source from:wsj
MARKETS HEARD ON THE STREET
Baidu Falls Behind in Race to Be China’s Netflix
By Jacky Wong
May 22, 2017 7:46 a.m. ET
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Millions of Chinese people already spend much of their waking hours staring at smartphone apps from the country’s biggest technology companies, Alibaba, Tencent and Baidu. Still, they want to squeeze even more time from users—to watch videos. As the race intensifies, Baidu could continue to be left behind.
The big three have all spent billions of dollars on their online video businesses in recent years. Each owns popular portals that at first operated more like YouTube, hosting user-generated, sometimes pirated, content. Now, they are trying to become more like Netflix—sinking money into original content to boost subscription revenue. China’s most valuable company, Tencent, for example, saw its content costs and agency fees rise by 44% to $1.1 billion last quarter, mostly because of spending on videos. E-commerce giant Alibaba lost nearly about $1.5 billion on digital entertainment in the past year, stemming mainly from its video website Youku Tudou.
Baidu, which runs China’s biggest search engine, arguably has the most at stake, having fallen behind the other two in investor popularity: Tencent’s share price has almost tripled in three years, yet Baidu’s shares are only 20% higher. While Tencent runs China’s most popular social network, WeChat , and Alibaba operates the country’s premier online shopping forum, Taobao, Baidu’s search business has stalled, in part because of damaging domestic scandals. WeChat has even introduced its own search function, another threat to the company.
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Baidu’s spending on content, mostly on videos, already surged 91% in the first quarter, and it plans to double its outlay over the course of 2017. Its video subsidiary struck a deal earlier this year to distribute some of Netflix’s original content.
Still, the odds seem tilted against Baidu. While its revenue rose 7% in the first quarter, Alibaba and Tencent posted gains of more than 50%. Their stronger core businesses should allow them to splurge more on videos, even if they prove unprofitable for a while, and the robust user communities they have already built in their main businesses should also give them a leg up.
Baidu came up short at China’s previous internet party. It may miss out on the next one, too.