Why did Xiaomi make its largest investment in iQiyi?

The US$1 billion "meeting gift" that Xiaomi prepared for Chen Tong has now found its first destination: it will be invested in iQiyi and Youku Tudou, two of the top video websites.

People close to the transaction revealed to me that iQiyi, which is wholly owned by Baidu, is introducing a heavyweight shareholder for the first time. Xiaomi's investment in it is approximately US$300 million, and Baidu, iQiyi's largest shareholder, has also made additional investments of approximately the same amount.

It is worth noting that Xiaomi invested about 300 million US dollars in iQiyi, which is the largest investment in the four years since its establishment. Why did it invest in iQiyi?

Unlike iQiyi's strategic investment, Xiaomi may purchase Youku shares in the secondary market, with the amount expected to be in the tens of millions of US dollars. Both transactions will be officially announced in the near future.

Under the pressure of content constraints and the storm of radio and television supervision, Xiaomi's "living room dream" has been full of twists and turns. Now with the alliance between iQiyi and Youku Tudou, Chen Tong, who just issued a "military order" to make "earth-shaking" changes in Xiaomi's TV and box video products in no more than half a year, has more confidence.

Content industry "life and death"

In fact, these two investments were basically finalized before Chen Tong joined Xiaomi. In October this year, Baidu's "Dinglu Zhongyuan" and "Lei Jun's" Beijing Wali both participated in Huace Film and Television's 2 billion yuan private placement this year. The cooperation between Baidu's iQiyi and Lei Jun's Xiaomi may have been "premeditated".

It is worth noting that Xiaomi invested about 300 million US dollars in iQiyi, which is the largest investment in the four years since its establishment. Why did it invest in iQiyi?

This was revealed in the words of Lei Jun, chairman of Xiaomi, when Chen Tong joined Xiaomi. He said that the entire content industry is a matter of life and death for Xiaomi TV, Xiaomi Box, Xiaomi mobile phone, and Xiaomi tablet. "Otherwise, if we have such a good TV, but our content is not rich enough, consumers will complain a lot, so solving the content problem has become an urgent problem for Xiaomi."

Behind this, Xiaomi’s “living room dream” has experienced many twists and turns.

When Xiaomi Box was first launched, it was urgently stopped by the State Administration of Radio, Film and Television due to licensing issues. It then found the license holder CNTV to help it "come back to life."

It was also once caught in the crossfire of pirated broadcasts. Last year and this year, Xiaomi was sued for infringement by Hunan Satellite TV, Youku Tudou, and LeTV. For example, last year Youku Tudou Group sued Xiaomi Box in the Haidian District Court for allegedly infringing on the on-demand broadcast of 10 dramas, and demanded that Xiaomi Box immediately stop the infringement, publicly apologize, and pay 5.1 million yuan in compensation.

Although the amount of compensation for these lawsuits is not large, it has raised a serious problem for Xiaomi. Assuming that Xiaomi boxes and TVs have no content support, they will return to traditional TVs and lack market competition. Especially when the video website structure has been basically established, and the radio and television departments have continuously issued normative documents to strictly supervise the violations of TV boxes, it is difficult for Xiaomi to make a difference in boxes and TVs without the support of first-tier video website content, and Xiaomi's ecosystem will also be difficult to run.

"Internet companies need to find their own competitive points on the basis of ensuring that the content does not violate regulations." Internet commentator Hong Bo said that Chen Tong's first-hand experience in content control may find a balance between the two.

After finding the right person to be responsible for content, massive video content resources and Internet TV licenses became important purposes of Xiaomi's investment in iQiyi and Youku Tudou.

Behind Xiaomi's investment, there may be a bigger game: Baidu is also interested in investing in Xiaomi, and Xiaomi's investment in iQiyi may just be the beginning of the alliance between Baidu and Xiaomi.

Competition and cooperation in the video industry intensifies

After investing in iQiyi and Youku, Xiaomi acquired the richest video content in the country in one step and obtained licenses indirectly.

In terms of licenses, in July 2012, iQiyi, China National Radio, Jiangsu TV and others jointly established Galaxy Internet, and this year Youku also invested 50 million yuan in the license holder, China Guangdong, to obtain the license indirectly. After investing in iQiyi and Youku, Xiaomi has more "insurance" in terms of licenses, and can avoid detours.

From the perspective of video content resources, both iQiyi and Youku are moving at a fast pace in connecting the upstream and downstream of the film and television industry chain.

iQiyi's "tycoon-style" investment in 2014 is evident: 200 million yuan was spent on variety shows and 300 million yuan was guaranteed for self-production. At iQiyi's 2015 marketing conference, it also announced four super web dramas that it was investing in, including "Grave Robbers' Chronicles" with a single episode investment of 5 million yuan. Not long ago, iQiyi and Huace Film and Television jointly invested to establish Huace iQiyi Film and Television Company, which aims to provide iQiyi with high-quality dramas, variety shows and other rich and diverse Internet content, as well as develop all-round derivative products such as games and e-commerce around related content IPs.

In the eight years of development, Youku has evolved from a video website to an application and online video platform, from UGC and PGC to self-produced content and then to the establishment of Youku Tudou this year. Its goal is to connect all value chains in the film industry and build a multi-screen cultural and entertainment ecosystem with the O2O approach.

After acquiring shares in iQiyi and Youku, Xiaomi's advantages in the mobile Internet field and its third-largest mobile phone sales in the world will also bring considerable dividends to iQiyi and Youku.

The main parties of this investment transaction are Xiaomi and iQiyi. Xiaomi will also give iQiyi "priority support" in mobile content recommendation. After the transaction is completed, Xiaomi, as the major shareholder of iQiyi, is likely to incorporate iQiyi into the Xiaomi ecosystem. With nearly 100 million MIUI users and the influence of Xiaomi as the largest mobile phone manufacturer in China and the third largest in the world, this will directly determine the pattern of the mobile video market.

In addition, Youku Tudou, another partner of Xiaomi, spent a huge amount of money to exclusively acquire the copyright of the program format of "The Voice Kids" from the Dutch copyright holder. On the TV side, this program will be exclusively broadcast on terminals such as Xiaomi Box and Xiaomi TV in exchange for Xiaomi's investment in Youku Tudou to ensure Youku's exposure in this transaction. In the end, Xiaomi invested a small amount of shares to appease Youku Tudou, and Youku shared the "Xiaomi porridge".

But at the same time, it is conceivable that with Xiaomi's investment, the competition between the first-tier iQiyi and Youku Tudou in many areas, from copyright resources to self-made content to multi-screen terminal layout, will become more intense.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.