Alibaba to Launch Tmall Box Office, Entering Online Video Streaming Business

Alibaba to Become the Next HBO or NetflixAlibaba Group Holding Limited (NYSE/BABA) is launching a new video streaming service in a move the company hopes will put it on par with HBO or Netflix, Inc. (NASDAQ/NFLX).

On Sunday, June 14, Alibaba told reporters in Shanghai that the company would launch an online streaming service in China in about two months. The company plans to name the new platform Tmall Box Office, or TBO. Tmall is Alibaba’s business-to-consumer online retail platform, in contrast to Alibaba’s Taobao, a customer-to-customer site. (Source: Reuters, June 14, 2015.)

“Our mission, the mission of all of Alibaba, is to redefine home entertainment,” said Patrick Liu, head of Alibaba’s Digital Entertainment, stating that the goal is to become similar to HBO and Netflix in the U.S.

The streaming service will have content from China and around the world. It will also feature some of the company’s own productions.

Despite not having a huge impact on the stock market, the move by Alibaba gives itself an opportunity to tap into a huge market. According to IResearch, an Internet consulting firm based in Shanghai, the Chinese online video streaming market is expected to grow to 90.0 billion yuan (US$14.5 billion) by 2018. (Source: IResearch, last accessed June 15, 2015.)

Competition is fierce among online video streaming businesses in China. Each internet giant has its own platform: Baidu, Inc. (NASDAQ/BIDU) has iQiyi, Tencent Holdings Limited has Tencent Movies, and Sohu.com Inc. (NASDAQ/SOHU) has Sohu TV.

Alibaba already has a stake in the game: Youku Tudou, one of China’s biggest video sites. In April 2014, Alibaba and Jack Ma-controlled Yunfeng Capital together acquired 18.5% of Youku Tudou.

Moreover, just a month ago, Netflix was in talks with Wasu Media about entering the Chinese market. Wasu Media was partially backed by Alibaba. Netflix had planned to enter China on its own, but realized that in rough Chinese terrain, a local partnership would work better.

Alibaba’s strategy, however, is quite different from its mainland competitors. According to Liu, 90% of TBO’s content will be behind the paywall; either through a monthly subscription or on a show-by-show basis. The rest of the players in the Chinese online video streaming market offer the majority of their content for free.

Since TBO will not be available for about two months, how well the strategy works remains to be seen. Investors will have to wait two or three quarters before the streaming service shows up in the company’s financial results.