E-commerce giant Alibaba enters China's online video streaming service market
Alibaba Group is setting up a new service that it sees as China’s answer to HBO and Netflix.
The world's largest e-commerce company is betting on its strategic investments in the entertainment and media industries to build up a major online video streaming service on the Chinese mainland patterned after the US big-hitters.
"The mission of all of Alibaba is to redefine home entertainment," Patrick Liu Chunning, the president of Alibaba's digital and entertainment business group, told reporters in Shanghai on Sunday. "Our goal is to become like HBO in the US, to become like Netflix in the US."
The new service called TBO, for Tmall Box Office, will start commercial operations in about two months, Liu said.
That would pit TBO directly against the likes of Baidu-owned iQiyi, internet giant Tencent Holdings' eponymous Tencent Video, Sohu.com and Leshi Internet Information & Technology in China's fast-growing online video market.
Industry analyst firm iResearch has forecast that the country's online video market will post total revenue worth 90 billion yuan (US$14.67 billion) by 2018, up from 23.97 billion yuan last year.
Liu, however, did not elaborate on how this new business initiative will impact Youku Tudou, one of the largest and most recognised online video providers in China.
Alibaba and Yunfeng Capital, a private equity firm co-founded by Alibaba executive chairman Jack Ma Yun, acquired a combined 18.5 per cent stake in Youku Tudou in April last year for US$1.22 billion.
Two months prior to that, Alibaba paid US$804 million for a 60 per cent controlling interest in Hong Kong-listed ChinaVision Media Group, a film and television show producer and distributor. It has since been renamed Alibaba Pictures Group.
Gartner research analyst Sandy Shen said on Monday that Alibaba's TBO should have enough financial clout to help the upstart differentiate itself from the competition.
"Content is king. Chinese consumers don't have loyalty for video sites, and they view sites which can offer the content they are looking for," Shen said.
"Alibaba has already invested in a number of video and content providers, so it has some resources to start with. TBO may also have some leverage because of the strong Alibaba brand."
A key differentiating factor for TBO is that about 90 per cent of its content will be paid for on a subscription or per-view basis. In contrast, domestic rivals mainly offer free content.
"Content is an integral part of Alibaba Group's ecosystem and we aim to provide our users with rich and unique content on-demand and on a variety of devices," an Alibaba spokeswoman said.
Alibaba's foray into the online video streaming services business shows the vast potential of the market, according to Yang Xianghua, a senior vice-president at iQiyi.
"The online video business in China has reached a turning point for aggressive expansion, and we at iQiyi have done a lot to explore how to make the subscription business model work in China," Yang said.
Alibaba's expansion into the online video streaming market comes at a time when the domestic industry remains under-developed, despite competition between dozens of national, regional and provincial players.
"No Chinese streaming online video service has managed to penetrate the mass market audience in the way that Netflix, Amazon Instant, Hulu and others have done in the US and Europe,” said Tony Gunnarsson, senior analyst for television at research firm Ovum.
“In addition, online and physical piracy remains a massive problem in China. Clearly, the challenge in China is to convert free users to paying subscribers."