Age of Ambition: Distinct Development Patterns of Alibaba and Tencent in Cultural Industries

While Tencent starts to set content business as its top priority after handing over its search engine and e-commerce businesses, Alibaba has always been investing ample cash in cultural industries both before and after its IPO. This article aims to summarize the development pattern of these two Internet giants in cultural industries.

(Chinese Version)

After purchasing a 2.4 billion yuan ($383 million) stake in Chinese film company Beijing Enlight Media, it is fair to say that Alibaba has become a giant in China’s cultural industries, since its businesses now range from content-producing, distribution and channeling all the way to terminal gadgets manufacturing. Ma Yuan, founder and Executive Chairman of Alibaba, is a strong supportor of cultural industries, which can help explain Alibaba’s endeavor in cultural industries.

As he once said in an overtly idealized tone, “The real problem for Chinese people is that their pockets are bulging with money whereas their heads remain empty. Without prosperous cultural industries in place, China would only be an upstart and her success will not last long. The greatest contribution of Hollywood lies in fostering the unique American value system. Alibaba aims to dig out some of the key values embedded in China’s history and culture and help foster the unique Chinese value system, just as Hollywood did. That’s why Alibaba will only cash in more money in cultural industries.”

At the same time, however, Tencent has long been working in this field. Being the biggest entertainment and culture company, Tencent’s businesses are inclusive: games, literatures, comics, films, videos, music, etc. As is put by Ma Huateng, founder and chairman of Tencent, “Tencent aims to serve both as a connector, that is, connecting all the people, information and services through WeChat & QQ and a content-producer. With the support of WeChat & QQ, Tencent will make great profits out of its culture and entertainment businesses.”

As expected, the business scope of these two Internet giants is getting only more overlapping and their competition has already begun. While Tencent starts to set content business as its top priority, as can be seen in its 2014 Finance Report, after handing over its search engine and e-commerce businesses, Alibaba has always been investing ample cash in cultural industries both before and after the IPO. This report aims to summarize the roadmaps of these two Internet giants in cultural industries.

Films and television: Alibaba starting from scratch whereas Tencent grows steadily

Last year in Shanghai Movie Festival, Yu Dong, chairman and CEO of Bona Film Group, surprised everyone when he commented on the future development of film companies: “The single and also most important goal of Bona is to expand its scale at present, since there is no future for a small-sized film company and all the film companies will do as BAT, namely Baidu, Alibaba and Tencent, tell them to do.” He came to this conclusion after carefully observing Alibaba’s great efforts in entering the film and television industry.

In March 2014, Alibaba paid HK$6.24 billion for 59.32 percent of China Culture Media Group(CCMG)'s shares, becoming the media company's biggest shareholder. The company was renamed "Alibaba Film Group Co Ltd" later on and Zhang Qiang, a former senior executive of the state-run China Film Group, was named first CEO of Alibaba Film Group.

After joining Alibaba, Zhang began with The Wolf Totem. He successfully got the overseas distribution right of the film and also designed the very first discount activity of Alibaba Entertainment service in cooperation with the film. On January 11th, Alibaba Film launched its first film project The Ferryman, starring Tony Leung Chiu Wai and produced by Karwai Wong.

Zhang plans to not only enhance the existing off-line channels, but also promote the film in various steps and forms: initiating crowdfunding activity on Alibaba Entertainment service to warm up, advertising on Taobao and other e-commerce websites to increase publicity, and selling tickets on Alipay, etc. Through collaborating with Alibaba Entertainment, Taobao Film and Alipay, Alibaba Film gets to make full use of the resources in Alibaba’s empire and make huge progress.

Eight months later, Alibaba paid another 1.53 billion for 8.08% of Huayi Brothers Media Corporation's shares, becoming one of the media company's second-biggest shareholders.

It is said that Alibaba Venture Capital, along with other Alibaba’s services such as Alibaba Entertainment, e-commerce sites, will cooperate with Huayi Brothers both in content-producing and capital investment. They came to the agreement that while Alibaba helps advertise ten Huayi Brothers’ films on its Alibaba Entertainment service, Huayi Brothers will include Alibaba in investing new films, though the ratio of Alibaba’s investment out of the total investment is limited from 5% to 10%.

However, Alibaba is not the only beneficiary. Tencent also purchased 8.08% of Huayi Brothers’ shares, becoming another media company's second-biggest shareholder.

According to their joint statement, while Tencent is given priority in adapting Huayi Brothers’ films and televisions into online games, literatures (except for playwrights), comics (except for films), Huayi Brothers will be also given the priority in adapting Tencent’s Internet games, literature into films and televisions. Similarly, Huayi Brothers will also include Alibaba in investing new films, with the ratio of Alibaba’s investment out of the total investment limited from 5% to 10%.

