To work with Alibaba to co-produce TV series and movies
Local press (EntGroup.cn) reported on 15 June that Alibaba (BABA.N,US$86.11, Buy) has announced a strategic partnership with TVB to celebratethe first anniversary of Yulebao, Ali’s online investment platform for digitalentertainment products. According to TVB’s management, they will reach awider audience, both on the Chinese mainland and in Hong Kong and Taiwan.Further details of the deal will be disclosed in the next three months.
Mr. Liu Chunning, president of Alibaba Digital Entertainment Group, said Aliwill work with TVB to co-produce TV series and movies customized formainland viewers, as it believes TVB has high quality content productioncapability, and TVB’s artists are popular among mainland viewers. Thecompany will also sell more derivative products on Alibaba’s e-commerceplatform.
Alibaba is ambitious to invest in content production
According to Mr. Liu, the central government’s Internet Plus initiative hasprovided a perfect backdrop for developing the Chinese movie industry. Thestrategy seeks to encourage the application of the Internet in traditionalindustries to boost efficiency and productivity. According to the China Daily,Yulebao invested RMB510m in Chinese movies last year, realizing RMB3.7bnin box office receipts or 8% of the Chinese box office in 2014.
Deutsche Bank comment
Further details of the deal are yet to be disclosed (e.g. if they will act as aproduction house or will cooperate with Ali within China beyond production).However, we believe this is a good initiative for TVB to leverage Alibaba’s bigdata analysis and also its e-commerce platform for derivative product sales.
To recap, TVB‘s sales revenue in mainland China declined by 4.7% yoy toHK$383m last year, accounting for 6.6% of the its total sales revenue. Also, itwas accounted on 23 April that Mr. Li Ruigang became an additionalshareholder of Yong Lion, TVB’s major shareholder. Management believes thatMr. Li’s connections will help operations in the mainland as well as overseas.
We believe the market remains tough for the Hong Kong broadcastingoperation; however, given its strong cash flow and ability to pay dividend, wemaintain Hold.