Tencent, Suning Eye Smart TV In New Tie-Ups
Smart TVs, which let consumers watch programs via Internet-based channels, has suddenly become the latest flavor of the day for China tech firms, with just about every major Internet player piling into the market in the last few months. Top e-commerce firm Alibaba and search leader Baidu (Nasdaq: BIDU) have both announced major new initiatives in the last 2 months, and now social networking leader Tencent (HKEx: 700) is joining the frenzy with its own new tie-up. At the same time, retailing giant Suning (Shenzhen: 002024) may also be making moves in the space, with word that it’s near a deal to purchase online video company PPTV.
This sudden frenzy of activity is quite typical for China, where sectors can become hot overnight and attract big investments from a wide range of firms looking for a piece of the action. I personally think that smart TVs have big potential in China, as they offer a compelling alternative to traditional cable TV companies that provide limited programs of so-so-quality. Recent relaxation in government policies and improving telecoms technologies also mean that such smart TVs may be ready to make a serious play for China’s paid TV market.
So let’s zoom in on the latest news, starting with word that Tencent, China’s most valuable Internet company, has formed a major alliance with smart TV services provider LeTV (Shenzhen: 300104). (English article) There’s not a lot of detail in the announcement, though Tencent is calling the partnership a “deep collaboration” that will see it promote LeTV’s smart TVs and programming services. An announcement from LeTV indicates that its smart TVs will be sold over Tencent’s e-commerce platform. (company announcement)
LeTV’s China-listed shares have been on a sharp rally in the last year, due to its early entry into the online video and now the smart TV space. Its stock is up about 7-fold since the beginning of the year, and I suspect its shares will continue their rally once they resume trading after being suspended since late August.
I personally have to commend LeTV, which went largely unnoticed for several years as it carved out one of the earliest spaces in program delivery over the Internet. One of its biggest drawbacks has been its lack of a big-name partner in the space, which is why this new Tencent deal looks interesting and full of potential. As China’s largest Internet company, Tencent could potentially offer its hundreds of millions of online game and social networking users as potential LeTV customers. The main drawback could be a slight mismatch in the 2 companies’ audiences, since smart TVs are often quite expensive and are probably unaffordable for most of Tencent’s users, who tend to be people in their teens and early 20s.
From the Tencent deal, let’s look quickly at the latest rumors that cite an investment banking source saying Suning is close to a deal to buy PPTV, a leading provider of online video services, for about $400 million. (English article; Chinese article) My own view is that the rumor is probably true, as it’s been clear for a while that PPTV’s investors are looking to sell the company. But that said, we’ve also seen several similar rumors of an imminent PPTV sale this year, with other buyers including Alibaba and Sohu (Nasdaq: SOHU).
From a broader perspective, it does seem like Suning is coming a bit late to Internet TV, even though the sector is still in its infancy. One of Suning’s big advantages would be its strong ties with makers of TVs and other electronic devices, since it’s one of China’s oldest and biggest electronics retailers. Still, I’m slightly skeptical that this purchase will really happen; and even if it does, Suning lacks many of the synergies we’ve seen in some of the other tie-ups, meaning it would face a big uphill road to develop the smart TV space.
Bottom line: Tencent’s new smart TV tie-up with LeTV looks like a strong alliance, while Suning’s potential move into the space with a PPTV purchase looks more dubious.