China’s Alibaba & Tencent ‘held talks’ to acquire rival iQiyi, report claims

Yang Xianghua

Chinese online giants Alibaba and Tencent have both held separate talks with Baidu over buying a controlling stake in rival streaming platform iQIYI, according to reports.

Both companies are interested in increasing their empires by adding what is widely seen as the Chinese equivalent of Netflix to their ranks, according to sources cited by Reuters, but the duo have reached an impasse over pricing and regulatory scrutiny.

TikTok owner ByteDance has also reportedly shown an interest, although a deal would come as a surprise the social media giant has been locked in a years-long feud with Baidu in the digital ad market.

iQiyi’s fast-growth, big-spending tendencies

iQiyi is the second-largest streaming player in the Chinese market, but this growth has come at a significant cost with the free-spending company yet to break even in its 10-year history.

In its most recent quarter, the streamer – which offers both ad-supported and subscription tiers – lost revenue and subscribers, and its shares have dropped by a fifth in value over the past fortnight.

The Lost Tomb

The streamer hired Netflix exec Kuek You-Chang to assist with a global roll-out earlier this year and expanded its presence in Southeast Asia with the appointment of three new country managers, including two from Iflix, which was recently acquired by Tencent Video.

iQiyi has also been increasing its original play, with shows such as The Lost Tomb, The Thunder, The Golden Eyes, The City of Chaos and The Rap Of China. Earlier this summer, it emerged that the company had taken global rights to A+E Networks’ Korean drama Backstreet Rookie.

Tencent Video’s output, meanwhile, includes The Untamed and acquired programming such as HBO’s Game Of Thrones.

Both iQiyi and Tencent claim more than 110 million paying subscribers, meaning a combined operation could outweigh Netflix’s 182 million customers.

Cost & control

Reuters noted that Baidu would demand around $20bn for a controlling stake – a price balked at by the interested parties in light of its market cap of $16.4bn.

Tencent has had a long-standing interest in the streamer, with reports first emerging of a potential bid in June. The sources said that Tencent values iQiyi at around half of Baidu’s evaluation, indicating the parties are still some way off from one another.

Potential suitors are also wary of regulatory vultures. iQiyi is being investigated by the US Securities and Exchange Commission after it allegedly inflated its numbers, while the Chinese government is in the process of introducing new anti-monopoly regulations for internet companies.

The latter came after Alibaba subsidiary Ant Group had its $37bn IPO halted by regulators.