On March, 4th 2015, Enlight Media announced that Alibaba paid 2.4 billion yuan ($383 million) stake (9909 media follow-on stocks) for 8.8% of its shares, becoming the second-biggest shareholder of the company.

When asked why Enlight Media chose Alibaba as its second-biggest shareholder, Wang Nian, Enlight Media’s company secretary, suggested that they chose Alibaba solely because Alibaba offered the highest.

The reason why Alibaba further invested in Huayi Brothers and Enlight Media even after establishing Alibaba Film is that Alibaba intends to forge an alliance inside the group, so as to participate in producing Hollywood films.

Rumor has it that recently, Jack Ma met several chairmen of major Hollywood film producers to get the distribution right of Hollywood films and televisions in China. Zhang Qiang made no comment on this piece of news but suggested that the ultimate goal of Alibaba film is to become a comprehensive and diverse platform that is rich in high-quality contents, distribution channels and business opportunities.

Whereas Alibaba starts from scratch and catches up through acquisitions and merging, Tencent develops steadily, relying more on its own film department.

Last June, on a release conference during the Shanghai International Film Festival, Tencent formally entered the film industry by releasing a series of blockbuster films, such as Dragon Blade, ZHONGKUI-Snow Girl And The Dark Crystal, and Black & White Episode 2, etc. Internet capital in film industry aroused heated public discussion during that festival.

Last September, Tencent Interactive Entertainment also launched its fourth platform: Tencent Film Plus, marking Tencent Interactive Entertainment’s entry into this industry. Instead of simply investing in films as Tencent Video once did, Tencent Film Plus dreams even bigger and attempts to adapt Tencent’s games, comics and literature into films. Moreover, they carried out a “Future Intellectual Property Plan”, nurturing new games, comics and literature of good quality.

On March 12th, 2015, Su Xiao, founder and CEO of Lemon Film recognized that Tencent has invested in the company and become their shareholder and partner. Su told reporter that they would produce more and more high-quality TV series and at present, they had been working on several episodes, and more than 2 million RMB  is invested in each episode.

We can safely conclude that Tencent maintains its influence in the film and television industry mainly by taking advantages of its existing resources (literature, comics and games) while developing downstream products at the same time. Tencent has equipped itself with nearly a whole set of business along the business chain.

Internet video: From the “triangle love story” among Tencent, Youku Tudou and Alibaba to Tencent’s overrun

Victor Koo, founder of Youku and Youku Tudou CEO, said that he had been looking for investors ever since 2013. Out of all the possible partners, Alibaba and Tencent are undoubtedly their most favorable choices. At that time, Tencent just handed over its search engine and e-commerce businesses and was willing to pay as much as it could in order to merge its own Tencent Video with Youku Tudou, while Alibaba had no video service before and was willing to make up in this area. Surprisingly, Victor chose Alibaba.

In March, 2014, Youku Tudou officially announced that it had established a strategic partnership with Alibaba. Alibaba and YF Capital paid a total of 1.22 billion dollars for 16.5% of Youku Tudou’s shares, with Alibaba and YF Capital 16.5% and 2% respectively. According to their agreement, Alibaba would appoint its CEO Lu Zhaoxi to Youku Tudou’s board of directors.

Jack Ma once commented on Alibaba and Youku Tudou’s cooperation, suggesting that their alliance would accelerate Alibaba’s progress in cultural industries, and help Alibaba extend its business scope and provide new products and services to its users.

Before the partnership between Alibaba and Youku Tudou, Jack Ma and Shi Yuzhu collaboratively paid 6.536 billion RMB for 20% of Wasu Media’s shares, that is, 287 million stocks.

Every Internet video provider is envious of Wasu Media’s Internet television media license plate. And Jack Ma is no exception.

The biggest change brought about by the partnership between Youku Tudou and Alibaba is that video business in China will be stamped with BAT’s influence.

Tencent Video learned the lesson and vowed to revenge. Following iqiyi.com’s steps, Tencent spent lots of much in order to draw the audiences’ attention. At present, Tencent has already become one of the three biggest Internet video providers in China, especially on mobile platforms. As the old Chinese proverb says, “Misfortune is a blessing in disguise.” Tencent’s failure to merge its video business with Youku Tudou has driven it forward in becoming one of the three biggest Internet video providers in China.

Games: Up with Tencent, down with Alibaba

It is fair to say that Tencent is, fundamentally, a game company. As Ma Huateng once said, “Tencent’s business in games has provided both the capital and opportunities for other businesses.”

Up from 2012, Tencent Interactive Entertainment started to enter other entertainment sectors and released three platforms consecutively, namely, Tencent Comics, Tencent Literature and Tencent Films Plus.

