, Youku Tudou and Tencent, the four major video-streaming sites have been competing for users, Huang said.

Leshi has seen substantial growth in subscribers since the end of last year by showing its original internet drama Go Princess Go, while iQiyi also added many new users this year as an exclusive broadcaster of South Korean drama Descendants of the Sun, he said.

“The competition is fierce in the online video market, so companies are expanding content to attract users and also advertisers,” Huang said.

Leshi’s revenue for the first quarter more than doubled to 4.63 billion yuan, driven mainly by advertising income and membership business.

Le Vision Pictures is a fast-growing film studio in China with a plan to produce dozen of movies and original internet dramas this year, Leshi will have more resources in online content after the injection, said an analyst with a Beijing-based brokerage firm who declined to be named.

“Original or exclusive content will become the advantage of Leshi. Expanding its paid content will help the company to drive revenue from subscribers,” she said.

In additional to movies and dramas, Leshi also has strong sports content which has helped drive its advertising income, the analyst said.

The integration between Leshi and Le Vision Pictures would help create a platform that connected movies, TV dramas, applications, hardware and services, the film company’s CEO Zhang Zhao said in an internet letter after the deal was announced.

Le Vision Pictures, one of China’s leading film studios, produced blockbuster movies such as the Tiny Times series. It is also in production of The Great Wall, which is supported by the famous Chinese director Zhang Yimou, who is a shareholder in Vision Pictures

Tiny Times series’ director Guo Jingming and a number of well-known Chinese artists including Sun Li and Huang Xiaoming are also shareholders in Le Vision Pictures.