At first blush, Tencent’s (HKEx: 700) recent purchase of 4.6 percent of popular TV and movie production house Huayi Bros (Shenzhen: 300027) for 450 million yuan, or about $70 million, looks like just another silly purchase by a company with way too much cash on its hands. (English article) But a second glance may be needed here. In fact, in the light of Tencent’s ongoing push to challenge Youku (NYSE: YOKU) and Tudou in online video (previous post), this deal actually makes quite a bit of sense and could even be a very savvy play by Tencent. As maker of some of China’s most popular films and TV shows, content from Huayi may be just the tonic that Tencent needs to drive Web surfers to its new online video offering. Equally important, the partnership could keep Huayi’s movies away from Youku, Tudou and other online video aspirants like Baidu (Nasdaq: BIDU). Look for more deals like this in the months ahead, as Tencent continues its push into the space.
Bottom line: Tencent’s Huayi Bros investment will it help it secure popular content for its new online video service, and keep that content away from competitors.
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