Chinese TV Brands Launching Sub-Brands to Take on Competition From New Market Entrants

While low-priced Chinese brands are putting pressure on tier-one TV brands in the U.S., new e-commerce-based TV entrants to the Chinese market are driving already competitive TV prices lower there, said a blog post Friday by DisplaySearch analyst Bing Zhang [http://bit.ly/1v6iEHC].

Over the past year, new entrants from outside the TV industry, including Lenovo, LeTV and Xiaomi, have been “raising eyebrows” for selling TVs online for as much as 30 percent less than top Chinese brands, Zhang said. Xiaomi, a top Chinese smartphone handset maker that shipped 18.7 million smartphones in 2013, was “not content to limit their lineup to phones” and shipped a TV in the second half of 2013 with a target of younger buyers, Zhang said. Following its initial 47-inch 3D smart TV, Xiaomi awarded production contracts to Taiwanese OEMs for a $650 49-inch 4K TV that began shipping in Q1, he said. Up next from Xiaomi: A 55-inch 4K model for the second half and possibly 40- and 50-inch models in the coming months, Zhang said.

LeTV, a Chinese streaming video and Internet TV content provider, aggressively launched two LCD TVs at $163 for a 40-inch set and $327 for a 50-incher using a business model structured after contract cellphones. Users buy two-year service contracts for $160 on top of the cost of the TV, Zhang said. TV pricing in online channels for what Zhang calls “fighter” models is generally 20 percent lower than for TVs sold through traditional channels such as national chain stores, regional department stores and supermarkets, he said.

To compete with the aggressively priced TVs, local Chinese TV brands have been forced to launch sub-brands to avoid conflicting with existing pricing models, Zhang said. Sub-brands, sold online only, include KKTV from Konka, Coocaa from Skyworth and TCL’s iQiyi, he said. A “fierce price war” has broken out in e-commerce channels, he said, with major TV brands suffering from squeezed profits. According to the latest announcements from major Chinese TV brands, Q1 revenue and profit slumped largely due to increased competition from newcomers, he said.

Zhang said new companies face an uncertain future with TVs because the online distribution strategy is “risky.” Although e-commerce is taking share from traditional channels, it “remains to be seen” how quickly consumers embrace e-commerce, he said. Internet retailing accounts for about 10 percent of TV sales in China, with growth projections up to 30 percent in coming years, he said.

LeTV and Xiaomi have sold fewer than 500,000 LCD TVs, and profitability “remains a concern,” Zhang said. Since it’s already difficult for large and efficient TV companies to make money on hardware, newcomers will have to expand distribution, manage competition with traditional TV brands and “find creative ways to promote and gain profitability from value-added services,” he said.