Alibaba Snags NetEase’s Kaola for $2 Billion — And Drops $700 Million on NetEase Cloud Music

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Photo Credit: The Pop Culture Geek / CC by 2.0

Alibaba has purchased NetEase’s Kaola e-commerce platform in a deal worth $2 billion.  The deal also includes a massive investment in NetEase’s music streaming service.

Alibaba is now control of the biggest Chinese online marketplace for foreign brands.  Its own platform. Tmall Import and Export, is simply dwarfed by Kaola.  According to the terms of the deal, Kaola will operate independently under a new CEO. Alvin Liu is a Tmall veteran who will assume the role.

Alibaba co-founder Jack Ma’s Yungfeng Capital also invested $700 million in NetEase Cloud Music.

NetEase will remain the controlling shareholder of its music app, according to deal terms shared with DMN.  Both Alibaba and NetEase have fought vicious battles against Tencent Holdings, which is emerging as a ferocious heavyweight in the music space.  The rapid ascent of Tencent has forced an unlikely partnership between Alibaba and NetEase.

With the sale of the e-commerce platform, NetEase will focus on its gaming business. Meanwhile, Alibaba will focus on strengthening its cross-board e-commerce platforms. Alibaba and Kaola control around 60% of all Chinese purchases of foreign brands.

The huge investment into NetEase Cloud Music comes just after $600 million raised in a fundraising round. Baidu Inc., General Atlantic and Boyu Capital are just a few of the firms participating in that funding round.

China is currently investigating rival Tencent Music Entertainment Group over its licensing practices. Tencent Music and NetEase Music agreed to relicense 99% of their music catalogs to one another. The 1% exclusive content is how the two services are trying to set themselves apart.

So where will the $700 million be deployed?  Shenzhen analyst Shawn Yang says NetEase will use the funding to buy copyrights.  If true, an IP grab could spike prices worldwide for coveted catalogs, which is great news for owners of valuable IP.  Throughout, NetEase is hoping to eventually rival Tencent Music Entertainment in China, though Tencent’s partial purchase of Universal Music Group will make that a difficult challenge.