Alibaba's (BABA 1.53%) streaming video site Youku recently signed new content licensing deals with Comcast's (CMCSA 0.19%) NBCUniversal and Sony (SONY -0.33%) Pictures. Recent films and franchises covered by the deal include Sony's Blade Runner 2049 and Jumanji: Welcome to the Jungle, and NBCUniversal's Jurassic World 2: Fallen Kingdom, Darkest Hour, The Fast and the Furious films, Despicable Me, and The Mummy.

NBCUniversal will also provide exclusive Hollywood entertainment programs on Youku, while Sony will launch another "So Cool Summer Rewards" event -- which offers prizes and new methods of interacting with Youku users -- next summer. The content will be offered via Youku's online platform, smart TV apps, and set-top boxes.

Three young women watch TV.

Image source: Getty Images.

What this deal means for Alibaba

Alibaba acquired Youku last year. It's currently the third largest video platform in China according to Chinese big data services provider QuestMobile and Jefferies. Tencent (TCEHY -0.30%) Video is the country's top platform, followed closely by Baidu's (BIDU 1.60%) iQiyi.

Alibaba is primarily known for its Tmall and Taobao e-commerce marketplaces, but the company is also trying to expand its cloud services ecosystem against Tencent, which dominates the country's social media market with WeChat, and Baidu, China's top internet search provider.

Streaming video remains unprofitable for all three companies due to high expenses and competition hampering their ability to raise prices, but it's still a lucrative way to tether users to their ecosystems. Moreover, JP Morgan believes that these players should approach profitability by 2019 as they pivot from ad-supported business models toward subscription-based ones. Its report estimates that the number of paid video subscribers in China could rise from about 60 million today to 234 million by 2020.

Youku's mobile app.

Youku's mobile app. Image source: Google Play.

Youku already hosts about 1.18 billion daily video views across 580 million devices. It hosts lots of domestic content, as well as overseas content, via partnerships with Disney, Time Warner, Viacom's Paramount, and other top studios.

The new deals with NBCUniversal and Sony will further expand that portfolio. However, Tencent Video and iQiyi also hold similar deals with many of those companies, so Youku is merely keeping pace instead of landing any exclusive blows.

The expansion of its media ecosystem

Youku's expansion complements Alibaba's movie-making arm, Alibaba Pictures. That business holds a near-monopoly on online ticket sales in China, and co-produced numerous films, including Mission Impossible: Rogue Nation and Star Trek: Beyond. That business directly competes against Tencent Pictures, which co-produced films like Kong: Skull Island and Wonder Woman.

Alibaba Pictures complements the company's Digital Media and Entertainment group, which includes Tmall TV, Alibaba Music, the UC Browser, its events ticket vendor, and its Alitrip online travel agency. However, that business remains deeply unprofitable, with an adjusted EBITA margin of negative 36% last quarter.

What these deals mean for NBCUniversal and Sony

China has a massive total addressable market for online video, and it will likely eclipse the US as the world's largest film market within two years. This means that media giants like NBCUniversal and Sony need to stake their claims to the market as it matures.

It's especially lucrative for Universal, since The Fate of the Furious was China's second highest-grossing film of the year, while Despicable Me 3 ranked 12th. Meanwhile, Sony has been struggling in the Chinese market, and its biggest film of the year -- Spider-Man: Homecoming, ranked 16th -- is actually a co-production with Disney's Marvel Studios.

The key takeaways

Alibaba, Baidu, and Tencent are all aggressively expanding into adjacent markets like online video, which could either win over more users or weigh down their margins. Looking ahead, investors should expect more partnerships between Hollywood film studios and Chinese tech companies as China's online video and film markets grow.