The entertainment arm of Alibaba Group Holding Limited (BABA) and The Walt Disney Company (DIS) have entered into a multi-year licensing agreement which will make Alibaba’s Youku the most-comprehensive online hub for Disney animations while providing Disney a seamless access to Chinese audience.
The deal brings, hundreds of popular firm series such as “Pirates of the Caribbean”, animated classics like “Beauty and the Beast”, “Frozen” as well as 1,000 episodes of several of Disney's animated series at fingertips for Youku subscribers and Alibaba’s set-top boxes (and partnering SmartTV platforms) users.
During the company’s second annual Investor Day in Hangzhou in 2017, Yu Yongfu, Chairman and CEO of the group’s Digital Media and Entertainment division had said, “To put it simply, our mission is to allow those who have fun shopping at Alibaba to truly live at Alibaba. So in addition to shopping, we would like them to spend more time watching videos with us, getting information from us and listening to music with us, to come and game with us, among many other things.”
Alibaba’s Focus On Entertainment began in 2014 when it started the expansion from pure e-commerce to one that was inclusive of digital media and entertainment. During this time period, Alibaba entered into acquisitions and launched new products to strengthen its market position. The process kicked off with the full buy out and merger of UCWeb, Inc. in 2014, followed by its majority stake in ChinaVision (now Alibaba Pictures).
The year 2015 saw the launch of Alibaba Music as a part of Alibaba’s expansion into digital entertainment. Next was the acquisition of Youku Tudou, Inc., a leading multi-screen entertainment and media company in China and the upgrading of Alibaba Music with the launch of Alibaba Planet platform.
In 2016, Alibaba Group consolidated Alibaba Picture, Alibaba Music, Alibaba Sports, UC, Youku Tudou, Alibaba Games, Alibaba Literature and digital media under one umbrella with the establishment of the Alibaba entertainment and digital media sector. The move was in line with Alibaba’s Double H (Health and Happiness) future strategy. Damai.cn, acquired in 2017 is the latest addition to expansion initiatives in the digital entertainment sector.
Youku is China’s leading video streaming services with a reach of approximately 580 million devices each day and about 1.2 billion views, making it a favorite among the Chinese population.
Alibaba’s entertainment division has been making efforts to bring more and more global content to Chinese consumers; some of its other content licensing agreements are with Warner Bros., Paramount, Fox, NBCUniversal and Sony Pictures Television. In November 2017, Youku inked a deal for Netflix to distribute its hit online drama series "Day and Night" to audiences outside of China for the first time. Youku’s new content production strategy is focusing on producing a higher-quality line-up of original dramas; series of original shows since June, including The Advisors Alliance, Rakshasa Street and Oh My General have registered billions of views as per Alizila.
The video streaming market is booming in China, backed by increased access to multimedia devices and internet. Alibaba’s revenue from digital media and entertainment increased 33% year-over-year to $832 million during the December quarter results.
China’s rising middle-class and second-largest movie market in the world is of great importance for Disney. However, this is not the first time that Disney has entered China. The DisneyLife service launched in late 2015 in a tie up with Alibaba was shut down after five months of operation. Chinese government is extremely particular with censorship of digital content. Disney’s amusement park, which opened in Shanghai in 2016, is among its largest overseas investment at $5.5 billion.
Disney is planning to launch its own direct-to-consumer streaming in late 2019. During the first quarter earnings call, Bob Iger, Chairman and Chief Executive Officer, The Walt Disney Company said, “The films that our Studio makes in 2019 and beyond will be sublicensed or licensed to our own platform, and that will include the Marvel, Pixar, Disney, and Lucasfilm films." Disney made two acquisitions—BAMTech and 21st Century Fox in 2017 to support its initiative.
Overall, the deal with Alibaba aligns well with Disney’s standalone streaming initiative that is deemed to take off in 2019 and its interest in the Chinese markets. For Alibaba, it is another step forward in its drive to connect the Chinese households with global content and take their high-quality production to a global audience. These together solidify its position in the digital media and entertainment world.