According to Tencent’s financial report in 2014, its total revenue reached 78.9 billion RMB, whereas the revenue of Internet games takes up more than 50%(44.756 billion RMB). In this sense, Tencent has become the wealthiest game company in China.

Yet, Tencent’s revenue is still increasing rapidly with the help of Mobile QQ and Wechat.

As the financial report of fourth quarter in 2014 suggests, the revenue in Internet games, compared to last year, registered an increase of 41% to 11.964 billion RMB, owing to the popularity of Mobile QQ and Wechat on smart phones.

Tencent has bought tens of game companies around the world in its development, among which South Korean and American companies, such as Korean game company CJ Games, Swiss game company Miniclip and American online game provider Riot Games, whose masterpiece includes League of Legends, take up the majority.

In this era of mobile Internet, Tencent, boasting its Application Center, Mobile QQ and Wechat, far outweighs any other rivals. For example, nearly all the mobile games want to appear in Wechat’s game center.

Yet, it only takes Alibaba ten months to start its game business and withdraw it finally.

In January, 2014, Alibaba entered the game industry by adopting a 7:2:1 revenue-sharing model. 7 represents that Alibaba will give 70% of the revenue to the game developer. According to its plan, Alibaba mobile game platform will make full use of Alibaba’s other services, such as Taobao, Alibaba Cloud Computing, Alipay, etc.

Liu Chunning, CEO of Alibaba Electronic Entertainment department once suggested that the only way Alibaba could overrun Tencent and break its monopoly is to offer more revenues to game developers.

However, despite the popularity of Alibaba’s apps, both Taobao Game Center’s Crazy Toys and Laiwang’s PaPaPa and BoBoBo failed to draw enough attention from users, since Alipapa’s apps were in nature far from being an entertainment platform.

After failing to promote its own games, Alibaba began to involve proxy game platforms in selling its games. Alibaba’s efforts failed again. At last, Alibaba Electronic Entertainment Department issued a statement and said that they have handed over their mobile game business to UC Mobile Department and Alibaba Game was going to develop multi-screen games instead, which suggests that Alibaba has de facto given up their game business.

Music: A battle for exclusive publishing rights

Speaking of music industry, one of the latest and also the biggest move of Alibaba is to reorganize TTPOD and Xiami and established Alibaba Music.

Alibaba Music is fundamentally based on Xiami. At first, Alibaba plans to turn it in to a Taobao for music by providing a series of services to musicians. However, after Alibaba bought public-centered TTPOD, it shifts the business model a little bit and intends to provide services both to musicians and the general public.

QQ Music is ten years old at present and has already “won” its independence from QQ. At the end of last year, QQ Music was transferred from Online Retailer Department to SNG Department, with the purpose of extending the boundary of Tencent’s social network.

Content is vital in music industry, as is in video industry. The core competence of any music provider lies in its exclusive publishing rights of music works.

For years, QQ Music has bought large amount of exclusive publishing rights from Korean Entertainment company YG, Warner Music and Sony, etc. Alibaba Music refused to show white flag and acclaimed that it also has bought exclusive publishing rights from well-known record companies such as Rolling Stones, B’in Music and HIM, etc.

A battle for exclusive publishing rights is inevitable in music industry and only those giants will survive.

Literature: What's your plan, Alibaba?

The successful story of Tencent Literature, one of the major platforms of Tencent Interactive Entertainment, is also the bitter story of Cloudary Literature. Tencent appointed Wu Wenhui, the former CEO of Cloudary Literature and CEO of Qidian literature as Tencent Literature’s CEO when it was first established. However, within a year, Tencent bought Cloudary Literature and established China Reading Limited. At that time, Tencent has already taken up more than half of the Internet literature market.

China Reading Limited manages and operates all the websites under Tencent Literature and Cloudary Literature, including qidian.com, chuangshi.qq.com, xxsy.net, hongxiu.com, readnovel.com, yunqi.qq.com, QQ Reading, 59to.org and huawentianxia.com, etc. Wu Wenhui was again named as the CEO of China Reading Limited.

Tencent’s merger with Cloudary brings large number of IPs to China Reading Limited, whose market share takes up more than 90% of the whole literature adaptation market. Almost all the adaptations (films, games and books) from Internet works belong to China Reading Limited, including Treading On Thin Ice and So Young.

In the near future, Tencent will further make use of its vast amount of IPs and develop its own comics, games and films.

For Jack Ma, film and television are important because people tend to find spiritual complement when they are physically contented. For Ma Huateung, however, film and television is as important as food and thus indispensable because they are all what we live on.

No matter who the winner in cultural industries is, however, everything seems to belong to BAT, ultimately.

 

(The article is published and edited with authorization from the author @Li Xiaonian, please note source and hyperlink when reproduce.)

Translated by Levin Feng (Senior Translator at ECHO), working for TMTpost.

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