Youku Tudou Inc. (YOKU:US), the Chinese video website, is receptive to partnerships, Chief Executive Officer Victor Koo said, as smartphone user growth accelerates dealmaking among Web companies in the country.
Youku, based in Beijing, has been cited by analysts as a possible buyout target for Tencent Holdings Ltd. (700), China’s largest Internet company, and Alibaba Group Holding Ltd. The companies have made acquisitions and stepped up investments over the past six months as they compete to lure mobile device users. While Youku hasn’t had any merger talks, the industry is at a stage where partnerships are being considered, Koo said.
“As a public company we certainly can say that we’re open to discussing strategic options,” Koo said in a March 14 interview in Beverly Hills, California. “You’re not going to see another company acquiring us.”
More than 500 million people in China access the Internet from mobile devices. Youku Tudou is developing shows to target the growing number of consumers in second- and third-tier cities and migrant workers from the interior, who use smartphones to watch, Koo said. The company is also adding series from Korea, Hong Kong and Hollywood -- it carries the Netflix Inc. hit “Orange Is the New Black” -- and using its trove of data to offer choices based on geography, sex and age.
“Because we have the data, we understand the nuances,” Koo said. “That helps us in terms of partnerships for syndicated content as well as our own original content.”
Chinese Internet companies are grappling with how to attract and keep users who increasingly go online for movies, music, television shows and books. The country’s market for online video will probably be worth 17.8 billion yuan ($2.86 billion) this year, then double to 36.6 billion yuan in 2017, according to a report by Internet consultant IResearch.
The growth in online consumption is creating opportunities for film partnerships with major Hollywood studios. Walt Disney Co.’s “Captain America: The Winter Soldier” is being co-marketed by Youku in China, where it premieres March 24. The company will host interviews and show behind-the-scenes footage on its “Star Talk” program, according to Jean Shao, a Youku spokeswoman.
Tencent Chief Strategy Officer James Mitchell yesterday said the company is planning to double spending on video content to increase its market share.
“Youku could be an investment or buyout target for Tencent or Alibaba,” said Ricky Lai, an analyst at Guotai International Holdings Ltd. in Hong Kong.
Koo said no deal was imminent.
“Nothing’s announced,” he said. “I would say the industry is at a stage where people are open to strategic partnerships.”
Youku Tudou fell 2.7 percent to $29.08 today in New York. The shares have advanced 66 percent in the past year. The company narrowed net losses to 24.6 million yuan in the fourth quarter, compared with a 113.6 million yuan net loss a year earlier. Revenue rose about 42 percent to 901 million yuan.
Youku rival Tencent has announced investments in 17 companies since 2013 totaling $ 3.7 billion, according to data compiled by Bloomberg. The company, the best performer since 2004 on Hong Kong’s benchmark index, generates half of its revenue from online gaming, and is expanding into instant messaging, e-commerce and online video.
Another competitor, Baidu Inc. (BIDU:US), the country’s biggest search-engine operator, bought Internet video business PPStream Inc. in June 2013 for $370 million and has been combining it with IQiyi.com, which it acquired in 2012.
In September, Baidu said it would start selling smart TVs with TCL Multimedia Technology Holdings Ltd. (1070) to help boost its online video business.
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