Nasdaq-listed shares of Chinese video streaming service iQiyi closed up 25.9% on Tuesday after a Reuters report revealed that Tencent is looking to buy a stake in the company in which its rival Baidu is currently the majority shareholder.
On Tuesday, Reuters reported that Tencent wants to become the biggest shareholder in iQiyi in an effort to lower costs and reduce competition as both companies have seen growth in content expenses, citing two sources.
One of the sources told Reuters that Tencent has approached Baidu, which controls 56.2% of iQiyi and owns 92.7% of the company’s voting power, to buy a stake of as-yet undetermined size. The discussions and plans are understood to be at an early stage and subject to change.
Baidu declined to comment when approached by Caixin.
Over recent years, Tencent Video, the online video arm of Tencent, and iQiyi have competed for a leading position in China’s online entertainment market, with each boasting over 110 million paid subscribers as of the end of March 2020. Tencent Video and iQiyi as well as smaller rival, Alibaba-backed Youku, provide movies, drama series and reality shows, which are either made in-house or bought from content producers.
iQiyi said that its net losses widened to 2.9 billion yuan ($406 million) in the first quarter of 2020 from 1.8 billion yuan a year ago, even though it posted a year-on-year increase of 23% in the number of subscribers in the same period, according to its latest earnings report.
A tie-up between Tencent and iQiyi would give them more bargaining power when producing and purchasing content and lower their marketing costs spend, Reuters quoted a source as saying.
– This article originally appeared on Caixin Global.