Baidu to boost support for Qiyi

China Daily, July 27, 2011

Baidu Inc, China's biggest search engine, will deepen investment in its online video arm Inc, in a move to fuel future growth outside its core search business.

"Between Baidu and our investment partners, we plan to continue to support the company (Qiyi), and a cash contribution will be made in the near term," said Jennifer Li, Baidu's chief financial officer, on Tuesday after the company released its results.

However, Li didn't elaborate on the scale of Baidu's further investment in Qiyi, which is 61-percent-owned by the search engine and is also backed by Providence Equity Partners LLC, an investor in

Baidu's net income almost doubled to $252.6 million in the second quarter, while revenue rose 78.4 percent to $528.4 million, the company said on Tuesday. Its shares rose 7 percent following the announcement.

Qiyi was reported to be hoping to raise funds of $300 million, according to Dow Jones & Co's LBO Wire earlier this month, which cited unidentified sources. Qiyi later denied the report.

China's online video websites have been gearing up to raise cash amid cutthroat competition. Shanghai-based Tudou Holdings Ltd has plans to raise $120 million through an initial public offering in the United States, while Beijing-based Inc made a $400 million follow-on offering in May after its stock market listing last year. Other competitors, such as Xunlei Ltd, are also planning to seek public listings in the United States.

Although online video websites have undergone a period of steady development, their future is still plagued by uncertainties.

A report this month by the China Internet Network Information Center (CNNIC) said: "Online video websites are still faced with a difficult situation: the high cost of copyright purchasing and bandwidth, yet the relatively low price of online video advertisements and people's reluctance to pay for online video."

"Many of these sites have to 'burn money' to make a bet on the future," said Tang Yizhi, an analyst with the domestic research company Analysys International.

In the first quarter of this year, Youku held the largest market share in terms of revenue, 22.4 percent, followed by Tudou's 16.8 percent and Sohu at 13.6 percent, according to Analysys International.

Tang said Qiyi has been showing good momentum since last year, with its user base doubling every quarter in 2010. Robin Li, Baidu's chief executive officer, said on Tuesday that Qiyi has more than 160 million monthly unique visitors at present.

Qiyi is still losing money, said Jennifer Li, something it has in common with its competitors, such as Youku and Tudou.

By the end of June, 301 million people in China had watched videos online, representing more than 60 percent of the country's 485 million Internet population as of June, according to CNNIC.