Here’s Why Alibaba Is Increasing Focus On Its Film Business

Reports suggest that Alibaba Pictures, Alibaba‘s (NYSE:BABA) film company, has taken a strategic stake in HeHe Pictures, a company owned by a number of Chinese movie industry participants.  Post this deal, Alibaba will own 30% stake in HeHe pictures and become the latter’s second largest shareholder. China is the world’s second largest film market and the country has been witnessing a significant growth in box office collections in the past few years. In 2015, box office sales grew by 48% with total sales being nearly $6.8 billion. With this growth, China is expected to overtake the U.S. and become the world’s largest film market in the next two years. The Chinese government is pushing to expand the film industry in the country and recently announced that it will build a $2 billion film studio in the country to promote local films. Only 34 Hollywood movies are permitted to be released in China every year, as per a national quota. The company is looking to develop an entertainment e-commerce segment where it is looking to sell IP-centric merchandise. As Alibaba looks to push its content production business, along with creating an additional  revenue stream, this can also augment its core e-commerce division. The stake in HeHe Productions can support Alibaba’s content development initiatives.

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Scaling Up Alibaba Pictures’ Entertainment Platform

Alibaba is steadily scaling up Alibaba Pictures as the company looks to establish itself in the Chinese film business. Earlier this year, HeHe pictures had participated in Series A funding of Alibaba pictures’ online movie ticketing platform, Tao Piaopiao, which is now the second largest player in this segment. HeHe Pictures has already invested in production of several movies and the company plans to invest in 20 more cinemas. This production expertise, combined with Alibaba pictures’ online promotion and distribution business, should strengthen synergies between the two companies.  While Alibaba Pictures is not yet profitable, it is continuing to invest into film production to tap into the growing entertainment market in China.

We believe Alibaba’s entertainment segment has a huge potential in China and the company is continuing to invest in this business. In addition to providing an additional revenue stream, this division can support the company’s other segments such as e-commerce and its foray into alternative streaming.

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