Baidu Confirms $370M Purchase Of PPS, Underscoring Online Video’s Importance For Internet Companies Around The World

After weeks of rumors, Baidu finally confirmed today that it has acquired the online video business of Shanghai-based PPS for $370 million. PPS will be merged into iQiyi, Baidu’s video platform Baidu, to form China’s largest online video platform by the number of mobile users and video viewing time.

The sale is expected to close in the second quarter of 2013. PPS will continue to operate as a brand of iQiyi.

The deal allows Baidu to step up its competition with video platform Youku-Tudou. At the end of last month, before Baidu had officially announced the deal, Youku-Tudou president Dele Liu made a statement about his company’s competitors: “After the success and synergy created by the Youku Tudou merger, increasing consolidation was inevitable throughout the video industry. We are happy to see this purchase go forward, we expect this acquisition will further rationalize the industry and help reduce piracy in the sector.”

Despite the somewhat cheeky tone of Liu’s comment, the purchase of PPS does indeed position Baidu as a formidable competitor to Youku-Tudou, which was previously China’s biggest video site according to Analysys International.

Baidu’s purchase also underscores the importance of online video for Internet companies all over the world as they seek to sell more premium advertising, keep up with consumers’ viewing habits as they shift to online content, and take away market share from TV.

For example, reports of Baidu’s decision to purchase PPS emerged around the same time Yahoo made a $200 million bid to take a majority stake in Dailymotion, the “YouTube of France.” The deal was scuttled by the French government because it did not want a U.S. company taking a controlling stake in a French operation, but if it had gone through, the cash infusion would have helped Dailymotion compete with international rivals like YouTube while allowing Yahoo to build up its video offerings.

AOL (our parent company) also emphasized the importance of online video at the end of last month when it unveiled three new initiatives, including 15 original, unscripted shows; a new creative studio called Be On; and a deal with FreeWheel and Mediaocean. Of course, it remains to be seen if any of these initiatives prove to be as successful as Google’s prescient $1.65 billion acquisition of YouTube in 2006.

“The merger of iQiyi and PPS’s online video business is a major step toward consolidation in the industry and will contribute to the development of China’s Internet video industry. The merger will generate significant synergies, and will provide for an improved user experience as well as more and better content. It will also deliver better marketing value and a wider range of options for advertisers,” said iQiyi CEO Gong Yu in a statement.