LeTV Stays On Top In Smart TV Race

China’s smart TV space has gotten a big lift in recent months with a flurry of major new developments, including 2 major new moves this past week by industry veteran LeTV (Shenzhen: 300104). This sudden rush to smart TVs, which deliver most of their content over the Internet, is being driven by a number of factors that make China ideal for development of the market.

Beijing regulators should embrace the trend by creating a favorable environment for the industry’s development, which could position China as a future global leader in the emerging field with huge potential. But those same officials must be careful not to over-regulate the sector, a common tendency in China that often ends up stifling innovation and results in lost opportunities.

A confluence of technological, business and historical factors in China have come together to create the sudden rush to smart TVs. Technologically, China now has the infrastructure to deliver smart TV products over its vast series of wired and wireless broadband networks that now reach most of the country’s 1.3 billion people.

From a business standpoint, China also now has big enough privately owned technology companies like Baidu (Nasdaq: BIDU), Tencent (HKEx: 700) and Alibaba and that can develop and promote competitive products in the area. Those companies are typically more innovative and aggressive than traditional state-owned enterprises, which until recently have dominated China’s technology, media and telecoms sectors.

For historical reasons, China’s traditional media industry is also relatively underdeveloped due to a lack of major players with national distribution. As a result of this fragmentation, only a handful of media companies exist today with the distribution and financial resources to develop compelling programs and channels to deliver them.

Smart TV developers are trying to fill that void with a wide array of new products, most of which consist of custom-made TVs that seamlessly deliver programs over the Internet.
Privately owned LeTV was one of the earliest players to the space, and has rolled out a number of smart TVs over the last year to try to develop the market. It made headlines last week when it announced a new 50-inch smart TV selling for the relatively affordable price of 3,000 yuan ($490), which includes a year of service.

Earlier in the week, LeTV also announced it was buying production studio Flower TV for nearly 1.6 billion yuan, in a bid to boost its program-making capabilities. (English article) And late last month, LeTV announced a major strategic collaboration in the space with Tencent, China’s most valuable Internet company with a market value of more than $100 billion. (previous post)

China’s other 2 largest Internet companies, e-commerce leader Alibaba and search giant Baidu, have also both made their own recent major moves into the space. Baidu announced its move early last month through a tie-up that saw its iQiyi online video service join hands with leading TV maker TCL (HKEx: 1070; Shenzhen: 000100). Just a week later, Alibaba announced its own smart TV product launch through a similar tie-up with Skyworth (HKEx: 751), another major TV maker.

Suning (Shenzhen: 002024), another leading e-commerce company, may also be moving into the space with recent reports it was in talks to buy PPTV, a major online video site. And leading online video site Youku Tudou (NYSE: YOKU) may also be moving in that direction, following its recent creation of a separate division dedicated to the development of Internet TV.

While this sudden move by so many firms into smart TV certainly looks promising, the industry’s development will depend on how Beijing reacts to the major role being played by private technology firms in the sensitive media space. A potentially troublesome sign emerged late last year, when Xiaomi abruptly pulled its Internet TV service from the market just weeks after the launch. No official reason was given, though Chinese media reported that Xiaomi had failed to get all the necessary regulatory approvals for the product launch.

China is famous for its complex regulatory environment, which often requires product developers to get numerous permits from various government agencies for a single product. The number of regulators and permits is even higher in the sensitive media space.

Beijing needs to move carefully in its approach to the emergence of smart TVs, providing a solid regulatory framework that will allow for orderly development in a way that protects consumers, product developers and content providers without excessive oversight. Failure to use such an approach could ultimately result in either chaotic development at one extreme or heavy-handed regulation at the other, both of which would put a major damper on the industry’s development.

Bottom line: LeTV is racing to stay ahead in the recent rush to smart TV, with the biggest challenge likely to come from Beijing regulators.