AlibabaAlibaba Group is expanding its online entertainment presence by investing $1.2 billion with a partner in video website Youku Tudou.  Alibaba will gain a 16.5 percent stake in the company and its partner Yunfeng Capital will get 2 percent.

China’s major Internet companies have invested billions of dollars over the past year to expand beyond their core businesses by creating or acquiring entertainment, consumer finance and other services.   They are trying to retain users as Chinese Web surfers shift rapidly to going online via smartphones and other mobile devices, which is shaking up the traditional Internet markets.

Jack Ma Alibaba (1)“This is an important strategic initiative that will further extend the Alibaba ecosystem and bring new products and services to Alibaba’s customers,” Jack Ma, Alibaba’s founder and executive chairman, said in a statement.  The investment will “strengthen Youku Tudou as China’s largest online video platform and further differentiate our services and user experience,” Youku Tudou’s chairman, Victor Koo, said in the statement.

The most intense rivalry is between Alibaba and Tencent Holdings Ltd., an online games service.  Alibaba has been the biggest spender in the acquisitions race. In February, it offered $1.1 billion for the 72 percent of map service Autonavi that it doesn’t already own. In March, it paid $804 to acquire control of ChinaVision, a Hong Kong producer of movies and TV programs.  In March, Alibaba invested $215 million in Tango, a mobile messaging service in Mountain View, California.  Youku’s smartphone app allows users to download movies and TV programs and has attracted millions of users.

Alibaba is privately held and doesn’t release financial data. But Yahoo Inc., which owns 24 percent of Alibaba, said in its latest regulatory filing that the Chinese company’s revenue for the first nine months of last year rose 60 percent over a year earlier to $4.9 billion.