E-COMMERCE: Alibaba Sells Film with Disney, Debt with Huarong

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Bottom line: Alibaba’s new Disney tie-up is unlikely to gain much traction due to overcrowding in China’s Internet video market, while its tie-up to sell $8 billion worth of bad debt from asset manager Huarong looks mildly positive.

Alibaba in streaming tie-up with Disney

E-commerce giant Alibaba (NYSE: BABA) is in a trio of headlines as we head into the year-end holidays, led by a new tie-up with Disney (NYSE: DIS) as it looks to leverage its growing stable of media assets. But in a sign of how much attention the company now attracts, the other 2 stories in the headlines aren’t really ones that Alibaba would care to trumpet too much.

The larger of those is mildly positive, with media reporting that Alibaba’s Taobao C2C marketplace is teaming up with one of China’s leading bad asset sellers to auction off $8 billion in soured loans. The other headline is one that’s becoming a small headache for Jack Ma, and involves Evergrande Taobao the soccer team that he co-owns. That story has one of Japanese car maker Nissan’s (Tokyo: 7201) China joint ventures suing the club for breach of contract related to a high-profile sponsorship dispute.

Frankly speaking, none of these stories is too exciting to me, though they do reflect the huge volume of headlines that Alibaba is able to attract as China’s most valuable Internet company. Part of its ability to attract so many headlines comes from Ma’s love of acquiring assets and forming new alliances, which lie at the heart of most of these stories. Alibaba’s 2 largest peers, Tencent (HKEx: 700) and Baidu (Nasdaq: BIDU), also do similar tie-ups, but not nearly as many as the frenetic Jack Ma.

Let’s begin with the Disney deal, which is part of the US entertainment giant’s efforts to raise its profile in the run-up to the opening of its Shanghai Disneyland resort schedule for mid-2016. This particular deal will see Alibaba roll out an online product called DisneyLife that will allow users to access movies, TV shows, games and travel services from Disney’s various divisions. (English article; Chinese article)

The new product will deliver services using a set-top box, and will leverage Alibaba’s relationships with Wasu Media and its recently purchased online video company Youku Tudou (NYSE: YOKU). One Chinese report says the box will cost 799 yuan ($125) and pre-orders will begin this month. Frankly speaking, this product looks like many of the similar set-top boxes now flooding China’s TV market from the likes of LeTV (Shenzhen: 300104) and Baidu’s iQiyi. Accordingly, I expect this new product will have difficulty carving out a niche for itself in the market.

Bad Debt Seller

Next there’s the bad debt story, which will see soured loan disposal specialist Huarong (HKEx: 993) auction off assets with a face value of $8 billion on Alibaba’s Taobao online mall. (English article) This particular news is mildly positive for Alibaba, since Taobao will undoubtedly get big commissions from selling off so many assets, which come mostly from the coastal Zhejiang, Jiangsu and Guangdong provinces.

This kind of asset sale is likely to grow in volume over the next few years, as China’s banks look to recover some money from the huge piles of bad debt that many are sitting on as the nation’s economy slows. While Alibaba certainly doesn’t mind making some money from the process, it also probably realizes the sensitivity of the situation due to Beijing’s concern about a slowing economy. Accordingly, it probably doesn’t want to broadcast its own role in sorting out the bad debt situation too loudly.

Finally there’s the dispute involving the Evergrande Taobao soccer club, which is too small for global headlines but has been in the news here in China for the last week. It involves a accusations by Nissan Dongfeng saying the club violated a sponsorship agreement involving its company logos on the soccer team’s marketing materials. (Chinese article)

At the end of the day this lawsuit won’t matter very much to anyone, and it doesn’t even directly involve Alibaba the company since the club is personally co-owned by Jack Ma. But the story does reflect the vast amount of deal-making that Ma has engaged in over the last 3 years, and many such tie-ups could also ultimately see similar business disputes.

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