By Natalie Walters
Alibaba Group Holding (BABA) is quietly building up a side digital media and entertainment business in the world’s most populous country.
The number one Chinese e-commerce player is “building the Netflix (NFLX) of China,” Lead Edge Capital managing partner Mitchell Green told TheStreet.
The comparison is interesting because China’s strict regulations forced Netflix to license its content to Chinese giants Alibaba, Tencent (TCEHY) and Baidu (BIDU) rather than enter the market alone. Netflix has over 100 million subscribers and is in basically every country outside of China. Netflix CEO Reed Hastings admitted during the Recode conference in June that he was too confident about being able to break into a market that had proved too difficult for other tech companies. “We probably assessed it wrong,” Hastings admitted. “We had our natural optimism that slowly got beaten down.”
On Thursday, August 17, Alibaba reported that revenue from its media and entertainment business had increased 30% year-over-year to $602 million. “It’s obviously growing nicely,” Green said about the latest growth figure. The report also shows that loss from operations for the business jumped to $507.2 million from $277.4 million in the year ago period. Adjusted EBITA margin came in at 43%, up from 32% in the same period last year.
Since Alibaba’s wildly popular Taobao platform is only offered in China, it’s sometimes hard for investors and analyst to understand how popular the content on its site has become, noted Green. The company reported 529 million monthly active users (MAUs) in the past quarter, an increase of 22 million from last quarter, mainly due to its content-driven Taobao shopping app. On Taobao, users can watch webisodes or makeup and cooking tutorials, as well as give product reviews. Alibaba said it’s been using personalization technology to provide more relevant content for users, which leads to more clicks and higher engagement.
“What people don’t see is that there are millions of people in China that are watching these videos and the engagement is staggering,” Green said.
This past quarter, Alibaba focused on expanding its content, as well as developing its subscription platform for Youku Tudou, an online video provider, and expanding the presence of UCWeb, a web browser and search company. Youku’s video subscriptions grew by 100% year-over-year. Alibaba hopes to continue that growth with high-quality original content, the company said. The business made up 8% of the company’s total revenue for the past quarter, vs. 10% in the year ago period.
“Our strategy of acquiring and developing a mixture of licensed and original content yielded hit drama and variety shows during the quarter,” Alibaba wrote.
In the earnings report, Alibaba noted that it plans to continue to invest in its media and entertainment business. In December, Alibaba said it planned to spend $7.2 billion on its media and entertainment business over the next three years. The company sees value in cross-selling between its popular core China-based e-commerce platforms and the media and entertainment platforms.
Shares of Alibaba were trading up 2.43% to $167.88 in early afternoon trading on Friday.