The entertainment industry: Tencent and Alibaba's next battlefield

Soon after Ali purchased Damai.cn, then Tencent announced their $350 million investment in Kuaishou. Last week, two of China's largest Internet companies clearly expressed their enthusiasm for the entertainment industry.

Perhaps young consumers are not aware that, most of their consumer behaviors are paying for the $100 billion market capitalization of the two companies. But it is undeniable that China's cultural and entertainment industry is now in the era of being enclosed by Tencent and Ali.

Two smiling rivals: Pony Ma, Tencent Founder & CEO next to Jack Ma, founder and CEO of Alibaba

The industry generally believes that, the Internet World War II led by Alibaba and Tencent has long been started. E-commerce, Payment, Transportation, O2O and so on were their battlefields. With more and more movements in the cultural and entertainment industry, Ali's Great Entertainment gradually surfaced, and Tencent's Broad Entertainment is also prevailing.

Although the two companies are extending their businesses at their own paces, a similar battle is expected to take place in the entertainment industry. So will it be a mortal combat between the two companies? What are their moves? We shall observe what the two giants have done in the fields of gaming, music, literature, and online video.

Gaming: once ignored, Ali is now a celebrity

No need to emphasize on Tencent Game's status. Its QQ Game Platform came on stage in 2003, opening the chapter of Tencent Game. Fourteen years later, Tencent game business has become the backbone of the company's performance, enjoying a pivotal position in the entire world. The earnings report just released by Tencent shows that, in 2016, the growth rate of Tencent online game was 25%, reaching 70.844 billion yuan.

Its only domestic competitor, Netease, falls far, far behind. As for the other game companies, they fall under the category of ‘others’. Ali's attitude to the game industry has always been quite dramatic. In 2008, Jack Ma publicly stated: “I will starve to death before I do games”. Ma doesn't like the industry, but Ali has never refused business. Alipay now has become the main payment channel for the game industry as Taobao is the most commonly used trading platform for domestic game players. On January 18, 2014, Ma went back on his own words. Ali Group announced a ‘Mobile Game Platform Strategy.’ With this announcement, Ali’s role as a channel provider was also made official.

They played two big shots. First, challenging the common practice in game industry that the reallocate profit ratio between game operators and platform is 1: 9. Ali suggested that, developers should have 7, Ali should have 2, and the remaining one should be put into donations.

The second big shot was issued by Ali's Public Relations. They said to media: “We express our regret about the monopoly in game industry. We are very dissatisfied about the dominance of Tencent Game, and the destruction of the industrial ecosystem.” Pointing their spear to Tencent from the very beginning. Since then, Ali accelerated their business pace.

- In November, 2014, Alibaba announced they were handling their mobile game business to Nine Games, which belongs to their mobile business group.

- In March, 2015, Nine Games announced that, they have completed the gradual integration of Ali's mobile game business. On the game distribution business, Nine Games is supported by several mobile accesses with hundreds of millions users, like Taobao, Alipay, Shenma Search, etc.

- In January, 2016, Nine Games officially announced it was renamed as ‘Ali Game’ and that they will be operated as a company.

Not long ago, Ali Game made a new move. On March 16, they announced that in 2017, they will fully enter the field of game distribution, to help the IP game ecosystem development with 1 billion yuan, to achieve the collaborate development and IP linkage between Ali literature, Ali film, and Youku.

Coincidentally, Tencent also announced a similar plan two years ago, putting forward the concept of ‘Broad Entertainment’. In March, 2016, Tencent Comic, China Reading Limited, Tencent Film, and Tencent Games jointly announced a plan to explore a ‘symbiotic harmony’ in their businesses.

The comprehensive confrontation between Ali and Tencent in game industry has officially started. An insider said: “First, Ali has to catch up with Tencent, then, consider how to defeat them.”

Music: who gets the copyrights wins

The contest on online music is actually a contest on copyrights.

From the end of 2014 to early 2015, after more than a decade of chaos, the domestic online music market finally began to pay attention to copyright. Since the government launched a massive battle to rectify the online copyright infringements, the order of online music’s copyright has improved and a large number of unauthorized musics are now off the shelf.

Thus, many popular online music platforms which are limited by funds, or copyrights, or user flows are struggling or even facing bankruptcy.

In 2015, the online music industry has been reorganized and integrated several times. TT Music and Xiami Music were acquired by Ali. The very big and wealthy QQ Music won a number of exclusive copyrights. KuGoo, KooWo merged with OMusic, which already was a distributor of music copyrights, successfully mastering most of the music copyrights.

The three pillar situation didn’t last long. In July, 2016, Tencent announced that it achieved the corporation with China Music Group (that is, Ocean Music Group's digital music business). QQ music, KuGoo, KooWo have merged into a new music business company. After the merger of the three platforms, their products and brands remain independent, and their original users services remain unchanged.

