Why Alibaba Invested in Wanda Film

Last month, the Wall Street Journal reported that Alibaba (BABA) had agreed to acquire a stake in Wanda Film, the Chinese movie theatre chain owned by Dalian Wanda Group. Wanda Film owns and operates ~500 theaters across mainland China.

Alibaba was expected to invest ~$723.1 million in Wanda Film for a stake of 7.7% in the chain. Cultural Investment Holdings, a film company backed by the Beijing municipal government, was also expected to invest ~$476.9 million in Wanda Film for a stake of 5.0%.

The investment deal between Alibaba and Wanda Film was portrayed as designed to strengthen the companies’ partnership in areas such as movie distribution, online ticket sales, and advertising. 

In addition to its e-commerce and cloud computing businesses, Alibaba runs an entertainment business, which could benefit from its deal with Wanda Film.

Alibaba’s rivals Amazon (AMZN), Tencent (TCEHY), and Baidu (BIDU) are also in the entertainment business.

Alibaba’s investment in Wanda Film comes at a time when China is expected to overtake the United States as the world’s largest film market by around 2020. China’s box office sales rose 13% to reach $8.5 billion in 2017, according to industry consulting company Artisan Gateway. Globally, box office sales rose 3% to $39.9 billion in 2017.

For Dalian Wanda, the investment deal with Alibaba and Cultural Investment Holdings for a stake in Wanda Film was part of its fundraising efforts toward debt repayment. In January, Dalian Wanda sold a 14% stake in its Commercial Properties subsidiary to a group of investors that included Tencent and JD.com (JD).