Bottom line: Suning’s plan to invest 1 billion yuan into PPTV’s smart TV foray is coming a bit late, but could stand a good chance of success by drawing on Suning’s position as one of China’s top TV retailers.
Many of us were a bit surprised 2 years ago when electronics retailer Suning (Shenzhen: 002024) emerged as one of the winning bidders for PPTV, which was one of China’s leading online video sites at the time. The pair didn’t really seem like a great match, since Suning’s main business was its traditional retail stores that originally specialized in home electronics but later added more general merchandise. Suning’s newer e-commerce business didn’t seem like a great fit either, since retailing and online video entertainment don’t have too much in common.
Fast forward to the present, when Suning has finally developed a strategy for the asset with plans to pump 1 billion yuan ($160 million) into PPTV as part of PPTV’s own new drive into Internet TVs. This particular combination actually seems intriguing, since Suning is in a good position to promote such Internet TVs due to its position as one of China’s biggest home electronics retailers.
All that said, I’m still not completely convinced that this initiative is going to work. I was quite bullish on Suning around the time it purchased a major stake in PPTV in 2013. At the time it was making lots of good moves into e-commerce, and looked like it could use its traditional retailing strength to potentially challenge the dominance of Alibaba (NYSE: BABA) and JD.com (Nasdaq: JD).
But then the company suddenly started losing momentum, and I’m still not really sure what was the reason behind the shift. The PPTV purchase occurred right at the start of that shift, and we’ve heard very little from Suning about its motivations for paying $250 million for about a quarter of the online video company. (previous post) My biggest question now for Suning would be why it took nearly 2 years to come up with a strategy for PPTV in a fast-changing industry like online video.
But let’s put that question aside and delve into the latest headlines, which have PPTV announcing the 1 billion yuan Suning investment at a larger event to formally announce its own entry into the TV ecosystem business. (Chinese article) As part of that foray, PPTV unveiled 3 new smart TV models, and added it will also start selling a TV set-top box product. The reports add that PPTV is aiming to sell 1 million of its smart TVs this year.
Many Players, Few Leaders
This kind of smart TV product is basically just an Internet-connected TV that allows people to watch programs delivered over the web. Industry leader LeTV (Shenzhen: 300104) has successfully sold such TVs at low prices to induce consumers to try out its own online video products, and has been quite successful with that formula. Xiaomi also hopes to build up a business around Internet-connected TVs to complement its rapidly fading core smartphone business, but hasn’t had too much success so far.
Most of China’s other major Internet companies have also announced various Internet TV initiatives, though none has really gained much traction to date. All that brings us back to Suning and this latest PPTV strategy. The move does seem a bit late, but the absence of clear leaders besides LeTV means that PPTV could quickly make up for lost time if its smart TVs can quickly find an audience.
I do like this particular partnership, since Suning already has very good sales channels for traditional TVs and thus can easily reach the kinds of people PPTV wants to target with its new products. Suning could do that by offering aggressive promotions for PPTV’s smart TVs, and could even sell the TVs for little or not profits for its own operations. At the end of the day, this particular plan could actually have a reasonably good chance for success if PPTV can create good products, and could even challenge LeTV.