Image source@Visual China
Text | Photon Planet
On the first day of 2024, Baidu spent 1,172 days initiating a "return" request.
On the evening of January 1, the Hong Kong Stock Exchange announced that Moon, a related party of Baidu, terminated the equity acquisition agreement of YY Live in accordance with the previously signed agreement. This means that Baidu's acquisition of YY Live, which spanned three years, fell through. According to the announcement, the company will seek to discuss with Huanju Group the next steps after the termination of the share purchase agreement.
Photon Planet asked Li Xueling, co-founder, chairman and CEO of YY, about this matter, but the other party did not officially reply as of press time.
On November 17, 2020, Baidu announced that it had acquired YY from Huanju Times, with a total transaction value of about $3.6 billion. At that time, Robin Li, the founder of Baidu, once said: We are ready to deeply integrate with the video social media YYLive, and there are still great opportunities for the development of live broadcast in Baidu's ecosystem.
However, time flies, Baidu and YY have not completed the "deep integration" mentioned by Robin as expected in the past three years, not only have there been many reports in the public domain that Baidu's internal live broadcast system and YY are competing for resources with each other, but YY, as a live broadcast platform, is no longer in the limelight under many factors such as regulation and competition.
Unable to integrate into the Baidu system has always been the loudest one in the industry's doubts about YY.
Therefore, it seems that it is only a matter of time before Baidu ruthlessly "regrets marriage". We also learned from multiple sources that Baidu initially attached more importance to the YY business, and since May 2021, it has tried to integrate the YY business into the ecosystem, and has also rotated jobs several times at the frequency of "one change a year" in an attempt to accelerate the integration process.
A person close to Baidu said: "I was ready for dinner and was about to serve it to the table, when my friend sent me the announcement, and it was so embarrassing." ”
The above situation undoubtedly casts a cloud of doubt on this New Year's opening drama.
Not all live broadcasts, all are "cash cows"
In 2020, live broadcast will enter the era of the whole people, and Baidu will make frequent moves, and it will only be a later story to pay a sky-high "bride price" to acquire YY.
A brief review of Baidu's actions before the acquisition of YY, it launched the live broadcast function of Baijiahao in March 2020, and then officially announced the "Gathering Energy Plan" to attract middle-waist anchors at the Vientiane Conference in May.
With the graphic content platform Baijiahao as the traffic source of the live broadcast, Baidu chose "knowledge" as the differentiated incut of its live broadcast track. Shen Dou, then executive vice president of Baidu Group and head of MEG, also publicly stated that Baidu was doing "live broadcast with information and knowledge as the core".
Under the basic business of search, the clear need for knowledge has given birth to the internal live broadcast business, which is a typical business logic of "holding a nail to find a hammer", but it is not easy to achieve the final game of knowledge payment.
In the absence of a significant increment, the emergence of the live broadcast format itself will snatch the traffic in the form of graphics and text. On the other hand, the fragmentation and compulsion of knowledge live broadcast are not conducive to knowledge dissemination, and the link of self-live broadcast to online education is also difficult to open in a short time.
Driven by domestic demand and economic benefits, Baidu needs to open up a more "cash cow" second battlefield in the live broadcast track, and pan-entertainment and bringing goods are the only two options. As a result, as early as 2011, YY, which rose with the live broadcast of the show, naturally entered Baidu's field of vision, and even if the acquisition of YY was not achieved, Baidu would also look for other high-quality targets.
It's just that the next three years have been three years of declining live shows.
In terms of regulation, in May 2022, the four ministries and commissions jointly issued the "Opinions on Regulating Online Live Streaming Tips and Strengthening the Protection of Minors", which clearly restricts live shows with tips as the main source of revenue. In terms of the market, there are also platforms led by Doukuai that monopolize most of the traffic in the form of short video + live broadcast, so that the top show live broadcast platforms such as Huajiao and Yingke have started business transformation one after another.
More importantly, YY live broadcast, which was nicknamed "Whampoa Military Academy" in the industry in the early years, can be said to be a model of the "platform-union-anchor" model of the live broadcast track, and the balance and commission between trade unions have always been a big problem. This became more prominent as traffic peaked after the relatively vigorous game live broadcast was stripped away, and then reflected in its revenue performance.
