Smart TV’s New Enemy: Lawsuits
Earlier this week I wrote how smart TV could be poised for a sudden explosion in China due to a combination of factors that made the market especially well suited for development of this product. (previous post) Now we’re seeing one of the major obstacles that smart TVs could face, namely copyright lawsuits by various players against one another as each seeks to gain the upper hand in an increasingly competitive market. We could soon be seeing an avalanche of such litigation, with word that leading online video website Youku Tudou (NYSE: YOKU) has just sued Xioami for copyright infringement, following the latter’s recent rollout of a new smart TV product.
If this were any other market than China, I would advise industry regulators to step in and establish a mechanism to quickly mediate this kind of dispute that could severely hamper the industry’s development. But the big problem here is that such copyright infringement is rampant in China, meaning many of these complaints are probably valid and the presence of unauthorized material is probably pervasive in many new smart TV services. What’s more, China’s regulators tend to be very heavy-handed in their approach to emerging industries, with the result that innovation and development often get stifled through over-regulation.
All that said, let’s take a closer look at this latest development for smart TV, which uses special customized televisions to deliver programs and other video entertainment seamlessly over the Internet. According to the reports, Youku Tudou has become just the latest company to sue Xioami for copyright infringement, following similar actions by online video site Xunlei and Hunan Satellite Television, one of China’s leading regional broadcasters. (Chinese article) The Youku Tudou lawsuit accuses Xiaomi of the unauthorized use of 10 programs, and asks for 5.1 million yuan ($840,000) in damages.
This lawsuit certainly isn’t the first between Chinese online video companies, whose sites used to be filled with unauthorized programs due to lax policing and law enforcement. One of the biggest legal actions saw Youku and Tudou, then China’s 2 largest online video sites, file a series of lawsuits against each other 2 years ago before they ultimately merged the following year. (previous post) Xunlei has also been the criticized in the past for the abundance of pirated material on its service, and that issue may have forced it to delay a previous planned IPO that still has yet to happen.
Most of the previous litigation centered on online video sites, which were a relatively niche market that allowed people to watch movies, TV programs and other video content on their computers. Now those lawsuits looks set to migrate to smart TV, a more mainstream product with much bigger potential. Whereas online video tended to attract smaller, independent companies, smart TV has been attracting most of China’s biggest Internet names in the last few months.
Smaller players Xiaomi and LeTV (Shenzhen: 300104) were 2 of the earliest players in the space, with both rolling out special set-top boxes late last year followed by introduction of actual customized TVs this year. In the last couple of months search leader Baidu (Nasdaq: BIDU) and top e-commerce company Alibaba have also entered the fray, with both companies rolling out new products in partnership with major TV makers. Youku Tudou has also made moves that indicate it may be developing a smart TV product.
It’s still probably too early to say what effect these new lawsuits will have on the industry’s development. The big danger is that each of these new smart TV ventures will want to offer its own exclusive content and will sue anyone who uses their content without authorization. That could result in a highly fragmented market, filled with lots of different products that offer only limited programming choices for consumers. Such a development path could ultimately kill smart TV before it has a chance to gain momentum, which would represent a huge lost opportunity both for the companies involved and also for China.
Bottom line: A new series of copyright lawsuits in the smart TV space could quickly become a flood, posing a serious obstacle to the sector’s development.
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