Alibaba Pictures, the separately listed film investment and distribution unit of China’s tech giant Alibaba behind recent box office hit “Lost in the Stars,” is to buy Damai. The target company is a major provider of live entertainment in the country currently controlled by Alibaba parent company.
The transaction is valued at $167 million, according to a regulatory filing Tuesday, and will be paid for by the issuance of new Alibaba Pictures shares.
Damai is involved in concerts, music festivals, live house performances, plays, sporting events and exhibitions in China. It “engages in the full lifecycle of live performances, including production, promotion and ticketing,” and has served over 1.8 million events with over 100 million registered customers cumulatively, Alibaba Pictures said.
Alibaba Pictures President Li Jie called the diversification into live events that the Damai purchase represents “a new chapter” for the Hong Kong-listed company. “By further expanding the upstream presence of the Damai brand in [the] value chain for the live entertainment industry, such as event production and promotion, venue operations and artist management, [Alibaba Pictures] aims to strengthen economies of scale and barriers to entry and further build brand awareness for its offline entertainment business,” it said.
Damai was hit hard by the impact of the COVID pandemic on live events. It lost money in each of its three previous financial years to March – RMB322 million, RMB138 million and RMB99 million respectively. But its gross receipts (GMV) in the three months from April to June have recovered strongly to overtake that for the full year 2022-23.
While the size of the Damai transaction is modest compared to Alibaba’s $221 billion market cap, it could be a sign of things to come.
The Damai move comes a few months after Alibaba, one of China’s technology pioneers that has expanded into a large number of sectors, announced the biggest corporate restructuring in its twenty-year existence. Alibaba has begun the process of splitting itself into six separate units, including home shopping, cloud computing and digital entertainment, each of which will have its own management and be allowed to raise its own capital or even conduct separate IPOs.
While the stated goal of the Alibaba dissolution is to increase the independence and entrepreneurial spirit of the six new divisions, the issuance of new shares to Alibaba in payment for Damai has the effect of increasing Alibaba’s stake in Alibaba Pictures. After Alibaba Pictures increases its capital by about 9% to pay for Damai, Alibaba will own just over 54%.
Interestingly, Alibaba’s existing digital entertainment and media group includes Alibaba Pictures as a currently Hong Kong-listed entity. But there are several of Alibaba’s entertainment businesses that Alibaba Pictures does not own.
These include a host of investment stakes in cinema chains, publishing companies and film and television production companies, which the group is believed to have bought at the behest of the Chinese government. Whether these will be resold to Alibaba Pictures is unknown. Alibaba Pictures reports stakes in Bona Film Group, YH Entertainment Group and Shanghai Tingdong Film Co.
Another question mark hangs over Youku, China’s third-largest SVOD streaming platform, which is also owned by Alibaba, but not Alibaba Pictures. Like their opposite numbers in the rest of the world, China’s video streamers have had to change tack and emphasize profitability over user growth, and have recently been forced to cut content costs.