Since the merger and acquisition, YY has been "hidden" in the Baidu system for a long time, and the perception that the outside world can enter the Baidu system is also concentrated in a very small number of cooperative businesses, such as the metaverse project "Super Music Collection" launched in September 2022.
Taking 2021 after the acquisition of YY as an example, according to the financial report, Baidu's non-advertising revenue in 2021 will be 21.2 billion yuan, an increase of 71% over 2020, but Baidu attributed the revenue growth to the promotion of cloud and other artificial intelligence businesses, and did not mention YY live broadcast.
It should also be noted that as early as two days after the news of Baidu's acquisition of YY, the short-selling agency Muddy Waters publicly stated that "90% of YY's live broadcast business is fraudulent, and the same is true of YY's international live broadcast business Bigo". This may not be a big deal three years ago, when the live broadcast of the show was still growing savagely, but in the current industry context, its power can be imagined.
What is certain is that both the market structure and Baidu's strategic focus have undergone earth-shaking changes compared to the acquisition of YY. So how will things develop after the acquisition is terminated?
It is understood that Baidu prepaid US$2 billion (including 100 million working capital) to Huanju Group more than three years ago, and then deposited US$1.6 billion into the escrow account in batches according to the terms of the acquisition agreement. According to the current information disclosed by Baidu, Baidu will recover the money by returning the advance payment and releasing the escrow amount.
Then, Huanju Times needs to take out $1.9 billion in working capital after the acquisition collapses and return it to Baidu, and the funds in the escrow account will naturally return to Baidu's account.
Judging from the cash flow of US$1.557 billion announced by Huanju Group in the Q3 2023 financial report, it is facing a lot of financial pressure, and Huanju Group also responded that it would seek legal advice after the news was exposed.
Wandering YY
While Melissa Ma plays an important role in Baidu's investment decisions, Ho's track record covers both investment and post-investment integration in the acquisition of YY China.
At the end of 2020, when the acquisition of YY China was proposed, the then head of Baidu Investment was He Junjie. In 2022, after the adjustment of Baidu's organizational structure, He Junjie will be at the helm of MEG, and YY will also be under its management, which can also be corroborated from He Junjie's OKR in the past two years.
In 2022, in the O3 in He Junjie's OKR, the last KR (KR5) involves YY. The statement of this commitment type KR at that time was: [YY] business and personnel remained stable, YY's total revenue reached xxx, and OP reached xxx. Among them, the OP may be the size of the O&M team. If you understand it well, then in 2022, Baidu's focus for the YY team is to maintain the current scale.
A year later, the part involving YY also appeared in He Junjie's OKR, also in O3, but it changed from the penultimate KR to the penultimate KR, which is still a commitment type. The reason for emphasizing the order of the KR is that the higher the O and KR are in order, the higher the importance. Its expression is: [YY] continue to improve the health of the business, stimulate the vitality of the organization, play a good annual competition, and the gross profit reaches xxx yuan. This shows that improving profitability is the core goal of YY in 2023.
It should be pointed out that Baidu will formulate OKRs for the new year in the first quarter of each year, and adjust specific KPIs according to the progress of the business in each subsequent quarter. In the content of OKRs in 2023, goals are put forward for both people and organizations, which shows that at least until the first quarter of 2023, Baidu MEG has no intention of "returning" YY.
According to a Baidu MEG source, in the past three years, he only remembers that there was one collaboration in the "Baidu China Year" in 2021, and there was no interaction. "On the one hand, YY is headquartered in Guangzhou, and the two teams have little contact, and on the other hand, as a live broadcast business, YY has never been included in Song Jian's work. Song Jian, general manager of Baidu's content ecological platform, has been fully responsible for Baidu's short video business since November 2020, and is currently in charge of all Baidu content matrices such as graphics, short videos, and live broadcasts.
When we asked another person familiar with the matter whether Song Jian's 2023 OKR involves YY, we got a negative answer. This seems to reflect the awkward state that YY has been in for three years after its merger into Baidu: Baidu's investment department bought it and transferred it to MEG, but it was not used as a content business, but reported directly to the head of MEG.
