PPTV Carve-Up Continues As Crackdown Bites

PPTV yanks set-top box

Worrisome signs of a crackdown are growing in the online video sector, where a field of young private firms rolling out a new generation of TV-like products are facing strong resistance from traditional television stations. The latest signs of turmoil are coming from PPTV, a former industry leader that is slowly getting carved up among investors as it is forced to scrap some of its most promising new products. The former high-flyer is showing up in 2 separate headlines today, including one that has seen it shelve its TV set-top box product. The other headline has the company selling 10 percent of itself to Phoenix Publishing & Media (Shanghai: 601928), marking its third major stake sale in the last year as it slowly gets carved up among a group of diverse investors.

In many ways, PPTV’s saga reflects the current state of chaos now plaguing an industry that once held big promise. The online video sector thrived in its early years mostly on venture capital funds, creating a diverse field of players with lots of viewers but not much revenue. Many companies were struggling, when the industry got a huge boost as improving infrastructure allowed operators to start offering video streaming products via Internet TVs and set-top boxes.

Everything suddenly looked quite rosy for the sector, but then the traditional TV stations suddenly cried foul and complained to the regulator that the online video operators were acting like de facto TV stations. That outcry led to a regulatory crackdown starting back in May (previous post), and now PPTV looks set to become one of the latest victims with the news of the removal of its set-top box product from the market. (Chinese article)

There’s not much additional detail in the reports, except to say that the move was ordered by the broadcasting regulator and that PPTV’s businesses that let users view video over smartphones and desktop computers won’t be affected. The reports note that leading Internet firm Tencent (HKEx: 700) was also forced to scrap its video TV product last week.

In July another rival LeTV (Shenzhen: 300104) also withdrew its set-top box product, and leading e-commerce company Alibaba indefinitely delayed the roll-out of its own similar product at that time. (previous post) If the current trends continue, it appears that all of the newer online video operators will be banned from operating TV-based products, though they’ll still be allowed to offer smartphone and PC based services.

Next let’s look at the reports that say PPTV has sold 9.56 percent of itself to Phoenix Publishing & Media. Phoenix disclosed the purchase in an announcement, saying it was setting up a 371 million yuan ($60 million) fund to invest in PPTV. (English article) News of this new investor comes less than a year after PPTV sold 44 percent of itself for $420 million to e-commerce and traditional retailer Suning (Shenzhen: 002024), along with private equity firm Hony Capital. (previous post)

Based on my own calculations that admittedly might be flawed, the latest deal values PPTV at about $630 million — nearly 50 percent lower than the valuation from the Suning-Hony investment last October. With so much turmoil in the industry and such a diverse range of shareholders, I wouldn’t be surprised to see PPTV’s value go down further still in the months ahead. The prognosis could also be cloudy for other players like recently listed Xunlei (Nasdaq: XNET) and industry leader Youku Tudou (NYSE: YOKU), as the regulatory crackdown bites into their future growth potential.

Bottom line: PPTV’s shelving of its set-top box and addition of a new investor reflect turmoil in the money-losing industry, as a regulatory crackdown limits future growth potential.

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