Baidu Wants to Show You Something

By Rick Aristotle Munarriz | More Articles
January 6, 2010 | Comments (1)

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China's leading search engine wants a bigger role in the clip-culture revolution.

Baidu (Nasdaq: BIDU ) is apparently teaming up with Hulu investor Providence Equity Partners to launch a Hulu-esque service in China, ultimately offering a free ad-supported site loaded with licensed content.

PaidContent.org is confirming that the joint venture is in the final stages of negotiations, though an official announcement is likely several weeks away.

Let's not get too excited here. If monetizing video sites that serve up low-paying display ads to offset chunky bandwidth costs is a challenge domestically, one can only imagine the difficulties in China.

Baidu is an amazingly profitable company, but only because its bread-and-butter business consists of generating leads through lucrative paid-search ads via China's leading platform. Folks don't consume video clips because they're searching for something to buy. They just want to be entertained.

Those obstacles aren't stopping China's brightest dot-com stars from upping the ante on eye candy. Shanda (Nasdaq: SNDA ) acquired video-sharing site Ku6.com two months ago. A few weeks later, it announced that it would be part of an online consortium bent on acquiring licensed video content for Internet streaming. Back in August, online gaming specialist Perfect World (Nasdaq: PWRD ) even put out a theatrical release.

Like stateside actors, it seems Chinese dot-commers all want to direct.

Baidu investors must hope that video ventures don't eat into the company's profits, as its foray into Japan has over the past two years. Baidu has managed to rise above that sinkhole, thankfully. Revenue and earnings rose 39% and 42%, respectively, in its latest quarter, despite a $0.17-a-share hit in Japan.

Providing a sticky destination -- even if it's profitless in the near-term -- would also be a sound decision if it keeps Chinese Internet users closer to Baidu, instead of letting them wander off to competing search portals such as Google (Nasdaq: GOOG ) , Yahoo! (Nasdaq: YHOO ) , or Microsoft’s (Nasdaq: MSFT ) Bing.

In the end, Baidu's move is all about the big picture -- even if it's streaming on a small screen.

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Microsoft is a Motley Fool Inside Value recommendation. Baidu, Google, Perfect World, and Shanda Interactive Entertainment are Motley Fool Rule Breakers picks. Microsoft and Perfect World are Motley Fool Options selections. Try any of our Foolish newsletter services today free for 30 days.

Longtime Fool contributor Rick Munarriz has only been to China once, but he relishes admiring its dot-com revolution from afar. He does not own shares in any of the stocks in this article. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

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Report this Comment On January 06, 2010, at 2:56 PM, jdlech wrote:

Hulu is free only to gather a large viewership pool.. They plan to start charging a fee sometime this year.
http://thenextweb.com/2009/10/22/hulu-charging-year/
When they do that, you can expect viewership to drop quite substantially as people go back to getting their favorite shows via torrents and other means. It's not certain if Hulu will be profitable with substantially reduced viewership and advertising value.
One can expect that what happens in North America may well happen in China. Baidu is sharing the risk.

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