Bottom line: China Telecom’s sale of its online video business looks like an exit from the space under its new chairman, while Wanda’s purchase of an online movie site could mark the start of a major new round of investment in online video.
Just days after search giant Baidu (Nasdaq: BIDU) abandoned plans to spin off its iQiyi video unit, 2 more online video headlines are reflecting the rapid changes taking place in the space. The larger will see China Telecom (HKEx: 728; NYSE: CHA), the smallest of China’s 3 telcos, sell its online video unit TV189 to a hotel operator called Besttone Holdings (Shanghai: 600640) for 3.9 billion yuan ($580 million). The smaller will see the fast-growing Wanda Group buy the online movie site Mtime for $280 million.
Each of these deals reflects the rapid changes taking place in China’s online video sector, where most major players have been sold to cash-rich backers looking for a slice of the market. The sector has huge potential due to its ability to challenge traditional broadcasters by delivering video and other entertainment content over the Internet. Yet at the same time, nearly all players are losing big money as they look for profitable business models to support their growth.
We’ll begin with the China Telecom move, which appears to be the latest in a series of restructurings under its new Chairman Yang Jie. The deal will see Besttone, described as a Shanghai-based hotel management company, pay the 3.9 billion yuan for all of TV189’s shares from its current owners, which include China Telecom and a number of other stakeholders. (Chinese article)
The strategic reasons aren’t extremely clear for the deal, which was revealed late last week in an announcement that didn’t contain any detail beyond the actual share sale. But it looks like China Telecom is attempting to spin off the unit into a separately run company that will have more flexibility to do business. Right now the unit carries one of China Telecom’s own brands, meaning it’s probably marketed mostly to the carrier’s own relatively small base of about 200 million subscribers.
This spin-off looks somewhat similar to another move in May by China Mobile (HKEx: 941; NYSE: CHL), China’s largest telco, which retired its own online video service at that time. (previous post) China Mobile later said the move was misunderstood, but most people believe the little-known service was being shuttered, alongside China Mobile’s unpopular Internet-based texting service called Fetion, which was once popular but later lost most of its audience.
None of China’s 3 telcos have managed to develop strong video or other Internet-based services for their high-speed 3G and 4G networks, and now it appears China Telecom is jettisoning its own video service that probably had a very small audience. The move looks like part of a broader cleanup of the company under new Chairman Yang Jie, who was named to his position earlier this year and is making some major shifts as he attempts to revive the carrier.
Wanda Moves into Video
Next there’s the news from Wanda, whose new purchase of Mtime comes as part of its broader drive to diversify beyond its traditional real estate business that made founder Wang Jianlin one of China’s richest men. In this case the deal is relatively small, and will see Mtime purchased by Wanda Cinema Line (Shenzhen: 002739), the China-listed unit that owns Wanda’s domestic movie theater business.
Wanda has been quite active in building up its entertainment business, which includes cinemas, film studios and theme parks. But this would be one of the company’s first moves into the crowded online video space, where it will compete with much larger rivals like iQiyi, as well as LeEco (Shenzhen: 300104) and Alibaba’s (NYSE: BABA) Youku Tudou.
The small purchase price indicates that Mtime probably isn’t a very big player right now, and a look at its website shows the company is quite squarely focused on simply providing movies to online viewers. But Wanda has been quite aggressive in the entertainment space over the last couple of years, and this looks like its latest move to expand there. Accordingly, and I suspect this new purchase could mark the start of a massive new round of investment as the company tries to build up Mtime to compete with its other much larger rivals.
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