Alibaba (NYSE:BABA) reportedly purchased a 4% stake in Korea's SM Entertainment, an agency that houses some of K-pop's (Korean pop music) most popular groups including Girl's Generation (Korean name: So Nyeo Shi Dae) and EXO. Given the popularity of K-pop in China, this investment represents another move by BABA to strengthen its ecosystem. Recall that BABA also operates a media division called Ali Music which I believe will work with SME to localize and expand the K-pop business in China via live concerts or events. Additionally, the IP from SME can be featured on BABA's music streaming platform Xiami and Tiantian, which operates similarly to Pandora or Apple Music.
Net-net, I view this partnership is a win-win for both BABA and SME as BABA looks to strengthen its ecosystem while SME looks to penetrate deeper into the Chinese music industry. Over time, I expect BABA to increase its stake from the current 4% to roughly 18%, in-line with most of the investments it deems to be strategic (i.e. AutoNavi, Weibo, Youku-Tudou). I reiterate my bullish view on BABA.
BABA made the purchase of 870k shares of SM for a total value of roughly $30m. Although the stake may not seem to be significant, I think this is just the first step toward a more bigger goal of expanding its media and entertainment business to include music, film and sports. The decision to work with SM is sound in my view given its list of key talents such as Girls Generation, which has sold tens of millions of albums and singles around the world and attracts millions of fans in China. Besides music artists, SM also manages a number of successful actors including Go Ara (notable for her appearance in the Chinese film on Genghis Khan) Kim Min-jong and Kim Ha-neul (known for her career in both modeling and film).
For anyone who has been to China, Korean pop and film culture is quite popular in the country (my cousin is so passionate about Korean drama that she decided to study film in Seoul) and I believe that the partnership with SM can allow Ali Music to expand its content library by including the songs from SM artists. Over time we could see increasing cross-border collaboration between Ali Picture and SM on films featuring both Chinese and SM actors/actress. Finally, live concerts/entertainment could potentially be another area where BABA can benefit. Having already invested in sports teams and buying up sports content rights, moving into live concerts/events is a logical choice given its growing popularity.
In short, BABA's investment in SM is consistent with its prior investment in media with the goal of ultimately enhancing its ecosystem. I see this to be a positive as the BABA ecosystem can differentiate from that of JD's and drive its core e-commerce growth with the additional benefit of diversifying its revenue stream by moving beyond e-commerce.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.