E-COMMERCE: Alibaba Scorned By US Apparel Industry, But Embraced By Spielberg

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Bottom line: Alibaba will have to spend more heavily to rid its marketplaces of trafficking in pirated goods, while its Steven Spielberg partnership is part of a new wave of deeper film tie-ups between China and Hollywood. 

Alibaba ties with Spielberg’s Amblin

Internet giant Alibaba (NYSE: BABA) is being rebuffed and embraced in the US in 2 separate headlines, reflecting conflicting feelings many Americans have towards one of China’s largest private companies and their sometimes controversial  business practices. In the more upbeat headline, Alibaba’s movie-making unit has just signed a major new tie-up with director Steven Spielberg to co-produce movies from his Amblin Entertainment and distribute them in China. But in a far less friendly overture, Alibaba is also being blasted by a major US apparel group for lack of progress in its battle to stamp out trafficking in pirated goods  in its online marketplaces.

Alibaba certainly isn’t alone in controversial practices like hosting sites where frequent trafficking in pirated goods occurs, most notably on its Taobao C2C marketplace that’s similar to one operated by US giant eBay (Nasdaq: EBAY). Online search leader Baidu (Nasdaq: BIDU) previously allowed trafficking in pirated music on one of its popular sites, and earlier this year landed at the center of a major  scandal for its longtime practice of mixing sponsored links with its organic search results.

Alibaba landed at the center of a similar scandal nearly 2 years ago, when one of China’s main commerce regulators criticized the company after a survey found that nearly two-thirds of goods traded on Taobao were counterfeits. Alibaba later promised to more aggressively police its sites, and narrowly avoided having  its name included on an annual Washington list of “notorious” piracy sites released late last year. (previous post)

One of Alibaba’s biggest critics throughout this process has been the US apparel industry, whose American Apparel & Footwear Association  (AAFA) has expressed repeated skepticism towards Alibaba’s efforts to clean up its sites. Now that same AAFA has just issued a statement calling for the US Trade Representative’s (USTR) office to put Alibaba’s name on the latest upcoming edition of its “notorious markets” for piracy list, which is likely to come out in either December or January. (AAFA  announcement)

In its  statement, AAFA says it has formally petitioned the USTR to make the move, noting it has yet to see any improvements in Alibaba’s marketplace despite the company’s numerous  statements that it is taking aggressive action. Alibaba countered that it has made its own submission on the issue to the USTR. It added it “routinely collaborates with brands, associations and regulators to maintain the integrity of our marketplaces.”

Evasive Pirates

The truth of the matter is that piracy is rampant in China, and that it’s very difficult to police a marketplace like Taobao, where a merchant can quickly and easily open up a new shop after being shut down by Alibaba for selling pirated goods. For that reason it will be quite difficult for Alibaba to truly stamp out the problem, and rival JD.com (Nasdaq: JD) even shut down its similar C2C marketplace last year for similar reasons. (previous post)

There’s no way that Alibaba will ever consider shutting down Taobao, since it’s  such a huge money maker for the company. But it may have to seriously boost its spending to stop trafficking in pirated goods on the site, even though I doubt its name will appear on the new “notorious” list as a result of this latest condemnation by the AAFA.

Next there’s the far more positive story in Hollywood, with announcement  of the major new collaboration between Spielberg’s Amblin Partners and the separately listed Alibaba Pictures (HKEx: 1060). (company announcement; Chinese article) This particular deal will see the pair co-produce and finance films, and also distribute and market those films in China.

This deal is just the latest in a recent love affair between Hollywood and China, whose rapidly growing box office is likely to become the world’s largest in the next decade. The most recent similar tie-up came just last month, when China’s largest cinema operator  Wanda Group inked a partnership with Sony Pictures, becoming the first to reach such a deal with a “Big 6” Hollywood studio. (previous post)

This latest deal follows Alibaba’s previous investments in individual Hollywood movies, including the most recent installments in the popular “Mission Impossible”, “Star Trek” and  “Teenage Mutant Ninja Turtles” series. The tie-up is different from the earlier ones because it’s a broader strategic agreement similar to Wanda’s with Sony, and I expect we’ll see more similar broader alliances going forward.

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