INTERNET: LeEco Ties with Car Makers, Raises Sport Funds

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Bottom line: LeEco’s new alliance with 6 car makers and rapid expansion of its sports programming unit look like shrewd moves to position itself as a major player in 2 big new growth areas.

LeEco in new car tie-up, fund raising

Following a relatively quiet period for one of China’s more talkative companies, online video leader LeEco (Shenzhen: 300104), formerly known as LeTV, is back in the headlines with 2 relatively large deals in the auto and sports sectors. The first has LeEco signing an alliance with some of China’s leading car makers, who have agreed to use its entertainment system in their vehicles. The second has LeEco’s sports unit raising 7 billion yuan ($1.1 billion) in its latest fund-raising round.

The pair of stories highlight 2 focus areas for LeEco, one of China’s oldest online video companies and the only one that has remained independent as others all got purchased by bigger Chinese Internet companies. LeEco is trying to move aggressively beyond its original area as an online video specialist by obtaining more exclusive content, and also by offering its products and services over the growing number of channels that consumers use to access entertainment and information.

LeEco announced its move into the automobile sector more than a year ago, and last month launched a tie-up to make the first green cars from British luxury car maker Aston Martin. (English article) Its latest move in the automobile space will see LeEco team with 6 Chinese car makers, including industry leaders BAIC (HKEx: 1958), BYD (HKEx: 1211; Shenzhen: 002594) and Dongfeng Motor (HKEx: 489). (English article; Chinese article)

Under the tie-up, the 6 automakers have agreed to equip their vehicles with Ecolink, LeEco’s system that integrates content from car-connected smartphones into the actual vehicle. There’s no word on whether the system will be installed in all the cars from these 6 automakers. But based on LeEco’s past decision to focus on green cars and the fact that all 3 companies are working on such vehicles, it does appear this new initiative may be focused on new energy vehicles.

This particular move actually looks quite shrewd in my view, and is far more focused than LeEco’s earlier announcements that it would move into actual car production. The company began by selling its video services over traditional TVs and computer monitors, and then extended that into smartphones with the roll-out of its own brand. Car-based video and entertainment services do indeed seem like one of the next major channels for delivery of video products, and LeEco is being prudent in aggressively promoting its service with this kind of tie-up.

Playing with Sports

Next there’s the sports news, which has LeEco’s sport unit raising the 7 billion yuan in just the second fund-raising round since its founding. (Chinese article) One of the biggest investors in the round is a fund connected with HNA Group, one of China’s more aggressive and successful private equity operators and parent of Hainan Airlines (Shanghai: 600221). The investment values the sports unit at 20.5 billion yuan, which isn’t too bad for such a young company.

LeEco is just one of many Chinese Internet companies that have recently be piling into sports, through a wide array of tie-ups ranging from purchases of sports teams and marketing firms, to broadcasting rights. LeEco has focused most of its efforts on obtaining exclusive rights to various sports programming, including its signing of a deal in January to offer live broadcasts of US baseball games. (previous post)

Again, I like LeEco’s approach in this particular situation, since acquiring a wide range of sports programming is far cheaper and offers more variety for viewers than buying actual teams and related companies. LeEco is already a major force in the booming market for paid video services, and its latest move into cars and build-up of its sports division both look like smart moves that will pave the way for expansion into new areas with big growth potential.

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