Baidu buys PPS to merge with iQiyi

Baidu Inc announced Tuesday it is buying streaming video service provider PPS Net TV for $370 million, the latest demonstration that China's biggest search engine operator is trying to claim a bigger share of China's burgeoning video industry.

The deal is expected to close by June. Once the transaction is completed, the PPS online video business will be consolidated into Baidu's financial statements, and PPS will be merged with Baidu's own video platform iQiyi, according to a Baidu statement e-mailed to the Global Times Tuesday.

The new entity will become China's largest online video platform in terms of both mobile user number and video viewing time.

"The video industry is the biggest and most crucial area in China's future Internet market. Therefore, Baidu needs iQiyi to occupy the absolute largest share of the market," Gong Yu, CEO of iQiyi, said at a news briefing Tuesday in Beijing, noting that the merging companies will complement each other, as PPS is app-based while iQiyi is Web-based.

Gong also said that the newly consolidated video company will go public, although currently there is no time frame.

"The merger comes as no surprise, as the industry is predestined to see big players consolidating to strengthen their competitiveness," You Tianyu, an analyst at Beijing-based research company iResearch Consulting, told the Global Times Tuesday.

According to statistics from consulting firm Analysys International, Youku was the largest online streaming video service provider by the end of 2012 with a 30.2 percent market share after it took over Tudou, followed by Sohu's video unit with 10.3 percent, iQiyi with 9.7 percent and PPS with 7.1 percent.

But many video companies are still in the red. According to financial reports, Youku Tudou Inc reported a net loss of 424 million yuan ($68.1 million) for last year. Baidu has also indicated that during the first quarter of 2012 its investments lost $45 million, mainly owing to iQiyi.

You noted that market concentration will help players cut the costs of buying video copyrights and lead to a more regulated market as opposed to the current chaotic competition, which includes such practices as video piracy.

However, some users expressed their concerns over the possibility of higher fees as the industry grows more concentrated.

"I don't think giant companies will begin to charge users high prices anytime soon, because so far Internet users have not yet accepted the pay video model, and video companies still rely on advertisements as their main income," said You.