Cannes: China's Youku Tudou and Baidu's Video Unit iQiyi See Merger Rumors
The merger speculation is driven by the feeling that China's online video market is ripe for consolidation.
Just days after Netflix signaled bullish China intentions, rumors were flying that streaming site Youku Tudou is planning a multibillion-dollar merger with Baidu's online video subsidiary iQiyi, and Tencent Video.
China's massive online video market is diverse, with a top five including LeTV, Tencent Video, Sohu.com, Youku Tudou and iQiyi and numerous small players, and analysts believe it's a question of when, not if, the industry consolidates.
These whispers got louder with the announcement by Netflix last week that it was talking to Wasu Media, a Chinese media group backed by Alibaba chief Jack Ma, and other possible partners, as it tries to crack the Chinese online video market.
Baidu, China's biggest search engine, reportedly tried to arrange a tie-in between iQiyi and Youku Tudou several months ago, with iQiyi trading stock for an equivalent in Youku Tudou, which would then be followed up by more investment from Baidu.
According to speculation on the sidelines of the Cannes Film Festival, there are several scenarios. One involves Tencent trading its video division for Youku Tudou stock, and following this up with additional investment. The new company would be run by Youku Tudou management.
"I can imagine that this would be more of a takeover by Baidu, it's going to happen, it has so much more resources," said one source.
Another said the rumors made sense, "although moving from Baidu would make iQiyi lose its search engine optimization. There has been a sense that consolidation is inevitable and news that Netflix is coming has made people nervous," said one industry figure active in the online market.
IQiyi chief executive Gong Yu took to his Sina Weibo account to deny the speculation.
"The news is completely false. IQiyi and the shareholders have never communicated or negotiated with Youku," he wrote.
Despite the denial, Youku Tudou's stock price surged on the speculation, and industry figures believe Baidu owner Robin Li may simply be in direct contact with Youku Tudou chief Victor Koo.
Koo has experience in consolidating his assets. A former Sohu executive who founded Youku in 2006, Koo merged it with rival Tudou in 2011 and became the biggest company in the industry.
Tencent Video said it was "aware of the rumors" but declined to comment, which is seen as something less than an outright denial.
According to local media, Youku Tudou would de-list in New York and then re-list in China.
The company is loss-making, unlike the current market leader LeTV, and consolidation would put it into a better position to become profitable.
China's netizen population, the world's largest, reached 649 million by the end of 2014, and big online players such as Baidu, Alibaba and Tencent are investing billions of dollars in boosting their presence in the entertainment sector.
Much of this is in mobile tech, and nearly two-thirds of Chinese people access content via their cell phones or tablets.
IQiyi has big plans to expand into the content business. It plans to buy distribution rights to more than 1,000 U.S. movie titles to meet swelling demand from its users for Hollywood content, and plans to make seven local films and one Hollywood-style film this year.
Over one million users took part in its crowd-funding program for The Golden Era, a film by Hong Kong director Ann Hui, raising nearly $3 million in three minutes.
iQIYI also inked a $300 million partnership with smartphone maker Xiaomi to buy TV shows and movies.