Baidu buys VC-backed PPS’ online video platform
Baidu has agreed to pay $370 million for PPS’ online video business, creating an exit opportunity for the company’s venture capital backers. Ceyuan Ventures, Qiming Venture Partners and Vision Knight Capital have invested in PPStream in the last seven years, with Hong Kong telecom provider PCCW also committing capital.
Baidu, China's leading search engine, plans to combine PPS' online video business with its own iQiyi unit, an advertising-supported online television and movie portal. Baidu took full ownership of iQiyi last year after buying Providence Equity Partners' stake in the business. Providence held the asset for two-and-a-half years, having reportedly invested $50 million.
PPS will continue to operate as a sub-brand of iQiyi. The company's founder and chairman, Hongyu Zhang, and its president, Weifeng Xu, will serve as co-presidents at iQiyi, taking responsibility for the sub-brand and new business development. Gong Yu will continue as CEO of iQiyi.
The combined entity will become China's largest online video platform by number of mobile users and video viewing time.
PPS was founded in 2005 and claims to be the world's largest online video service provider. In addition to Net TV Player, an online video platform, the company offers a range of related technologies including P2P online video transmission, PC software and mobile apps. PPS Net TV has more than 280 million subscribers, with 100 million users racking up 711 million hours on the site each month.
PPS received a Series A round of funding from Ceyuan in 2005, with Qiming joining the Series B in 2007, which was worth $10 million. In 2011, the company got $28.6 million from PCCW and Vision Knight.
iQiyi's Yu said the transaction, which is expected to close in the second quarter of 2013, is a major step towards consolidation of the online video industry in China.
"The merger will generate significant synergies, and will provide for an improved user experience as well as more and better content," Yu said in a statement. "It will also deliver better marketing value and a wider range of options for advertisers. The merger of iQiyi and PPS - both companies with strong technology DNA - lays a solid foundation for iQiyi to become a great technology company with strong media DNA as well."
The combined entity will pose a greater competitive threat to Youku Tudou, which formed last year through the merger of US-listed and VC-backed online video sites Youku and Tudou in a deal worth $1 billion. When asked for a response to rumors of a Baidu-PPS tie up a couple of weeks ago, Dele Liu, president of Youku-Tudou, said consolidation was inevitable and also encouraging as it helps rationalize the industry and reduce piracy.
Competition is intense in the online video market, which has led to increasing costs for internet bandwidth, content and mobile video services. Neither Youku nor Tudou achieved profitability on their own and they have yet to do so post-merger, although mobile and original content is expected to help the company get there.
When AVCJ looked at the sustainability of the online video model last year, industry participants suggested that VC investors would be best served looking at less saturated areas, such as platforms that integrate online video with social networks, or applications that put online video onto mobile devices.
PPS was cited as an example. The company was said to be profitable despite rising content costs because it is based on peer-to-peer technology, with each computer acting as both a client and a server for the other computers in the network, supporting shared access to files and restricting bandwidth to just 15% of that required by a solely web-based solution.
The transaction is also interesting in terms of Baidu's wider expansion plans, as well as those of its fellow Chinese internet giants, Alibaba Group, Tencent Holdings and Sina. Baidu spent more than $22 million on acquisitions last year, down from $356 million in 2011 when it bought travel website Qunar.
Alibaba recently agreed to pay $586 million for an 18% stake in Weibo, the Twitter-like micro-blogging platform owned by Sina.
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