iQiyi to invest US$50m in Iflix?

This article first appeared in The Edge Malaysia Weekly, on January 22, 2018 - January 28, 2018.
-A +A

CHINA-based video-on-demand service provider, iQiyi, which is majority-owned by internet search giant Baidu Inc, is said to be in talks with Iflix to invest in the Malaysia-based, global video streaming service provider with a focus on emerging markets.

According to sources privy to the matter, the investment in Iflix involves iQiyi subscribing for convertible notes worth US$50 million. It is not known how much of equity interest iQiyi would own in Iflix but the sources say it would not be more than 5%.

“The investment by iQiyi is going to be the third round of fundraising by Iflix, or its Series C. Its existing shareholders are expected to pump in money as well to maintain their shareholding levels,” says a source.

“Iflix is expecting to raise a total of US$100 million in this round, which will enable the group to continue expanding its content library and embark on more localised original programmes.”

If the deal with iQiyi materialises, Iflix is likely to be valued at US$800 million, says a source familiar with the deal. Last year, the company raised a total of US$223 million from two rounds of fundraising — Series B and Series B-Extended.

When asked about the potential fundraising involving iQiyi, Iflix co-founder Patrick Grove says the group is always looking to raise funds, either by having its current shareholders pump in more money or getting new investors.

He confirms that Chinese companies have expressed interest in investing in Iflix but does not name any.

Besides Catcha Group, which owns 49.7% of Iflix, other substantial shareholders of the group are Sky Ventures Ltd and EMC Holdings LLC, each with a 10.1% stake, Hearst (8%) and PLDT Online Investment Pte Ltd (5.8%).

Sky Ventures is the venture capital arm of the UK-based integrated media company Sky PLC, whose largest shareholder, Twenty First Century Fox Inc, is being acquired by Walt Disney Co for US$52.4 billion.

Media mogul Rupert Murdoch’s Fox is also in the midst of acquiring the rest of Sky’s shares it does not already own for US$15.7 billion.

EMC is part of Evolution Media Capital, a growth-stage investment and advisory company based in the US while Hearst is a US-based media company that holds majority stakes in cable networks such as A+E, HISTORY, Lifetime and ESPN.

Founded in 2015, Iflix is now available in 19 emerging markets in Southeast Asia, the Middle East and Africa, with a subscriber base of about five million. As at Dec 31, 2016, Iflix Sdn Bhd reported a net loss of RM271.99 million on revenue of RM121.8 million.

 

Chinese interest not new

iQiyi is not the first Chinese investor said to be interested in Iflix. According to sources, the video streaming service provider was approached by Alibaba late last year.

An article published by Thomson Reuters unit International Financial Review last week said iQiyi had applied for an initial public offering in the US to raise US$1 billion of fresh capital. Could the company be eyeing Iflix as the latest addition to its stable as it prepares for a public listing?

“Patrick (Grove) is a frequent visitor to China, looking for investors there. He managed to gain Alibaba’s attention and the two parties were seriously discussing an investment in Iflix,” says a source who worked on the deal.

“However, at the very last minute, before the investment could be finalised, Alibaba pulled out. Iflix was quite taken aback because the negotiation was already at the tail end.”

But when asked to confirm Iflix’s negotiation with the e-commerce giant, Grove denies it, although he confirms that there were negotiations on a collaboration with Alipay in Indonesia.

“There were no detailed talks with them (Alibaba). We often talk to Alibaba about many projects, including Iflix and the Digital Free Trade Zone. Iflix is 100% focused on being backed by the right global strategic partners with deep international media expertise,” he says.

“The only detailed talks (with Alibaba) were regarding Iflix and Alipay collaborating in Indonesia and hopefully the region after that. Alipay’s JV partner in Indonesia is EMTEK (PT Surya Citra Media tbk), which is also an investor and shareholder of Iflix.”

EMTEK is an Indonesian media group that owns two of the nation’s largest TV channels — Surya Citra Televisi and Indosiar Visual Mandiri. The group holds a 1.2% stake in Iflix.

An article published by Thomson Reuters unit International Financial Review last week said iQiyi had applied for an initial public offering in the US to raise US$1 billion of fresh capital. Could the company be eyeing Iflix as the latest addition to its stable as it prepares for a public listing?

 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.