China’s cultural and creative industries and the online service sector are developing in parallel. This has resulted in a situation where China’s internet giants have the resources and platforms to substantially shape the cultural and creative sector content and service eco-system.
BAT refer to China’s three most influential internet companies, Baidu, Alibaba Group and Tencent Holdings. Together they are changing the landscape for Internet Startups, and for China’s cultural and creative industries.
Baidu, Alibaba and Tencent all have online services as their core businesses, however they are now competing fiercely in linking online to offline services. Together they are powerful players with the financial resources and top industry talent to dominate internet business and online services in China.
“If you are a start-up, you can only expect two endings - either to be defeated by BAT, or to be acquired by and eventually work for BAT”
This joke is widespread amongst Chinese start-up entrepreneurs and demonstrates the extent to which BAT are actively acquiring small companies in various industries to fulfill their strategic goals around expansion and diversification. BAT have invested in more than 30 listed and several hundred unlisted companies in the last five years.
BAT do face some obstacles however, despite their market success. China’s working age population is falling, marking the passing of this first demographic dividend and the transitory economic bonus it brought. Although Tencent’s social networking platforms have achieved mass market success, they are looking for new growth opportunities. Alibaba needs to look beyond online retail platform Taobao for continued growth. Baidu is also looking for a new development strategy, in the context of stronger mobile networks and weakening demand for search engine services.
BAT therefore need new business models to stay ahead in a fast moving and intensely competitive market context. Working with the cultural and creative industries is one path towards sustainable growth. In the UK, the cultural and creative industries have many mature players. In China however, these industries are developing in parallel with rapidly growing online platforms and services. The resources, platforms and services that BAT provide have the potential to substantially shape the cultural and creative sector content and service eco-system.
Tencent was the first BAT to place strategic focus on culture and entertainment, actively developing its business interests in gaming, animation and comics, literature and film from 2011 onwards. It has since developed a comprehensive strategic plan for these four sectors. Tencent acquired China’s biggest online publishing service Shanda Cloudary in 2015, with the ambition of giving 100 million readers nationwide access to literature online, supported by a new eBook reader designed for Chinese users. It invests in the Huayi Brothers film production company, purchases copyright for popular Japanese comics and bought almost all of China’s most popular online games in recent years. The Tencent empire therefore covers a broad spectrum of cultural content production, as well as setting up systems for commercialising IP across gaming, TV and film.
Alibaba moved towards the creative industries relatively late, but its investment and acquisitions have been rapid. Alibaba Pictures was put in place in 2014 to look after Alibaba’s interests in the film sector. Yulebao, a crowdfunding platform launched by Alibaba together with Chinese social media platform Sina weibo (also acquired by Alibaba), facilitates the crowd funding and promotion of new films. T-mall, Alibaba’s B2C online retail platform, announced a cultural and creative industry collaboration program in September 2015. This will see T-mall working with the publishing, film and fine art sectors to enable the sale of their derivative cultural products.
Baidu’s strategy encompasses online film, video and music. Aiqiyi, an online film and video platform, was acquired by Baidu in 2012. It has grown rapidly through purchasing broadcasting rights to popular film and TV content, however it also produces its own content including hugely successful talk shows. Baidu set up Baifa Youxi in 2014, an online investment fund into big movie projects that allows people to put in anything from $1.63 and earn yields based on later box-office performance. Helpfully, Baidu’s activities in Big Data provide box office estimate figures. Baidu Music is one of the world’s largest Chinese music search platforms. In December 2015 it announced a merger with Taihe Music Group, the largest service agency and music provider for Chinese popular music. The merger aims to build a borderless, cross-industry, cross-platform music service that changes how music is consumed.
So far, BAT have separate strategies towards the cultural and creative sector that build on their respective strengths. There is broad consensus in China that good original cultural content is in short supply. Common areas of BAT focus therefore are intellectual property and platforms. BAT acquire intellectual property rights or access to them, and operate online platforms with broad reach. In doing so they are able to invest in content production, distribution, promotion and marketing, which allows them to commercialise content across creative and cultural industry sectors.
What will be interesting going forward will be not just the emergence of stronger and more mature Chinese cultural and creative industries, but also the fruits of their parallel development with BAT and a buoyant broader internet based economy. The ambition of those like Baidu in music and Tencent in online publishing are of course to further commercialise through their distribution networks, however they also want to innovate by reshaping how music and books are consumed digitally. Such innovation may yield fascinating lessons for UK companies, particularly those with a close eye on opportunities in the Chinese market.