Alibaba to acquire China's version of YouTube

Alibaba is buying US-traded Chinese online video provider Youku Tudou for about $3.7 billion.

That's slightly higher than the e-commerce giant's proposal in October when it offered Youku Tudou $26.60 an American depositary share.

Now, it will pay $27.60 a share, which is 35.1% above the price of Youku Tudou's stock on Oct. 15, the day before the initial bid was made public.

The deal is in step with Alibaba's goal to broaden its reach. By buying Youku Tudou, which is China's version of Youtube, it acquires a platform through which it can stream content to half a billion users or a third of China's population. That's larger than the entire population of the United States.

"The move into digital media makes a lot of sense," analyst Rob Sanderson told Bloomberg. "The rise of Internet video is really undeniable around the world, so I think it's a strategy that could produce quite a bit of leverage given the size of their communities."

The deal, which was unanimously approved by Youku Tudou's board of directors, closes in the first quarter of next year. Chief executive Victor Koo, who owns some 18% of Youkou Tudou, will stay on as CEO.

"With Alibaba's support, Youku Tudou's future as the leading multi-screen entertainment and media platform in China has been firmly secured," said Koo in a statement.

Youku Tudou has been unprofitable for years now. The company is the result of the 2012 merger of rivals Youku, which means "what's best and what's cool" in Chinese, and Tudou, which means "potato."

Youku Tudou now faces tough competition from Baidu and Tencent. In August, both Youku Tudou and Tencent video sites had some 286 million unique visitors, while Baidu's IQiyi had 273 million.

With the deal with Alibaba, Youku Tudou is expected to win over more users. Currently its content is limited to videos produced by professionals. Under Alibaba, the company will have access to videos from US studios.

Recently, Alibaba Chairman Jack Ma has been going around Hollywood, looking to seal deals with studio executives for production of films and drama series. The latest "Mission: Impossible" film had received funding from him.