M&A Announcement

Jan 19, 2017

Press Release

Hi, and welcome to the Alibaba Conference Call. Following remarks from Alibaba and International Olympic Committee, we will open the call to a Q and A. A. Now I would like to turn the call over to Jennifer Kuperman, Head of International Communication at Alibaba Group. Please go ahead, ma'am. Thank you. Hello, everyone, and welcome. Thanks for joining the call. We appreciate your time. Today has marked a historic day for Alibaba, and I'm excited to welcome the 2 key architects of the announcement between Alibaba and the IOC. I'm joined here with Chris Tung, our Chief Marketing Officer for Alibaba and Timo Loumay, the Managing Director of BIOC Television and Marketing Services. So before we open it up to Q and A, I'm going to turn it over to Timo and Chris just to give a little bit of color on the announcement that you saw today, and then we will take your questions. So over to Timo. Okay. Thank you, Jennifer. So I think the word I'd use is transformational. From an ISN perspective, we're really very, very excited about this deal that was announced today. Just trying to give you the sort of framework on it. This is a 12 year commitment between Alibaba and the International Olympic Committee. Alibaba becomes a member of Olympic Committee. Alibaba becomes a member of our global partner program known as TOP. And so they'll have global rights in various aspects of their work. The key driver of this is that as the IOC continues to implement its strategic road map known as Olympic Agenda 2020 and particularly embracing the digital opportunities, really the best in class global leaders in the digital world. And so this is really the rationale for the deal with Alibaba. The areas of cooperation in this deal, and by the way, I would call it much more than a partnership on the top but also a strategic alliance, is firstly, in the area of helping to really step change the organization, the management of the organization of the Olympic Games. And in that way, Alibaba has become our partner in providing cloud infrastructure and cloud services. And I'll let Chris talk more about that. But this is really a sort of a key development for us in the organization and management of the Olympic Games. Secondly, for many, many years, the Olympic passes, the IOC in particular, has had a vision of being able to create, rather like TOP, a global partner program. We'd like to create we want to create a global licensing and merchandising program. So anyone in the world would be able to access any type of Olympic licensing and merchandise. And now with Alibaba, which is the undisputed leader in e commerce, we have the ideal partner to be able to create that platform. And as such, Alibaba becomes the official e commerce platform services partner. Thirdly, as many of you know, the another key strategic aim of the Olympic Agenda 2020 was the launch development of the Olympic channel. So it was launched, usually at the or after the closing ceremony at the Rio Games last year at the end of August in 2016. And now we're looking to continue to evolve and develop the project. And so in Alibaba, we have the ideal partner to go after the 700,000,000 plus online consumers in China by creating a localized version of the Olympic channel in local language, local content using the partnership with Alibaba. Yes. Hi, everyone. This is Chris from Alibaba. I can't agree with Tino more on his comments on the strategic meaning behind our partnership. As Jennifer mentioned earlier, today marks a historical moment for Alibaba when we launched this strategic deal with IOC. And this partnership extends way beyond sponsorship. The scope of this partnership is unprecedented. By bringing the power of Alibaba's innovation across e commerce, cloud services and digital media platforms, big data analytics, we will be able to help the IOC and the Olympic movement achieve their vision of transforming the Olympic Games for a new digital era. And we will create a digital platform that carries the Olympic spirit's games and content and take it as such as a platform to engage and connect to consumers worldwide, especially young generations. So this is certainly a very exciting partnership and we will work very closely to support the IOC in this game changing partnership relationship. Great. Thank you. Operator, I think we're open to taking questions. Thank you. Thank you. Ladies and gentlemen, we will now begin the question and answer session. The first question comes from the line of Ed Driller from Aranda Riggs. Please ask your question. Good afternoon, everyone. To be clear about the use of Alibaba as a global platform for Olympic e Commerce, I hope I'm saying this in a correct way. This means people can buy Olympic licensed products from throughout the world from different countries, which they weren't able to do before. Is that right? Ed, it's Timo here. Good morning to you. You're absolutely right. I mean, you're obviously very familiar with Olympic Agenda. If you look at recommendation number 34, it talks about creating a global licensing and merchandising platform and program. What we've been doing at the IOC for some time is working with the different Olympic parties, obviously, the organizing committees, but also the National Olympic Committees representing the teams around the world to create this patchwork, if you like, of a cleared platform so that we can effectively sell each we can move beyond the current model whereby team merchandise is only available in the territory of the team. And so what we now need is the technological platform, the e commerce platform and the provider to be able to build that out and operate it and create a business that's able to go after the 2,000,000,000 or so consumers that Alibaba is facing to be able to reach by 2020. So that's absolutely right. So for example, Newhouse sitting in Atlanta, in the future, we would hope that you would be able to buy, for example, a TV, Zillow and apparel through this platform. And somebody sitting in Shanghai would be able to buy, for example, Olympic merchandise, which might be on sale in a country like Finland, for example. Just a follow-up now. Have you considered doing this with Olympic tickets? Well, what I would say, Ed, is that when we talked about the sort of strategic nature of this is that