In January, this year, Tencent announced that its QQ music and China Music Group will be merged into a new music group, under the name ‘Tencent Music Entertainment Group (referred to as TME)’. The business structural adjustments and personnel appointments are now successfully completed.

So the online music industry has also gradually become a battlefield between Alibaba and Tencent.

Literature: a key sector

Literature is the upstream of IP production. This is not difficult to understand. If there is no Tang Qi novel, there will be no ‘Life After Life, Blooms Over Blooms’ 30 billion clicks; if there is no ‘The Journey of Flower’, there will be no phenomenal mobile game which dominated the App Store bestseller list for more than 100 days.

Consequently online literature has also become a strategic weapon for large companies in the cultural and entertainment industry. It seems that Tencent and Ali has completed their own IP reserves by controlling literature platforms. Tencent is in the leading position of this one: its China Reading Limited will start a listing plan. On March 22, at the Tencent Annual Results Conference of 2016, the president Liu Chiping clearly said: “CRL will be separated from Tencent for listing, and the target place is Hong Kong.”

The predecessor of the CRL is Tencent Literature, established in 2013. In 2015, it acquired Shanda Literature, that integrated into China Reading Limited, and became China's largest online literature platform. It has QQ reading, Qidian, Xiaoxiang, Hongxiu and other online literary brands. According to public information, CRL now has 10 million online literary works, about 4 million writers, and more than 10 operating channels. Combined with the massive users flows of QQ and WeChat, CRL occupied an unrivaled advantage of resources in the online literature industry with 80% of the market share.

At the same time, Baidu also has a long history of strategic layout. In November, 2014, Baidu Literature was formally established, and introduced their structure which includes ZongHeng, 91 Panda Reading, Baidu Books and other sub-brands.

For Alibaba, the latest settled corporation, there are only few resources left to gain. However, as an important part of its ‘Great Entertainment’ strategy, Ali Literature also has a wealth of funds and channel resources. At present, Ali Literary platform has Shuqi Novel, Taobao Reading, UC, Shenma Search and other entrances.

Layouts in literature are aiming at IP. The second half of the competition between Tencent and Ali will focus on the development of IP value, how to produce value by linkages with games, films and television. The first one who manages to complete the development of the broad entertainment industry chain, is to win the competition.

Video: the last entertainment industry chain link

China's online video industry emerged in 2005. The main part of online video sites consist of pirated videos or self-made UGC contents. Tudou, Youku have become the leader of domestic video sites. After 2008, with the awareness of domestic online video copyrights, legitimate video snatching has become the main task of video sites. After a few years, due to the continuous promotion of copyright prices, major sites are forced to program their own production, a large number of their own shows have emerged.

In the process of development, the video industry competitors experienced several rounds of reshuffle. From the initial hundreds of thousands, the number of websites now downs to a few dozens. In 2012, Youku acquired Tudou; after the consolidation, in 2015, Youku & Tudou was acquired by Alibaba. In 2013, IQiyi acquired PPS, and was then held by Baidu. With Tencent Video, the video industry's first echelon is controlled by BAT (Baidu, Alibaba and Tencent).

It seems that the pattern has been set, but variables still exist. The major video sites are relying on three ways to consolidate their status. After all, Letv, Sohu and other online video players are still there.

1. Continue to produce self-made content;

2. Maintain the possession of premium content and top-level IP;

3. Groping for the development of advertising marketing, paying membership and other possibilities.

Thus, the competition between Ali and Tencent is even more interesting. Their online video competition has extended from Youku & Tudou VS. Tencent Video to their respective investment target. Coincidentally, both of them will extend their territory to cover online comic videos. Through Youku & Tudou, Ali got AcFun, and Tencent invested in Bilibili.

AcFun was established in 2007, Bilibili was established in 2009. Both of them come from bullet screen culture founder: Japanese website Niconico. Although they emphasis on different styles and operational strategies, they are both bullet screen websites in the service of online comics. They have a lot of similarities in their users.

Thus, in a world divided in three, Tencent and Ali appear to be eye-to-eye enemies.

Conclusion

The broad entertainment layouts of Tencent and Ali have their own respective characteristics. Tencent developed this industryto satisfy the needs of QQ users to promote their products, later through investments, and rapidly expanding their controlling territory. Ali started later, focusing their efforts on a section after another, through capital means, and then integrating them in order to dig out the largest commercial value of each section.

Through product layouts and investments in the entertainment industry, Tencent and Ali want more and more young users. To be the one who occupies most of young people's time, now has become the key of victory.

Source: Aifan’e

Author: Chen Yan Qu,

Original article

#Alibaba #Tencent #entertainment #video #music