INTERNET: LeTV, Microsoft In Global Tie-Up, But Who Cares?
Bottom line: LeTV’s new tie-up with Microsoft is mostly empty talk that’s unlikely to produce any meaningful results, and is part of a recent campaign to divert attention from problems at the company’s core business.
After several months out of sight while he received medical treatment, the charismatic CEO of online video company LeTV (Shenzhen: 300104) has come roaring back into the spotlight with a series of new initiatives to boost investor confidence and show he still has a long-term vision for his company. The latest of those has LeTV teaming up with software giant Microsoft (Nasdaq: MSFT) in a global alliance to operate what’s being billed as a cloud-based online video service.
On the surface at least, this new alliance looks like a big win for LeTV, not only because it brings in a major name like Microsoft as a partner, but also because it’s a global initiative rather than just China-based. But I’m just a tad skeptical, and suspect this pairing is more a way for Microsoft to find new business for its cloud computing service. If that’s the case, then it probably doesn’t mind letting its name get used by LeTV, which is simply interested in seeing its name paired with a global giant like Microsoft.
LeTV is certainly a company to watch, as it was one of the earliest players to discover the big potential of online video. The company has gone on to launch a range of products to let consumers watch videos online using their computers, PCs and smartphones. But it’s also butted heads with China’s TV regulator, which has slapped restrictions on not only LeTV but other online video rivals in a bid to protect traditional TV stations.
Adding to its headaches, LeTV’s CEO Jia Yueting suddenly disappeared from view during the summer after a trip to the US, and rumors quickly spread that perhaps he was staying abroad to avoid possible prosecution for corporate wrongdoing. But then he re-emerged 2 weeks ago, and re-energized the company’s sputtering stock by announcing some major new initiatives, including a bid to develop its own electric cars. (previous post)
The company’s China-traded stock has been all over the map since then. It was as high as 48 yuan ($7.74) as recently as June, then lost about a third of its value when the rumors about Jia started to emerge. His re-appearance and announcement of the new initiatives helped to lift the stock a bit, but it still only trades at about the 35 yuan level.
All that brings us back to the latest tie-up with Microsoft, and whether it means anything. One clue lies in media coverage of the announcement. Some quick web searches turned up little or no coverage in western media, even though LeTV did issue its own English press announcement and Chinese media covered the story. (company announcement; Chinese article)
From Microsoft’s perspective, the announcement focuses on the fact that the alliance will use its Azure cloud computing platform. Other than that, there’s very little detail, except to say that venture will focus on content delivery. I expect Microsoft is providing space on its cloud servers to LeTV at a cheap rate, and LeTV will be left to develop and promote the service by itself — something it’s ill-equipped for due to lack of experience outside China.
Microsoft has become quite adept at launching ventures on its own and with partners in China, though few of those have found much success. Its Chinese search is a non-player despite 5 years in the market, as is its e-commerce service launched 2 years ago. LeTV is a bit more focused and skilled at working in its core area of online video services, though recent regulatory setbacks and questions about Jia’s health are both casting shadows over the company.
At the end of the day, this new Microsoft venture looks like more hype than anything else, and the LeTV’s recently announced electric vehicle initiative also looks a bit dubious. Accordingly, I would expect the company to struggle a bit following Jia’s return, and would advise him to focus on LeTV’s core China video business for now rather than new initiatives like this one with Microsoft.
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