Internet & Tech

Why, oh why

Baidu set to pay $3 billion for livestream firm


If two negatives can really make a positive, perhaps the deal between search giant Baidu – struggling for growth – and the ailing livestreamer YY has a chance of success. Baidu plans to take over YY, the livestreaming app operated by parent firm JOYY, including its content operations, technology and management team for a rumoured $3 billion. The deal – announced last week – excludes BIGO Live, JOYY’s international livestreaming platform (the Nasdaq-listed firm has a market cap of $7.7 billion).

YY was one of the first livestreaming firms to emerge in China. In 2018 its share price came close to $140 before nose-diving with the entry of short-video rivals like Douyin and Kuaishou. As of mid-October, its shares were hovering around $80, prior to rumours of Baidu’s acquisition.

The new competition in the sector prompted JOYY to expand outside China. In 2018 it acquired the Singapore-based livestreaming app BIGO for $1.5 billion. Its most recent earning results revealed that average mobile MAUs (monthly active users) for its livestreaming services went up 20.4% to 102.3 million from a year ago. Only 41.2 million were from YY, an increase of 6% year over year. The faster-growing majority were users from outside China.

Industry insiders have been supportive of the sale to Baidu. “First, there are giants like Douyin, Toutiao and WeChat competing in the livestreaming space. And then there are smaller players such as Bilibili, Zhihu and many other platforms that are chasing behind. Almost all the content platforms, whether short-video or social media, are going after livestreaming. It is going to be increasingly difficult for a business that only relies on livestreaming to survive,” notes Tencent Technology, a news portal. “For YY, it is difficult to see a way out. Does it try to fight to the very end or sell at a higher price? The answer has become apparent.”

For Baidu the acquisition gives it an entry into livestreaming. The search giant is betting more of its future on artificial intelligence (see WiC515) but it still relies on advertising for the large majority of its revenues. But ad sales have fallen for five straight quarters. Baidu needs to find new ways of boosting its immediate income beyond its core search engine.

To that end, it has already launched a short-video app called Haokan to compete against rival Bytedance, which has taken a sizable chunk of its advertising business via Douyin. Buying YY could give Haokan a leg-up in the short video space too. “Baidu clearly realises the importance of livestreaming, determining that it is an opportunity it cannot afford to miss. The challenge is that it requires content and hosts to boost traffic and user loyalty,” says TMT Post. “This is the main reason why Baidu is interested in YY. As one of the first livestreaming platforms in China, it has a wealth of operating experience for everything from developing host talent to user monetisation.”

At the same time that the deal was first rumoured, news spread that the Chinese authorities are considering introducing a series of new measures to prevent excessive tipping on livestreams, especially among younger internet users.

Last year, one mother found that her daughter had spent a whopping Rmb500,000 ($75,000) on virtual coins on one livestreaming platform. Another woman in Shanghai sued her husband after he gave a large portion of their savings to a livestreamer.

Livestreams have traditionally made their money through virtual gifts, which can then be redeemed for real cash. One piece of research shows that livestreamers on short video platform Douyin received a total of Rmb15.2 billion ($2.3 billion) in gift revenue in the first half of the year, representing an increase of 63% from the same period in the previous year, estimated Sixth Tone, a news site.

If implemented, the new rules could have a massive impact on the livelihoods of many livestreamers, and presumably on the platforms where they do business as well.

“After all, the majority of the tipping comes from people who are just madly giving away money,” one netizen noted, approving of the plans to regulate the sector more closely. As regulation becomes more onerous, it will also affect the profitability of livestreaming platforms. “Regulation will undoubtedly affect the operation of the livestreaming platforms. It means that the platforms can no longer lure users with ‘grey area’ contents,” noted Tencent News, referencing pornography.


Keeping track, Nov 20, 2020: Baidu made the official announcement to acquire JOYY’s video-based entertainment livestreaming business in China for $3.6 billion in cash on November 17. The transaction, subject to certain conditions, is expected to take place in the first half of 2021. Robin Li, Baidu’s co-founder and CEO, is hoping that the deal will catapult Baidu into “a leading platform for livestreaming” and diversify Baidu’s revenue source. “YY Live stands to benefit from Baidu’s large traffic and thriving mobile ecosystem, while Baidu will receive immediate operational experience and know0how for large-scale video-based social media development, as well as an enviable creator network that will further strengthen Baidu’s massive content provider network,” Li was quoted as saying.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.