Alibaba Eyes Hollywood: Investment Coming?
New reports are saying that Alibaba (NYSE: BABA) CEO Jack Ma, flush with cash just weeks after his company’s blockbuster New York IPO, is headed to Hollywood to talk deals with the industry’s top players. The reports focus mostly on the potential for new content-purchasing deals, as Alibaba looks for a spot in China’s booming market for movies and online video. But what caught my attention was a brief mention in the reports that Ma may be looking for something bigger on his trip, namely a stake in a major or mid-sized Hollywood studio.
Such a purchase would certainly look logical right now, and would follow similar historical precedents that saw first Japanese and later European firms make major purchases in Hollywood in the 1980s and later in the early 2000s. Like Alibaba, those earlier buyers that included Japan’s Sony and Panasonic and France’s Vivendi, were flush with cash at the time and looking to expand their global footprints. But most of those purchases ended up as duds due to inexperience and the broader difficulty of being a foreign owner of such a culturally American company.
All that said, let’s look at the new headlines that say Jack Ma and a group of his top executives will visit Hollywood over the next few days to explore new deals with most of the industry’s leading studios. (English article; Chinese article) Among the stops on his trip, Ma and his group are set to meet with industry giants Disney (NYSE: DIS), Paramount (NYSE: VIAb), Warner Bros (NYSE: TWX), Sony (Tokyo: 6753) and Universal, as well as mid-sized player Lions Gate (NYSE: LGF).
The reports say that Ma’s group will be looking mostly to sign new content deals, as Alibaba plays catch-up with online video rivals like Sohu (Nasdaq: SOHU) and Baidu-backed (Nasdaq: BIDU) iQiyi, which have signed a steady series of such deals to bring popular US movies and TV shows to their Chinese online video platforms. Alibaba already owns a nearly 20 percent stake in leading Chinese online video site Youku Tudou (NYSE: YOKU), and last year purchased its own local film production house and later renamed it as Alibaba Pictures.
While the market for foreign movies and TV series is growing rapidly in China, it’s far from clear that platform operators like iQiyi or Youku Tudou will be able to profit from that boom. That’s because the country’s regulator has started cracking down on the import of foreign films and TV series over the last few months, apparently in reaction to protests from traditional TV stations that are subject to strict regulation when they import such foreign products.
That crackdown would make Ma’s attempts to strike new content deals look a little unusual right now, since such deals wouldn’t be very valuable if Beijing places heavy restrictions on the import of foreign movies and TV shows. Instead, an investment in one of the Hollywood studios itself looks a bit more logical, especially since Alibaba has plenty of cash to make such an investment. The company held an IPO last month that raised $25 billion, and is already quite profitable and cash rich.
The company is desperately looking for places to invest some of that cash, and clearly the small string of deals it has signed for mostly $1 billion or less aren’t enough to satisfy its appetite. Thus an investment in a Hollywood studio like Disney, which has a market value of $150 billion, looks far more practical; an outright purchase of a mid-sized player like Lions Gate, with a market value of $4 billion, could also be an option. It’s not really clear just yet if any US company would welcome such an investment, but I suspect that Ma and his team will at least raise such a possibility in the days ahead on their Hollywood tour.
Bottom line: Jack Ma is likely to raise the prospect of investing in a mid-sized or large US studio on his upcoming trip to Hollywood, as his cash-rich Alibaba looks to quickly boost its entertainment assets.
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