Chinese Streaming Giant iQiyi Raises $1.5B

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Baidu founder and CEO Robin Li

The cash infusion will boost the Netflix-like streaming service in its ongoing battle for market share against Tencent and Alibaba.

iQiyi, the Netflix-like streaming video subsidiary of Chinese search giant Baidu, has raised $1.53 billion in new funds to compete with rivals and fuel investments in original content.

The investment was made via convertible bonds issued by iQiyi to backers including Baidu, Hillhouse Capital, IDG Capital and Sequoia Capital, according to a statement late Tuesday from Baidu.

"iQiyi has been a great asset and an important part of the Baidu ecosystem," Baidu CEO Robin Li said in the statement. Baidu's share of the investment amounted to $300 million, according to the company.

Video streaming is perhaps the most fiercely contested area of the Chinese entertainment landscape. iQiyi's competitors include video services backed by Tencent and Alibaba-owned Youku Tudou. The three rival internet giants — Baidu, Alibaba and Tencent, collectively known as "BAT" — together commanded more than 60 percent of China's online video ad market as of third quarter 2016, according to data from research firm Analysys.

Strict protectionism by Beijing regulators has prevented Netflix and Amazon from entering the massive Chinese market; the territory is among the handful of countries where the two U.S. streaming powerhouses are not yet active.

All three Chinese services are now in the process of trying to convert to a paid subscription model akin to Netflix, with each spending heavily to acquire exclusive content and produce originals.

Although the services are understood to have lost money for years, many analysts remain rosy about their future outlook.

"We expect strong viewership and revenue growth for the leading online video companies in 2017-18," wrote researchers from financial firm UBS in a report published on Monday, titled “Online Video vs. Cable TV: Close to the Tipping Point.”

"Of the three, we believe iQiyi currently leads in subscriber base, content portfolio (particularly self-made) and revenue size; Tencent Video has a large user base and Tencent's rich content/IP reserve in online literature and games; while we believe Youku Tudou has strong eCommerce monetization potential," the authors said.