you can see that the if you like the sort of the construction of the digital platforms allow us to bring in one of our new partners' great strength, which is innovation. And so I think it is absolutely possible that in the future, we may indeed partner up, for example, on other areas, and I wouldn't exclude tickets. But these are some of the things that we're going to work through in the weeks months that come. But I think the main point to bring is that it opens up completely new avenues, new possibilities, new ways of thinking now that we have a great strategic digital partner. Yes. Thank you very much. If I may elaborate a little bit on concept of global e commerce platform. The model that Alibaba operates is a platform that connects merchants as well on the other hand, we connect with billions of consumers to meet their demands. So what we will do in the future is to by leveraging our intake assets, we'll be able to open up this great asset being trademarked, being designed or content to provide an asset pool to our merchant pools. So to be able to make quality products and also integrated with our content, let's say, from on the channel to be able to create an immersive shopping experience. So to consumer, it will be a different shopping experience. It's much more relevant, much more exciting to be able to understand what the Olympic license product has to offer. But on the other hand, the assortment and quality of the products will be significantly enhanced because of the merchant pools and also the management system that we put in place to be able to track all the creation process. So it would be a much more effective platform to be able to provide more products to the consumers along the line of sports. The next question comes from the line of Ben Fisher from Sports Business Journal. Please ask your question. Hi, thanks for taking the time. Mr. Tong, this is for you primarily. It sounds like all the things that you'll be doing for the IOC and the Olympic movement, to me it begs the question, why is this a sponsorship and not just a service providing contract? If you're doing so much for them, then why not just take a check from IOC for helping them with all of these various initiatives? What's the point of making this a sponsorship relationship? This is a mutually beneficial partnership. I think it's not appropriate to define it as one way or the other to it's not a client and service provider at all. I think from an IOC standpoint, they will seek to our health by leveraging our assets, expertise to be able to transform the game experience and stage to stage the game in a much more effective way. But on the other hand, we will be able to support Alibaba's continuous growth as a global brand by staging on this global platform and creating impact and relevance throughout the world. So it's a mutually beneficial partnership rather than a buy sell deal that we're making. One quick follow-up on that. Did you consider sponsoring games by games? I mean, I know there's a lot of companies that have seen a lot of value in just doing deals with major Olympic committees or particular host committees. Did you consider that at all before going down the path with the IOC and the TOP program? Well, as we explained, this partnership goes beyond a typical TOP program. So as a part of the partnership with the top part, Alibaba will be able to hold rights in the category of cloud services and e commerce platform services and secure the rights of advertising promotion, etcetera. But on the other hand, there are strategic initiatives that we're going to work together that will cover cloud. The unbower will bring the best in class cloud computing infrastructure and cloud services to help Olympic Games operate more effectively and e commerce platform, which we just talked about and also content collaboration, which is Olympic channel. And so the breadth and the strategic depth is something that it's really unprecedented. It's really hard to compare with any existing top program. And I'll pass Ben. It's Timo here. So just to complement what Chris has said, I think what underpins the ability for us, the IOC, to deliver on these objectives for Alibaba, at the end of the day, is our global rights. Global rights were all rights of association, all marketing rights, all commercial rights across associations to the games, to all the Olympic teams, to the development of the e commerce platform and of course, the Olympic channel. So none of these things would have worked under a service provider relationship or an individual territory rights situation. They all work because the TOP program is able to deliver global rights across these different asset groups. Our next question comes from the line of Selina Vang from Bloomberg Manus. Please ask Ms. Wang from Blue Moon Manors. Please ask your question. Your lines are open to ask question. Sorry, I was on mute. So since users around the world can purchase, does this mean that global consumers will be able to make an Alipay account? And in addition to that, how much added revenue do you estimate that this will bring? So this is for me, I guess. Alipay? Yes. Well, can you repeat the question? It was hard to hear you. Okay. Sorry. So because this will be targeted to global consumers to be able to purchase on this e commerce platform that will be created with the IOC, Does this mean that there will be a new way for consumers to easily around the globe create an Alipay account? Will that be required to purchase on this platform? And in addition to that, how much added revenue do you estimate that this partnership will bring? Let me just add one before I hand it to Chris. Remembering that we have currently through 2020, we have a global top partner and Visa is payment systems. So they will have certain rights and effectively have the exclusive rights around payment systems. But with that, let me hand it over to Chris. Yes. I don't think it's a barrier for customers to buy products on Alibaba platforms anywhere in the world because this platform is designed in such a way that it accommodates most of the user friendly payment schemes. So it won't be an issue for us even in the markets where Alipay is not ready yet. Well, for revenue, we're going to kick off this partnership and have our team ready to figure out the roadmap of the product, the