Has LeEco just bought the wrong company to take the US by storm?

Thomas Flanagan
01 Aug 2016
00:00

LeEco, often dubbed the Chinese Netflix, has just acquired US TV manufacturer Vizio for $2 billion, but what stands out immediately for us is a deal that is destined to fail – as LeEco marks its entry into the US, it could singlehandedly destroy the only indigenous TV manufacturer in the country.

If LeEco (formerly LeTV) wanted to mount any serious challenge to Netflix, then why didn’t it buy a company which has an immediate route to theOTT market via millions of streaming devices in the country, one such as Roku? Instead it has opted for Vizio’s smart TVs, which are at the polar opposite end of the market to cheap streaming dongles. Yes, the TVs are cheap, but nothing like as cheap as a dongle.

Vizio was essentially started up to rival Samsung in the TV space and is best known for its suite of budget smart TVs, it has a TV market share of just over 20% in the US, the second largest behind Samsung, but only 3.4% worldwide.

LeEco believes it will become the largest internet TV access point in the world through Vizio, and in China the company is also focused on selling low budget TVs, as a way of signing up as many users as possible to its LeCloud OTT streaming service. The danger here is that LeEco could drive Vizio even further into the budget TV market to the extent where it becomes embedded there and unable to move, until it eventually withers.

LeEco trades its online content operations through its public subsidiary Leshi Internet Information Technology Company, which has a market cap of $13.8 billion. LeEco has also been investing heavily in sports through its LeSports arm in a bid to put China on the map as a soccer powerhouse. The Chinese firm hasn’t just stuck to online video content since its founding in 2004, it also sells smartphones and dabbles in more adventurous businesses such as autonomous cars, earlier this year it revealed an electric concept car amid much criticism.

Perhaps what piqued the interest of LeEco is Vizio’s partnership with Google, in which the Chromecast protocol is integrated into its smart TVs, allowing Android devices with the Google Cast app, and PCs running Chrome, to cast content to the TV screen. But this doesn’t mean that LeEco has an immediate route to push its streaming offering through the Chromecast app, and there’s no way Google will feel threatened by LeEco’s purchase of Vizio.

Vizio also has its more up market offerings, and the company is keen on 4K, UHD and HDR technologies– its P-Series UHD HDR Home Theater TVs are priced at $999 for the 50-inch model. Vizio claims these are the first UHD and HDR TVs on the market that have fully integrated the Google Cast protocol. At the very top of the scale there is Vizio’s outlandish VizioReference series which will set you back $130,000 for a 10-foot wide HDR Smart TV.

LeEco founder Jia Yueting is clearly used to criticism, as he said this week, “I hope LeEco could be criticized like this all the time, and we would always focus more on bringing more meaningful stuff to industries and to our shareholders. LeEco is never a follower to anyone else.”

“LeEco is spending lavishly on its overseas expansion by hiring lots of people in places like Silicon Valley and India, and I would say it is the first Chinese technology company which actually leaves a real footprint on the process of globalization,” said Fang Xingdong, who runs ChinaLabs, a technology think tank.

William Wang, Vizio co-founder and chairman, noted, “I have mixed feelings. As the owner and father of Vizio, I am very reluctant to let it go. But as the CEO and owner of the company, I know this is the right decision to make for our hardworking employees and loyal shareholders.” Vizio will continue operating under its name as a wholly-owned subsidiary.

This article first ran in Rethink Technology Research’s Faultline newsletter

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