In 2014, Chinese e-commerce giant Alibaba Group purchased a controlling interest in a Hong Kong-based movie and television production company and renamed it Alibaba Pictures. Soon after, Alibaba Pictures began to move quickly and aggressively in a bid to reinvent movies and entertainment for the digital era. Here, in the first of a four part series, we look at how this forward-thinking business came about and how it plans to exploit Alibaba Group’s ecosystem to succeed.
Why would anyone want to invest in a movie studio these days?
Considering the state of the film industry, it seems counterintuitive. In the West, studios are struggling to hold the attention of an increasingly fragmented audience that consumes video content across multiple devices whenever they want. Meanwhile, Internet giants Amazon and Netflix compete for eyeballs by creating their own original content for streaming. In this environment, it’s no surprise that U.S. box office results have remained relatively flat since 2009 and fell by 5% in 2014.
But spin the globe to the other side of the world, and the name of the game is not atrophy but opportunity. Last year, box office receipts in China grew by a remarkable 34%. Between 2009 and 2014 revenues zoomed up from just under $1 billion to $4.8 billion, making China the world’s second-largest film market by box office revenue.
It’s a market that continues to boom, spurred by the consumption power of a growing middle class and a frenzy in the construction of movie theaters. China added 5,397 cinema screens in 2014, bringing the country’s total to 23,600, according to China’s State Administration of Press, Publication, Radio, Film and Television. At the current growth rate, China could surpass the 39,600 screens currently in the U.S. by 2018.
This helps to explain why somebody might decide it worthwhile to invest in a movie studio in China—somebody like Jack Ma, founder and executive chairman of Alibaba Group, one of the world’s largest e-commerce companies.
In 2014, Ma’s Alibaba paid $804 million to purchase a 60% stake in ChinaVision Media Group, a Hong Kong film and television producer and distributor and subsequently renamed it Alibaba Pictures Group. The move gave Alibaba the ability to produce original film and TV content, a vehicle for acquiring rights to distribute foreign films in China, and an entity that can collaborate with both domestic and international production partners.
While some have questioned whether Alibaba, a company whose principal business is running shopping websites, belongs in the entertainment business, Ma says the fit isn’t unnatural at all. He has frequently called Alibaba “the biggest entertainment company in the world” because of the amount of time millions of Chinese consumers spend browsing the company’s e-commerce sites Taobao Marketplace and Tmall.com whether they make a purchase or not.
Indeed, when Alibaba surveyed China’s moribund movie industry, it saw plenty of synergistic opportunities in a business crying out for modernization and internationalization. For years, the quality of content produced in China has been bland due in part to government censorship. Today’s middle-class Chinese consumer has more sophisticated tastes and higher expectations.
“There’s an emerging culture of film-going,” says Alex Zhang, secretary general of the international division at Alibaba Pictures, “[and] a demand for enriching content outside of just pure consumption. That was one of the key motivators for Alibaba to enter into this whole media sector.”
Alibaba already has the marketing and merchandising reach, the technology prowess (its mobile e-commerce apps are among the most popular in China) and the capital. To lay the foundation of an entertainment arm, what was needed was a wellspring of high-caliber content and a video distribution platform.
Alibaba in 2015 began aggressively building this vertical entertainment business through rapid-fire investments in properties that can promote, market, and distribute media content:
The acquisitions and collaborations are just the beginning. As it gains experience, Alibaba wants to exploit what it sees as the symbiotic relationship between entertainment and e-commerce. Through its mobile and desktop e-commerce sites, which have 386 million annual active users, more than the entire U.S. population, Alibaba can sell not only movie tickets and streaming video, but also branded merchandise. The company can even find the best companies to make this merchandise through its relationships with manufacturers who sell on Alibaba marketplaces.
Beyond this, Zhang sees further opportunities to improve the performance of Alibaba Pictures though the use of Big Data. Tmall and Taobao represent vast repositories of data on consumer behavior that can be applied to the movie business, he says, to determine what individuals like to watch and serve them what they like.
Big Data is not just about hawking movie tickets and merchandise based on user preferences, however. In the future, Alibaba anticipates that Big Data applications can serve as a more advanced and precise version of audience testing, helping to shape movies during the editing process and even helping producers determine what the next blockbuster franchise is likely to be.
For now, Zhang says Alibaba Pictures is focusing on three areas of business along the vertical path that leads from development to post-theatrical release: production and co-financing, marketing and distribution, and cross-media merchandising.