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Inside Alibaba’s Digital Media and Entertainment Segment

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Oct. 24 2017, Updated 7:37 a.m. ET

Media and Entertainment revenue rose 30%

In fiscal 1Q18 (June quarter), Alibaba’s (BABA) Digital Media and Entertainment segment generated $602.0 million in revenue. That was a 30.0% rise year-over-year. It accounted for 8.0% of Alibaba’s total revenue for the quarter.

Digital Media and Entertainment is one of Alibaba’s youngest but most promising ventures. It includes an online video service similar to Alphabet’s (GOOGL) YouTube. During the release of last quarter’s results, Alibaba said it believes a strong pipeline of original content could lead to long-term advantages in video entertainment.

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Alibaba expands into the gaming business

As more people turn to the Internet for video entertainment, Amazon (AMZN) and Netflix (NFLX) are investing billions of dollars to create original shows and movies for their subscription video services.

Online video service is the main focus of Alibaba’s Digital Media and Entertainment segment. The company is working to diversify the segment’s offerings. As part of those diversification efforts, Alibaba officially entered the digital gaming business last month by establishing a gaming business group.

Alibaba has hired Zhonghui Zhan, the former chief executive officer of NetEase, to lead its gaming business group. The move into gaming could bring Alibaba into more competition with Tencent (TCEHY), the owner of WeChat.

Gaming business presents vast revenue opportunity

The gaming industry presents a massive revenue opportunity for Alibaba. According to PricewaterhouseCoopers, the global video game industry could be worth $90.1 billion by 2020 compared to $71.3 billion in 2015. China’s (MCHI) video game industry is forecast to be worth $12.9 billion by 2020.

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