platform launch milestones as well as the business model for some of the revenue driven opportunities including e commerce or even a content platform, which is only bigger channel. So these things will be figured out, but I don't have the number for you at this point. Thank you. Yes. The next question comes from the line of Kevin Natley from aroundorings.com. Please ask your question. Good morning. Can you explain how this deal with the IOC is different from Alibaba's deal with FIFA? And would this be the biggest partnership for Alibaba? Well, as we said, we're excited about the deal. I think mainly driven by the fact that it covers many in very strategic initiatives that both IOC and Alibaba cared about. And there's a very good opportunity to leverage what Alibaba can do from a technology expertise, media asset standpoint to support IOCs to realize the transformation and be able to provide a new game to connect with consumers. That's what we feel excited about. And that's why I think this partnership is unprecedented because unlike most of the sponsorships that most of the brands have done or you mentioned FIFA, it never included strategic initiatives like this and cover such a wide range and also a good leverage has a good leverage of what both parties contribute and also have a shared vision for longer term with the longer term commitment in place. So there's quite a few elements in this partnership that really sets the whole thing apart from a regular sponsorship, if you can understand what I'm saying. Okay. Thank you. The next question comes from the line of Nick Butler from Insider Games. Please ask your question. Hi. You've kind of given this impression already, but just to be clear, would you say Alibaba would have entered into this partnership with the IOC if Beijing had not been hosting the Winter Olympic Games in 2022? Today, Alibaba's e commerce service already cover more than 200 markets in the world. And Alibaba Cloud Services also has 14 regional office in the major continents around the globe. We're ready at this point to service any global initiative that could leverage the expertise and technologies of Alibaba Group. So I think it's a perfect timing for us to have this opportunity to talk to the IOC and be able to nail down the scope of this partnership in such a strategic manner. In our mind, I think Beijing Olympics just makes this whole thing even more exciting, but I wouldn't say that's a key factor of our considerations. But for sure, with Beijing 2022 game coming, we expect it to take the Beijing Olympic as a perfect chance to showcase what partnership is about. So that would be a key milestone that we're looking at and have our dedicated resource to support. The next question comes from the line of Isuz Keller from Cantor Fitzgerald. Please ask your question. Hi, excuse me. Thank you and congratulations on the transaction. Two questions for Chris, if I may. First, can you talk about whether this was a competitive bid in other ways? Were there other partners that you were thinking of potentially partnering with? And obviously, Amazon comes to mind, but was there 1 or 2 key things that separated Alibaba or gave Alibaba the edge? And second, maybe for historical perspective, and this goes back to another question that somebody else asked. In trying to size maybe the opportunity here from a revenue standpoint, can you just help us understand or quantify the size of the promotional kind of paraphernalia that the step of the event has historically generated maybe say the last time around and whether all of that is addressable under this potential deal under this relationship? This is Timo. It's actually probably more appropriate for me to take a stab at the first question. So just so you know, the cloud infrastructure has been quite competitive in terms of there have been a lot of interest being presented over the last couple of years in terms of potential partnerships to the IOC. So yes, there were more than one company involved in this, but it became very apparent to us and very clear to us, I think, for all the reasons that we mentioned that Alibaba was really far and away the partner of choice for us, both in terms of the length and the depth of the commitment, but also the breadth of the commitment in terms of the different areas that this strategic alliance is based around. I think we're happy about how we're taking this partnership in a totally different way. I do remember when I approached Tmall, had our first meeting, I had myself on my pitch to Tmall by saying that if we become a partner of IOC, we will become the partner's partner Because most of the top partners for IOC today, including Coca Cola, Samsung, Panasonic and all that, Global brands are important brand partners that have flagship stores and running a business Alibaba in a very significant way. So by having Alibaba as a new member to the family, we shall be able to expect a different chemistry and dynamic going on to make this hotel program even more effective way to support the brand globally. Yes. We'll be taking the last question for today. And the next question comes from the line of Ben Fisher from Sports Business Journal. Please ask your question. Mr. Fisher from Sports Journal. Journal. Sorry, I was on mute. Sorry about that. On the e commerce side of this deal, does the deal include guaranteed revenues to Alibaba? This is Bernie, this is Timo. Look, I mean, as you know, any sort of sales, retail exercise involves planning, building out the platform, building out the consumer proposition, bringing the merchants online, all of that sort of thing. So it's a little bit too early to talk about revenues or guaranteed revenues. What we're committed to and what Alibaba is committed to the Olympic movement is to provide absolutely best in class, e commerce platform services in terms of creating the platform and all the assets and expertise, know how, technology to back that up. So we're incredibly confident that when we do come out with the offering, it's going to be something that Olympic fans around the world will be really, really keen to engage in and purchase from. Okay, everybody. Thank you so much for joining us today. Thanks to Chris and CMO, and thanks to you all. Have a good day. Thanks everybody. Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect. Thank you.