Date
26 September 2017

Alibaba goes to the movies — is it the hottest ticket in town?

There’s a world of difference between an e-commerce company and a media operator. Alibaba Group Holding has decided to split the difference by being one or the other — or both.

For the most part, the online sales giant remains a formidable e-commerce company. With its reported takeover of ChinaVision Media Group Ltd. (01060.HK), it will become a significant player in the media content market.

The deal was announced by ChinaVision in a filing to the stock exchange Tuesday. 

It will be interesting to see how these disparate businesses will produce the kind of synergy for which Alibaba is on the hook for HK$6.24 billion (US$805 million) — the price of admission to the wonderful world of movies and television.

Alibaba is trying to build an online-to-offline (O2O) empire and, in the mind of founder Jack Ma, ChinaVision is just the ticket.

Alibaba’s entry to traditional media through ChinaVision puts it in a different playing field altogether from its rivals.

Still, investors could be champing at the bit to get their hands on the stock.

Alibaba may be looking to expand to the cultural and entertainment market, growing its O2O ecosystem beyond its core business model given that traditional content plays a key role in driving the company’s online sales. The popular Korean drama My Love from the Star has fueled a sales boom in a wide range of merchandise.

But the biggest push could come from government efforts to promote the cultural industry, a potential gold mine of incentives and supportive policy.

Alibaba stopped short of outlining its plans for ChinaVision when it announced the acquisition plan. However, in its stock exchange filing, ChinaVision said the new owner will explore future business opportunities in online entertainment and media-related areas. 

It is Alibaba’s second takeover of a Hong Kong-listed company. In January, it snapped up CITIC 21CN (00241.HK), a loss-making drug data firm.

Interestingly, prior to Alibaba acquisition of 60 percent of ChinaVision, Tencent held an 8 percent stake in the stock. That stake will come down to 3.12 percent after the Alibaba takeover.

ChinaVision and Tencent had formed a strategic partnership at the end of 2011 to enable the former to promote its content on the latter’s platform. It’s worth noting whether that partnership would still be valid after the Alibaba deal.

But what exactly is Alibaba getting for its money? 

In regulatory filings, ChinaVision describes itself as an integrated cultural enterprise focused on television and film production, print media and mobile new media. Its founder, Dong Ping, is an industry mogul with extensive connection.

The company invests in several Chinese blockbusters such as Journey to the West: Conquering the Demons and has a deal with comedy star Chiau Sing-chi and his Bingo Group Holdings (08220.HK) for future film collaboration.

In addition, ChinaVision operates Beijing Times, a Beijing-based newspaper, a magazine publishing business, mobile game and mobile television, as well as an advertising arm of Gansu satellite television channel.

The deal buys Alibaba a basket of media assets from television production and mobile content to newspapers, magazines and movies.

Perhaps more importantly, ChinaVision transforms Alibaba Group from a solely e-commerce platform operator to a major media player while opening up a whole new source of business growth.

Think of what all this will do to raise Alibaba’s profile, not to mention the influence a company with such an extensive media holding can bring to bear on national life.

It remains to be seen whether the wider market sees it the same way. But judging by events following Alibaba’s acquisition of of CITIC 21CN, a rush into ChinaVision shares is not hard to imagine. CITIC 21CN (00241.HK) has risen more than three times to HK$8 since the Alibaba takeover.

Alibaba has a lot riding on the two acquisitions. Along with related parties, it has committed HK$7.54 billion to the Hong Kong market this year alone.

The market has been rife with rumors that Alibaba, in fact, is merely seeking a way to list in Hong Kong through the back door, given a series of regulatory hurdles it has to overcome toward a front-door entry.

Alibaba’s sheer size makes it unwieldy to inject hundreds of billions of dollars’ worth of assets into these small caps but nothing should stop it tapping the market on their behalf.

– Contact us at [email protected]

RA

 

EJ Insight writer

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