Xiaomi In New Misstep With CCTV 小米与央视的新合作

I quite admire scrappy smartphone start-up Xiaomi for its savvy marketing tactics, but I’m beginning to have doubts about some of its more strategic choices after reading about its latest tie-up with the stodgy China Central Television (CCTV), China’s dominant state-run TV broadcaster. Xioami is in a challenging place in its development, as it tries to make the transition from a niche maker of low-cost, high-performance smartphones to a more mainstream company with a wider range of product and service offerings. The company in many ways is trying to follow in the footsteps of its idol, US tech giant Apple (Nasdaq: AAPL), which also has made the transition in the last 5 years from a relative niche player to the world’s biggest tech company.

Xioami has been offering a limited quantity of telecoms services since it first launched its smartphones nearly 2 years ago. It moved to boost that part of its business with the launch of an Internet TV product last fall (previous post), and more recently invested in the cloud computing services unit of domestic software maker Kingsoft (HKEx: 3888). (previous post)

Personally speaking, I like the Kingsoft tie-up, as I do think that cloud-based services will be an important part of the mobile Internet sector going forward. I’m less convinced that the Internet TV initiative is a good one, as no company — including Apple itself — has developed a popular Internet TV product yet.

But I can say quite definitively that Xiaomi’s latest tie-up with CCTV looks to me like a total dud, and more broadly may represent a warning sign that the company is losing its way as in its drive to transform from a niche player to a more mainstream consumer company. Let’s take a closer look at this latest tie-up, which has Xiaomi and CCTV’s Internet TV arm, Future Television, announcing a strategic partnership to provide Internet TV services. (English article)

The companies will launch a pilot service in 3 cities, with Future Television providing management services for its content that will be delivered over Xioami’s Internet TV product, called the Xiaomi Box. The reports also note that the Xiaomi Box’s original service will resume in mid February, after it was unexpectedly suspended just a week after the product’s launch last November for failing to obtain all the necessary licenses.

So why do I think this new tie-up looks like a dud? Put simply, I have yet to see any of China’s big state-run media behemoths do anything successful in the new media space and doubt they will change their record for failure anytime soon. Instead, China’s new media space has come to be dominated by some of the country’s most innovative and entrepreneurial companies, led by Internet names like social networking leader Tencent (HKEx: 700) and online search titan Baidu (Nasdaq: BIDU). Such companies lack the substantial bureaucracy that traditional state-run media firms like CCTV have, and thus can move and innovate much more quickly in this fast-changing market.

In this case, I would have been much more excited to see Xiaomi partner with one of these entrepreneurial firms like online video leader Youku Tudou (NYSE: YOKU), or with another major new media name like Tencent. It’s unclear if this new tie-up with CCTV is exclusive, and it’s quite possible that Xiaomi perhaps pursued the deal at least partly to solve its Internet TV problems by tapping CCTV’s extensive government connections. We’ll have to wait and see if Xiaomi announces any new Internet TV tie-ups in the months ahead, hopefully with some more entrepreneurial companies. In the meantime, look for little or no excitement from this new CCTV tie-up, which will probably turn into a disappointment with little or no audience.

Bottom line: Xiaomi’s new CCTV tie-up looks like a dud, and the company should seek more entrepreneurial partners as it seeks to move beyond its current status as a niche smartphone maker.

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