This has been a busy week for China's richest man, Jack Ma, the founder of Alibaba (BABA). He gave a talk in Laguna Beach at the start of the week at a conference. Then, he took in a Laker game courtside next to Hollywood's most powerful agent, Ari Emanuel. Now he's planning to have meetings with the heads of all the big Hollywood studios.
Ma has said before that there are many Chinese consumers who come to his sites every day and browse but never buy anything. He had the idea of actually getting them to watch some content there.
This California trip isn't the first time that Ma has shown interest in content. Earlier this year, before the Alibaba IPO, he bought a Hong Kong-traded company that is now called Alibaba Pictures Group Ltd. It quickly was found to have some accounting issues that needed to be resolved. However, the reasoning for the purchase was clear: Ma wanted to get into the business of producing content.
Additionally, Alibaba purchased a 17% stake in Youku Tudou (YOKU) earlier this year. Youku is like a Hulu of China. It's a web portal where a lot of consumers watch their favorite series online. It's all free -- for the most part -- and ad-supported.
It's a model that requires a lot of money to scale up the business because they need to spend money on servers and the content they show. Imagine if Netflix (NFLX) couldn't make $7/month from subscribers and had to finance itself by selling ads. Youku has had gaping losses ever since its IPO several years ago.
Youku's market cap now is $3.9 billion. It would be very cheap for Alibaba -- which has a market cap of more than $240 billion -- to buy out the rest of Youku. This would give the company the No. 1 video portal in China, which they could use to show off a whole range of new Hollywood content that Ma might be discussing this week.
Of course, Ma could decide to go it alone in using any Hollywood content he acquires. But Youku is already in the Alibaba family and so would make good sense to pick up. Youku management under CEO Victor Koo is well regarded in China and well-known among Hollywood executives such as Peter Chernin.
Why Hollywood content now for Alibaba? Taking a step back, Ma knows he's now the big dog in the Chinese Internet space and his company has the massive market cap to go with that. That market cap gives him power, which he wants to use to his advantage against all competitors. Tencent is one of the biggest threats to Alibaba at the moment.
I suspect that Ma believes he can sew up deals with Hollywood now before Tencent has the opportunity to go after them. Once they are locked up, it will be difficult for Hollywood to drop Alibaba in favor of Tencent -- as long as Alibaba delivers for Hollywood.
Some have said Ma was crazy to move so fast in buying up stakes in companies such Youku and Alibaba Pictures. He might prove that he's crazy like a fox.