Why Xiamoi Buying Stake in iQiyi and Youku ?

Android device maker Xiaomi is considering taking a stake both in Baidu’s online video subsidiary iQiyi and in Alibaba-invested online video site operator Youku Tudou. Earlier this month on its official Weibo account, Xiaomi announced that it plans to invest US$1bn in online video content to support its smart television ecosystem. We expect Xiaomi to invest about US$300m in iQiyi to become the second largest shareholder and an US$ 8-digit figure in Youku Tudou in the secondary market.

A partnership with iQiyi and Youku Tudou will allow Xiaomi to gain access to video content from the two companies to broadcast on its internet TV set-top boxes and smart TV products. Xiaomi, could obtain the exclusive rights to “The Voice Kids” for V’sandset-top boxes from Youku. Youku in early Nov 2014 gained the exclusive rights to produce “The Voice Kids” (a sister show to the widely successful reality show, The Voice) in China.

Impact on Online Video Market
We would expect iQiyi and and Youku to benefit from Xiamoi’s leading position in TV set-top boxes, smart TV products, and especially smartphones. In addition to majority iQiyi shareholder Baidu, Xiaomi could be another important app distribution provider to iQiyi by leveraging its large smartphone user base. Xiamoi’s smrtphone sales ranked first in china and third globally in Q3-2014 according to Analysys and IDC, respectively. In terms of online ideo market share, Youku Tudou led themarket with a 24.5% market share, followed by iQiyi at 19.5%, and Sohu with 10.3% in 2Q2014. We envision intensified competition among the major players with more pressure on players such as Sohu video and Youku.

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