Alibaba’s Entertainment Investment Fund Yu Le Bao: 7 Things You Need To Know

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Alibaba
A woman walks past an Alibaba advertisement on a wall in Hangzhou, Zhejiang province September 26, 2013.

China’s banks can regulate Alibaba as much as they like, but Jack Ma’s company refuses to be intimidated. The Internet giant has launched another investment product, Yu Le Bao, which will allow the masses to invest in films and other entertainment ventures.

Here are seven things you need to know for Alibaba’s latest offering.

1. What is Yu Le Bao?

Alibaba announced Yu Le Bao on Wednesday using Sina Weibo, a microblogging platform. The new investment product, whose name means “entertainment treasure,” allows average Chinese to invest in films and other entertainment projects, with as little as 100 yuan ($16.10) for a movie and as little as 50 yuan for games. The largest investment any individual may make is 1,000 yuan.

The initial batch of projects includes three films and one social networking game, which together aims to raise 73 million yuan. Taobao Mobile has debuted a pre-order link, and by Wednesday evening, just a few hours after the debut, 18,546 customers have pre-ordered the product, which would raise 1.85 million yuan even if each customer only invested 100 yuan, the lower limit.

2. Why is everyone talking about it?

Alibaba has been popular in Western media for a long while, but in the past year, rumors of the company’s impending IPO have made it one of the most widely recognized Chinese companies in the world. Now news that Alibaba is certain to list in the U.S. and could potentially raise $15 billion, which would be the biggest listing in history, means that any move from the innovative company would be widely dissected.

Also, just weeks ago, China’s central bank halted payment by scanning a bar code with mobile devices, as Alibaba was readying a virtual credit card, and this week, the Industrial & Commercial Bank of China Ltd. imposed restrictions on customers with Yu’E Bao, another of Alibaba’s investment products. It’s interesting that as state banks are moving to regulate Internet banking, Alibaba has chosen to launch yet another platform that may encroach on the banks’ turf.

3. How is it different from Yu’e Bao?

Even though the two investment instruments from Alibaba have just one letter or one character in Chinese of difference, they are very different in function. Yu’e Bao was introduced nine months ago, but has already attracted more than 81 million investors by the end of February and $81 billion in deposits by the second week of March.

Yu’e Bao, which means “leftover treasure,” allows users to put any sum of money into the product, which invests in funds, and generates an annual interest of about 6 percent. Unlike Yu Le Bao, Yu’e Bao had no upper limit to investment and could earn much more than the maximum 70 yuan a Yu Le Bao investor can earn in a year.

4. Why is investing in Yu Le Bao better than putting my money in the bank?

Both Yu Le Bao and Yu’e Bao offer better terms than traditional banks, which in part explains state banks’ aggression against Alibaba recently. Investors for Yu Le Bao are offered an expected annual interest rate of 7 percent, more than twice the 3.3 percent traditional banks offer one-year deposits.

5. What does Yu Le Bao do with the deposits?

The funds pooled in Yu Le Bao will be channeled into insurance and wealth management products offered by Guohua Life Insurance, which will then invest the money in the entertainment business.

6. How is Yu Le Bao different from traditional crowdfunding?

While Yu Le Bao sounds similar to a Kickstarter fundraiser for an independent film, Alibaba’s statement made clear that its new product actually does not function as a traditional crowdfunding project would. Returns from Yu Le Bao comes from investment in insurance and wealth management products from Guohua Life Insurance, not directly from the film projects.

In fact, because all the funds go into the same financial product, the return for all investors would be the same, regardless of which film they might have voted for. In a traditional crowdfunding project, any film may be produced if enough people support it, but with Yu Le Bao, Alibaba chose the four projects, and will decide ultimately how much funding each of the four projects receives.

7. What else do Yu Le Bao investors get?

But, if investors don’t get to choose which movies they want to fund, they will receive a number of perks like meet-and-greets with the filmmakers, special screenings and e-zines, autographed photos from stars involved in the projects, auctions of film props and tours of film sites.

Rather than a good investment, in reality Yu Le Bao is more like a side product of China’s booming film business, which in 2013 clocked in $3.6 billion in box office sales, the first time a country other than the U.S. grossed over $3 billion. 

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