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Alibaba digs deep in proposed Youku Tudou acquisition

Execs from the e-commerce giant say digital entertainment is core to its strategy of promoting the consumption of virtual goods and services.
October 19, 2015

When someone with the clout of Alibaba Group executive chair Jack Ma (pictured) expresses his admiration for your work, you can bet those aren’t likely to be empty words of praise.

In this case, it’s Victor Koo at the center of Ma’s gaze. Koo is CEO of the Chinese digital video platform Youku Tudou, a YouTube-like digital video platform (which also offers an SVOD component) in China with an impressive reach among the nation’s mobile-hungry millennials and Gen Z’ers.

In a media release released Oct. 16, Ma said he has “always admired what Victor has built.” The statement was accompanied by a proposal to acquire all outstanding shares of Youku  in a deal reportedly worth $3.5 billion. The proposal is subject to completion of due diligence by Alibaba and the negotiation of a merger agreement between the two parties.

Alibaba, which has built a multi-billion-dollar empire on e-commerce and advertising, already owns an 18.3 % stake in Youku, an investment for which it paid about $1.2 billion in 2014.

By forging a closer partnership, the two companies would “fulfill the dream of building the leading digital entertainment platform in China,” said Ma.

Alibaba has been making aggressive moves into the streaming world of late. In September, the company launched its SVOD service, Tmall Box Office (TBO) on some box tops into the Chinese market, OTT devices and various smart TVs. The arrival of the service was announced in June, just weeks after Netflix was widely rumored to be exploring its options in China, the world’s second-largest economy.

TBO’s content library has since grown rapidly, with Alibaba striking programming deals with the likes of DHX Media and Sesame Workshop.

The company itself has described digital entertainment as “core” to Alibaba’s strategy of promoting the consumption of virtual goods and services. The aim of the proposed transaction with Youku is to combine Alibaba’s data-driven platforms in e-commerce, media and advertising with Youku’s digital video franchise to accelerate Youku’s growth. In a statement, Alibaba executives expressed particular interest in Youku’s large user base, especially in mobile. According to Youku’s own data from earlier this year, the company sees 200 million online visits per month, and claims a 40% share of the growing Chinese digital video market.

In its fiscal year-end report, released in March, Youku saw disappointing financial results. At the same time, consumer revenue increased by 473% in 2014, propelled by China’s growing multi-screen video user base.

Alibaba’s proposal was made in support of the founding shareholders of Youku, including Koo, Chengwei Capital and their affiliates. Under the deal, Koo would continue to lead Youku as chair and CEO.







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