Bottom line: TCL’s smart TV alliance with LeTV brings together 2 strong names and is getting off to a good start with a strong lineup of new products, but could have trouble over the longer term due to the rapidly changing industry.
TV stalwart TCL (Shenzhen: 000100) has just announced an expansion of its young partnership in smart TVs with industry high-flyer LeTV (Shenzhen: 300104), in what could become the first of an earlier wave of such tie-ups to finally gain some traction. Many of the similar tie-ups were announced in rapid succession a couple of years ago, as newer online video companies rushed to forge partnerships with traditional TV manufacturers.
The idea was that the TV makers would produce customized products optimized to offer video services from a particular Internet company, creating a new generation of online-connected smart TVs that could compete with traditional cable TV services. But it seems many of those alliances never really got very far, and these days many video companies have decided to focus instead on making special set-top boxes that be easily mounted on any TV.
Despite that trend, TCL is moving ahead on its latest alliance with LeTV, which rose to early prominence in the online video space by selling high-quality TVs at low prices for customers who agreed to subscribe to its service. This new announcement is an extension of a larger tie-up announced by the pair late last year, which saw LeTV purchase 20 percent of TCL’s TV arm, TCL Multimedia (HKEx: 1070) for 1.9 billion yuan ($300 million).
In the latest phase of that tie-up, TCL will develop 55- and 65-inch curved screen TVs optimized for use with LeTV’s signature online video service. (Chinese article) Since announcing their original alliance back in December, the companies have already started developing traditional 55-inch and 43-inch TVs.
This latest development looks largely incremental, and part of my reason for this post is simply the fact that I haven’t written about it before. But that said, it’s worth taking a look at the broader trend of this kind of tie-up, and whether this particular pairing is likely to succeed or fail.
Parade of Alliances
The big wave of pairings between big Internet video names and TV makers crested in 2013, bringing together new media companies with traditional hardware makers. TCL was part of one of the biggest announcements at that time, forming a tie-up with Baidu’s (Nasdaq: BIDU) iQiyi, one of the industry’s leading online video companies. (previous post)
We haven’t heard much about that particular tie-up since then, and TCL’s decision to sell 20 percent of its TV unit to LeTV in December leads me to believe that perhaps the Baidu alliance is dead or on near death. TCL also announced another alliance with Tencent (HKEx: 700) around the same time, though again we haven’t heard anything about the partnership since then.
E-commerce giant Alibaba (NYSE: BABA) also got in on the act, announcing its own alliance with rival TV maker Skyworth (HKEx: 751). (previous post) There hasn’t been any news on the Alibaba-Skyworth deal since the original announcement, though perhaps the alliance could find some new life following Alibaba’s purchase of leading video site Youku Tudou (NYSE: YOKU) late last year. But all of this really just shows how fluid this new area is, and it’s far from clear whether this kind of alliance is really even necessary.
All that said, let’s close with a final look at the TCL-LeTV alliance, and predict what its future chances for success might be. I have a lot of respect for TCL, which was a visionary in China’s TV industry 2 decades ago and is trying to remain relevant in the fast-changing Internet world. I’m less certain about LeTV, which is riding high now but could easily flame out in the next few years like many other Chinese Internet companies. At the end of the day, the alliance looks relatively promising right now, as it leverages the strength of each partner, though I would only give it a 50-50 chance of success over the longer term.
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