Portals Shun Olympics, Baidu’s New JV 门户网站避开奥运，百度新设合资企业
Second-quarter earnings season and the London Olympics won’t begin until next week, but we’re already seeing signs that an ad slowdown is hitting profits at many Chinese Internet companies as they get set to report their latest results. Specifically, media are reporting China’s top 4 portals have decided to skip expensive rights for live coverage of Olympic events, and instead are opting to provide less pricey video-on-demand (VOD) rights that allow Internet users to watch recordings of their favorite sports after the events. (English article)
In separate Internet news, leading search engine Baidu (Nasdaq: BIDU), which will kick off earnings season when it reports its second-quarter results next Monday (earnings calendar), has just launched its latest initiative outside its core search business in a new joint venture with leading Japanese wireless carrier NTT DoCoMo (Tokyo: 9437).
Let’s take a look at the Olympic news first, which has portals operated by Sina (Nasdaq: SINA), Sohu (Nasdaq: SOHU), NetEase (Nasdaq: NTES) and Tencent (HKEx: 700) all opting for VOD rather than live broadcast rights for the games that will begin next Friday in London. This move may be partly practical, since many events in London will occur in the middle of the night for China due to the time difference, making live events less popular.
But the decision to skip live broadcast rights by all 4 top portals also probably reflects the fact that many are seeing a big advertising slowdown as China’s economy slows. The slowdown is particularly acute in advertising by Internet companies, many of which are losing money and are rapidly running out of cash after receiving hundreds of millions of dollars in new investment last year.
Sina and Sohu are likely to take the biggest hits from the slowdown, as both are heavily dependent on ad revenues from their portal business. But even Tencent and NetEase could feel some pain, and smaller players like Phoenix New Media (NYSE: FENG) and Renren (NYSE: RENN), which derive a majority of their revenue from advertising, are also likely to take a big hit.
The most interesting company to watch will be Baidu, which gets almost all of its revenue from advertising. As China’s top Internet choice for advertisers, Baidu is likely to be the last company to feel effects of the slowdown since it will remain the most attractive option for cost-conscious advertisers. But even Baidu is likely to experience a slowdown that could see its revenue growth drop into the 20-30 percent range, far slower than it typically records.
On the subject of Baidu, media are also reporting the company has formally launched a $22.5 million Internet joint venture with DoCoMo that will offer products for the China market, starting with an online game developed in Japan. (Chinese article) This latest venture sounds ok in principle, though Baidu’s past record in Japan tie-ups, including a failed e-commerce joint venture with Rakuten (Osaka: 4755) and its struggling Japanese search business, makes me skeptical of its chances for success. But maybe they’ll prove me wrong this time.
Bottom line: Chinese web portals are spending conservatively on Olympic coverage due to their own weakening financial positions, which will be reflected in their upcoming second-quarter results.
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