Crackdown Nets LeTV, Alibaba Set-Top Boxes
I wrote earlier this week about a looming crackdown on private Internet-based video providers, and now that campaign appears to be building momentum with word of turbulence in the booming set-top box sector. The latest reports say industry veteran LeTV (Shenzhen: 300104) has withdrawn its set-top box product from the market, while e-commerce giant Alibaba is reportedly delaying the roll-out of its own similar product. The reports certainly don’t bode well for the fledgling sector of set-top boxes, which allow people to watch Internet-based video content on their TVs the same way they watch programs using traditional TV channels.
The much bigger and more important question is how heavy and long the new crackdown will continue, and how much the regulator ultimately intends to hobble this emerging field of private sector rivals to traditional TV stations. The traditional TV operators, worried about losing business to the newer private sector rivals, are almost certainly the major force prompting the latest actions from the General Administration of Press and Publication, Radio, Film and Television (GAPPRFT).
Let’s start with a look at LeTV, one of the earliest online video companies which has more recently expanded into Internet TV and set-top boxes. The company’s shares have lost about 20 percent of their value over the last few trading days, as it becomes increasingly clear that it could be one of the biggest victims of the ongoing crackdown.
Media are reporting LeTV has voluntarily withdrawn its set-top boxes from the market, and that visitors to its online store now see a message saying the product has been temporarily removed. (Chinese article) LeTV put out its own statement stressing the action was voluntary, and that it wasn’t forced by the regulator. (Chinese article)
The box apparently violated one of the GAPPRFT’s rules governing geographic distribution of programming, though I’m not too knowledgeable about that level of detail. But it does appear that the regulator hasn’t outlawed such set-top boxes completely. Instead, this looks more like part of a broader effort to restrict the kinds of programs such set-top boxes can offer, and in what formats and geographies.
There’s even less detail on the Alibaba reports, which say simply that the company is trying to be more low key about its home entertainment and set-top box product roll-outs due to the regulator’s new clampdown. (Chinese article) Alibaba is just one of many Internet companies to leap into the set-top box and Internet TV business over the last year, joining a wide range of other players that include leading video sharing site Youku Tudou (NYSE: YOKU), search leader Baidu (Nasdaq: BIDU) and fast-rising smartphone maker Xiaomi.
This crackdown on set-top boxes comes the same week that media reported the regulator was aiming to prohibit these new Internet TV companies from offering programs over dedicated channels similar to traditional TV channels. (previous post) All of this is part of a broader campaign that began in May, when regulators abruptly revoked the online video license from leading web portal Sina (Nasdaq: SINA) due to pornography on its site, and later banned online video companies from showing several popular US TV shows.
If I were an investor, I’d probably avoid the stocks of firms like LeTV and Youku Tudou that have high exposure to the space for now. I doubt the regulator is aiming to lock out these private firms completely from the Internet TV and set-top box spaces, and we’ll probably get a clearer picture of what they can and cannot do by the end of the year. If the clampdown is relatively mild, we could see some potential upside in the company stocks after that.
Bottom line: LeTV’s withdrawal of its set-top box and delays for Alibaba’s similar product reflect an ongoing regulatory clampdown in the Internet TV space, which could settle down by year end.
Related posts:
