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Strategic push puts Xiaomi onto center stage

Chinese smartphone maker charts roadmap for bigger presence in video and content services market, reports Gao Yuan.

Xiaomi Corp, an emerging handset maker, said on Wednesday it had made a 1.8 billion yuan ($294 million) investment in online video provider iQiyi, a unit of search giant Baidu Inc.

Shunwei Capital, an investment firm set up by Xiaomi founder and CEO Lei Jun, will be an investment partner of the Beijing-based handset maker. Like Xiaomi, Baidu has also increased its investment in the video website with an undisclosed amount.

Gong Yu, chief executive of iQiyi, said the site will help Xiaomi "greatly enlarge" its video resources, which it plans to deliver to its hardware users free of charge. Most of the investment will be used to produce self-made video contents, according to Gong.

He said the companies will also expand cooperation in the mobile segment, where Xiaomi is on track to become the largest smartphone vendor in China during this quarter. Both the companies did not disclose how much of a stake in iQiyi Xiaomi got from its investment.

Lei pledged to invest $1 billion in the company's video content development business a month ago.

Earlier this month, Xiaomi hired Chen Tong, the founder of China's largest micro-blogging network Sina Weibo by user numbers, to oversee the cultural and media businesses.

"We will mainly invest in video makers in the future," Chen told China Daily on how he will spend the remaining $600 million budget.

"There are some potential investment plans going on but we are not ready to disclose them," he said.

Last week, Xiaomi injected an undisclosed amount in Youku Tudou Inc, a major rival of iQiyi. It marked Chen's first major move since joining Xiaomi.

The two companies will jointly develop content and technology, including multi-screen online video services, the statement said, and work together in the production and distribution of online videos and movies.

"The partnership aims to accelerate the development of its multi-screen media and entertainment ecosystem," according to Youku Tudou.

Analysts said the high-profile moves from Xiaomi will steer the landscape of the rapidly growing online video sector.

Tian Zheng, vice-president of the business solutions unit at Analysys International, said good video resources have always been scarce for companies like Xiaomi. "Unlike LeTV, which is planning to become a hardware maker/content provider, the biggest disadvantage of Xiaomi's ecosystem is the lack of fresh content," Tian said.

Most Internet giants in China anticipate the cultural and entertainment industry will grow into the next billion-dollar-revenue market.

On Wednesday, e-commerce giant Alibaba Group Holding Ltd and Internet company Tencent Holdings Ltd said they would increase their stakes in local film maker Huayi Brothers Media Corp. Industry insiders said a new round of integration is underway in the entertainment industry after the Alibaba, Tencent and Xiaomi moves.

Xiaomi and its online video partners will be able to produce more self-made video programs to compete with traditional television networks and other online streaming video providers, analysts said.

"Xiaomi has a straight forward playbook," said Tian. "The company has gathered sizable hardware users and it will be easier for it to distribute content to end users via the Xiaomi-branded smartphones."

Xiaomi, the current No 2 in Chinese smartphone market, is on track to overtake Samsung Electronics Co Ltd to become the largest vendor, said Tian. Samsung is facing tough competition from a slew of local vendors like Xiaomi, Lenovo Group Ltd and Huawei Technologies Co Ltd.

By the end of July, nearly 290 million Chinese people were using mobile devices such as smartphones and tablets to watch videos, while the number was about 140 million in July 2013, Tian said.

According to Analysys International, Samsung controlled 15.4 percent of the market at the end of the second quarter, with Xiaomi just behind at 12.4 percent.

Luo Lan, a researcher with Analysys International, said: "As Xiaomi consolidates its position in the hardware market, it is time for the company to make more investment in other segments to beef up its ecosystem."

Statistics from industry consultancy iResearch Inc showed that the turnover of Chinese online video market had reached 7 billion yuan in the third quarter, a jump of more than 83 percent year-on-year.

Advertising remains the major revenue earner for local video sites with more than 60 percent of the industry's total revenue coming from advertisements.

Xu Hao, an analyst with iResearch, said as Internet TV usage increases in China, online advertising will play an even bigger role in driving revenue.

"Mobile video streaming is a major investment platform for Chinese advertisers," Xu said.

Video sites are also eager to find hardware partners to reach out to more audiences. They are heavily invested in self-made content to get an upper hand in competition, said Xu, and need someone to write the cheques for such investments, said Xu.

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