After a simple combing and merger, we also found that the person in charge has changed frequently, and there are multiple vacuum periods, which proves that YY has been in a semi-autonomous state in the past three years.
In February 2021, Cao Xiaodong, vice president of Baidu, was appointed as the head of Y, and after Cao Xiaodong's departure in December, YY was once in a state of autonomy. After the adjustment of the organizational structure in May 2022, He Junjie began to directly manage the YY business. He Junjie didn't take care of it for a long time, and handed it over to another person in charge, among the three in charge, in fact, Cao Xiaodong was very good, but unfortunately he left in less than a year. ”
In addition, the live broadcast outlet has passed, and the scale of profits brought by YY is extremely limited, and it is difficult to recover the investment cost of 3.6 billion US dollars, so giving up the acquisition at this time can be regarded as a successful decision.
In 2021, in the prospectus of Baidu's secondary listing in Hong Kong, it was disclosed that the proportion of YY in Baidu's total revenue, gross profit, and net profit was disclosed once, and as of 2020, YY live broadcast accounted for 9.3%, 8.9%, and 16.5% respectively. Combined with Baidu's relevant data in 2020, it can be seen that the total revenue of YY Live in 2020 was about 9.96 billion yuan, the gross profit was about 4.62 billion yuan, and the net profit was about 3.69 billion yuan.
Although Baidu has not disclosed YY's income since then, the feedback from the anchors on the station and the live broadcast of the show show indicate that YY's revenue growth may have encountered problems.
In the graphic section of YY live broadcast "Crooked Reading", there are many posts this year that mention the decline in the income of anchors on the station, among which male anchors, especially the gossip live broadcast room with news as the topic, showed a cliff-like decline. Some anchors even said, "It's been a long time since I've seen Shenhao's Hao brush."
In terms of the general environment, the supervision of the live broadcast industry continued to tighten, the income of Douyu and Huya declined, including the income of Tencent Music's social entertainment sector also continued to shrink, and the revenue of Kuaishou's live broadcast sector (non-e-commerce part) fluctuated. The head is still difficult, and the niche YY may not be spared.
中年Robin要“稳稳的幸福”
In our earlier article "The Captain and the Rudder: Baidu's AI Roadmap", we analyzed the OKRs of Robin Li and Junjie Ho, mentioning that throughout 2023, generating revenue and making money will be the only important thing for Baidu from top to bottom.
Over the past year, Baidu's internal organizational decisions have continued to grow, with demotion or marginalization of vice presidents and directors, and the fact that departments that have not yet achieved profitability have either been slimmed down or eliminated altogether in the past year. For example, Baidu's gaming department, IDG (Intelligent Driving Business Group), and the Dolly Bear team in the smart applet department.
In a sense, Robin Li's "regret of marriage" is also a manifestation of "tightening his belt" to reduce costs and increase profits.
We have reason to believe that in the past few years, Baidu has invested heavily in autonomous driving, the metaverse, digital humans, and last year's large model, Baidu needs to return cash flow more than ever. In 2020, 2021, and 2022, Baidu's cash, cash equivalents, and restricted funds were 36.54 billion yuan, 47.67 billion yuan, and 65.24 billion yuan, respectively, maintaining stable growth. Constantly withdrawing funds seems to be accompanied by a certain conservative financial strategy.
It is worth mentioning that before withdrawing the merger and acquisition of YY, Baidu also reduced its holdings of Ctrip shares several times throughout last year. According to estimates, Baidu will reduce its holdings by a total of 24.98 million shares in 2023, with a total cash amount of about $914 million. Therefore, from the capital level, the withdrawal of the merger and acquisition of YY may be part of a series of operations for Baidu to withdraw funds.
For Baidu, cutting off the business that cannot be self-financed, and the "return" profit is less than expected, which objectively helps the business focus and reduces unnecessary investment. In addition, the merger and acquisition of YY was not optimistic, and now the withdrawal of the merger and acquisition is equivalent to spending three years to complete the "stop loss" action that should have been completed.
At present, 55-year-old Robin Li "regrets his marriage", and the real uncomfortable is 50-year-old Li Xueling, after all, if you want to talk about "twilight love" again at the age of fifty, what you lack is not money, but time.