Shanghai Media Group (SMG)-backed BesTV (SH: 600637) reportedly planned to invest 307 million yuan ($49.77 million) in the video website Funshion.com, increasing to its stake in the latter from 35% to 54%. At the same time, BesTV will transfer a 100% stake in two subsidiaries, namely, SMG Broadband and Icshanghai.com to Funshion, respectively (source in Chinese).
BesTV has poured $30 million for a 35% stake in Funshion in March 2012, becoming the largest shareholder of the video service. Funshion had had 270 million users and around 20 million daily active users as of July 2012, according to a statement by BesTV.
The two companies launched a series of endeavors to stream the content produced by SMG, a media group with businesses in broadcasting, television, press and Internet, on to online video platforms. BesTV and Funshion planned to deepen their cooperation in terms of technology, content and channels.
Industry insiders predicted that this deal would boost the development of Funshion. On the one hand this capital increment satisfied Funshion’s financing needs. One the other hand, Funshion will gain better access to the huge video database of BesTV after the acquisition.
However, BesTV may endure some profit pressures in the short term. Funshion recorded a net loss of more than 60 million yuan in the first half of this year after posting an annual loss of 98.86 million yuan in 2012.
Video website industry, a money-burning unit from current point of view, is in an investment and integration period. BestTV’s case bears some resemblance with Baidu’s acquisition of iQiyi.com. Baidu became the controlling shareholder of iQiyi by increasing its stakes the latter to 53.05% last year. However, around 120 million yuan net losses generated by iQiyi were booked in Baidu’s financial report submitted to the US authorities this March (source in Chinese).