VIDEO: PPTV’s Cryptic Farewell, Xunlei Swings to Loss

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UPDATE: Since issuing its original microblog post, PPTV has issued new posts on its account that appear to indicate it won’t be closing. To view the latest posts, please click here.

Bottom line: PPTV looks set to become the first major victim of China’s online video wars after its microblog publication of a farewell message, while the money-losing Xunlei could become the second casualty.

PPTV bidding farewell?

Two of China’s major online video companies with mid-sized backers are in the headlines today, with ominous signals coming from PPTV and Xunlei (Nasdaq: XNET) that reflect the intense competition they face. The most intriguing headline has PPTV, which is owned by electronics retailing giant Suning (Shenzhen: 002024), announcing on its official microblog that it is closing, even as its actual website remains active.

The other headline has Xunlei, which is backed by smartphone maker Xiaomi, announcing its latest quarterly results that showed it swung to a loss as it battles with much larger rivals for an audience. We can probably also assume that PPTV was losing big money, and in fact just about everyone in China’s online video space is now in the red. Typical of the group is Youku Tudou, the industry leader whose net loss doubled to $70 million in last year’s third quarter before it was bought by e-commerce giant Alibaba (NYSE: BABA).

The online video companies aren’t only competing with one another, but are also facing competition from traditional broadcasters like Hunan Satellite TV, which is making a big push into the space through its own Mango TV service. With all that red ink as everyone spends heavily to build market share, it’s quite likely we’ll see some mid-tier players finally close shop in the next year or two, especially ones that lack big cash-rich backers.

All that said, the news about PPTV would be a slight surprise if it’s true, since Suning has quite a lot of resources and as recently as last August announced it was pumping 1 billion yuan ($150 million) into its video arm. (previous post) There’s no mention of Suning in the latest reports, which only republish the brief message on PPTV’s official blog saying the company is closing down after 11 years in business. (Chinese article; microblog post)

One report notes that PPTV’s website still appears to be functioning normally. I’ve checked both the microblog account and website, and can confirm the report appears to be accurate. I expect we’ll see some clarification from Suning, PPTV or both shortly, and wouldn’t be surprised if the site officially becomes the first major casualty of China’s prolonged online video wars.

Xunlei Swings to Loss

Next there’s Xunlei, which had to abort several efforts at a New York IPO before finally listing its shares in mid-2014. It’s not hard to see why the company had trouble listing, since it’s not very large and is now losing money. Since its IPO, the stock has moved steadily down and now trades at about $6, half of its IPO price of $12.

The latest report shows just how small Xunlei is, with revenue rising 27 percent to just $38.5 million. (company announcement; Chinese article) The company’s net loss wasn’t huge at $5.4 million, but it marked a slippage into the red from the year-ago net profit of $2.4 million. Xunlei probably doesn’t have to worry about running out of cash anytime soon, since it still has more than $400 million in its coffers.

Like PPTV, Xunlei also has a relatively solid backer in Xiaomi, which purchased 30 percent of the video company for around $200 million at the time of its IPO. At Xunlei’s current valuation, that stake would now be worth around $120 million. Since the pair formed their alliance, periodic rumors have emerged that Xiaomi might consider buying the rest of Xunlei.

But Xiaomi also has its own problems, as it faces intense competition in the Chinese smartphone market. Xiaomi still has plenty of cash after raising more than $1 billion at the end of 2014, but lately it’s using that money for its global expansion and some small strategic acquisitions. I wouldn’t completely rule out its potential purchase of Xunlei, but would still bet that chances are better than 50 percent that Xunlei will either close or get acquired a larger third company by this time next year.

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