May 1 (Bloomberg) -- Baidu Inc.’s IQiyi video website plans to hold an initial public offering within three years as it competes with Youku Tudou Inc. for China’s 618 million Internet users seeking movies and TV shows online.
The Beijing-based site, which offers “Mad Men” and the South Korean drama “My Love From the Star,” is aiming for a valuation that surpasses Youku Tudou’s, Chief Executive Officer Gong Yu said in an interview in Beijing on April 29. The U.S.- listed Youku has a market capitalization of $3.7 billion and posted 3 billion yuan ($479 million) in revenue last year.
“We want to have the largest market share and revenue share in the industry,” Gong said. “By the time of the IPO, if our market share and revenue are both larger than Youku, we should have a bigger valuation than it does.”
China’s market for online video probably will be worth 17.8 billion yuan this year and then double to 36.6 billion yuan in 2017, according to a report by Internet consultant IResearch.
Baidu’s American depositary receipts fell 0.8 percent to close at $153.85 in U.S. trading yesterday. Youku ADRs fell 1.8 percent to $22.29.
Baidu, the owner of China’s largest Internet search engine, is boosting its online entertainment content to compete against Youku, which will receive a $1.22 billion investment led by Alibaba Group Holding Ltd. IQiyi is looking to spend at least 300 million yuan this year to produce its own content, including drama programs, that cater to people born after 1985, Gong said.
“We want to boost the lead we have against other competitors and solidify our existing strength,” Gong said. “Based on this, we will definitely increase our investment.”
IQiyi, which has yet to make a profit, wants to hire more producers to create content in an effort to increase traffic and cut costs, Gong said. He declined to provide a timeline on when the company would become profitable.
IQiyi, which also competes against Sohu.com Inc., offers movies including “The Hunger Games: Catching Fire” and attracted 224.8 million unique visitors in February. The site has the most unique daily and monthly visitors via personal computers in China and is the market leader according to monthly time spent via PCs and mobile devices, Baidu CEO Robin Li said during an April 24 earnings conference call.
“The long-term prospects for online video and IQiyi are very attractive, and we remain supportive across the platform,” Li said.
Revenue from mobile devices, generated mostly from advertising sales, contributed more than 30 percent of revenue in the first quarter, Gong said while declining to be more specific. More than 500 million people in China access the Internet from mobile devices, according to the China Internet Network Information Center.
This week, Chinese Internet video sites were ordered to take down some U.S. television shows, including “The Big Bang Theory,” after the government escalated a crackdown on content deemed offensive amid a Web cleaning campaign.
IQiyi will continue importing U.S. TV shows and movies, Gong said, adding that they account for a small proportion of traffic.
The site’s most popular imported U.S. show, “The Vampire Diaries,” received accumulated hits of 200 million for four seasons. That compares with 3 billion hits for the fourth season of locally produced “iPartment,” a Chinese romantic comedy, and 2 billion for “My Love From the Star.”
Nasdaq-listed Baidu holds a controlling stake in IQiyi. The search giant bought Internet video business PPStream Inc. in 2013 for $370 million and has been combining it with IQiyi.com to create China’s largest online video platform.
IQiyi will continue to expand its smart TV and set-top box business. It plans to offer more than 2 million smart TVs in cooperation with TCL Multimedia Technology Holdings Ltd. It wants to pre-install its application this year on more than 20 million smart TVs, including those from other manufacturers, Gong said.
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