Alibaba buys NetEase’s online mall for US$2bn

Bloomberg

Sat, Sep 07, 2019 - Page 10

Alibaba Group Holding Ltd (阿里巴巴) bought NetEase Inc’s (網易) Kaola e-commerce platform (考拉海購) for about US$2 billion and invested in its music streaming service, forging a rare partnership between two of China’s largest Internet giants.

The deal hands Alibaba the biggest Chinese online marketplace for foreign brands after its own Tmall Import and Export (天貓).

Kaola will now operate independently, but with a new chief executive officer, Alvin Liu (劉鵬將), appointed from Tmall.

Separately, Alibaba and Jack Ma’s (馬雲) Yunfeng Capital (雲鋒基金) are to pour US$700 million into NetEase Cloud Music, the companies said in a statement.

NetEase will remain the controlling shareholder of its music app.

Both firms compete against social media titan Tencent Holdings Ltd (騰訊) across several fronts.

For Alibaba, the emergence of Tencent-backed rivals like Pinduoduo Inc (拼多多) is testing its longstanding dominance of Chinese online retail.

While NetEase has long been the closest rival to Tencent in gaming, it has also expanded into music streaming — another area where Tencent leads.

Alibaba has its own music app Xiami (蝦米).

Alibaba’s US$2 billion acquisition of Kaola — NetEase’s cross-border e-commerce platform — will make it the go-to channel for Chinese consumers seeking high-quality foreign products.

For NetEase, selling its low-margin Kaola platform would allow the company to focus on its bread-and-butter gaming business.

The Kaola deal will make Alibaba the “go-to” venue for consumers seeking imported goods, Bloomberg Intelligence analysts Vey-Sern Ling and Tiffany Tam wrote in a note yesterday.

Together, Alibaba and Kaola controlled almost 60 percent of all transactions on China-based platforms for foreign brands in the second quarter, research firm Analysys said.

NetEase Music raised US$600 million in November last year, when Baidu Inc (百度), General Atlantic and Boyu Capital (博裕資本) participated.

Its latest capital injection comes after China’s antitrust authority launched a probe into its much larger rival, Tencent Music Entertainment Group, over its content relicensing practices.

Under government pressure, Tencent Music and NetEase Music last year agreed to relicense more than 99 percent of their music catalogs to each other.

“What really matters is the 1 percent exclusive content,” said Shawn Yang, a Shenzhen-based analyst with Blue Lotus (藍睡蓮). “Now that NetEase has new funding that can be used to buy copyrights, it will definitely be a threat to TME.”