Date
22 October 2017

Can Skyworth turn smart TV challenge into opportunity?

One of the key technology market trends to watch out for in China this year is how fast the so-called smart or internet TV segment will grow and whether the new boys on the block will eat the lunch of traditional TV makers.

Industry titan Skyworth Digital (00751.HK) shipped more than 11 million TV sets overall last year. Although the company accounts for one out of every six televisions sold in China, its chief executive has openly admitted to mounting challenges faced by the firm due to the rise of smart TV brands.

“Sales of smart TVs are only a fraction of the market but [the industry landscape] can change very quickly,” Yang Dongwen {杨东文} said on the Managing China television business talk show. “Time is not a luxury we have.” 

The comments come as formidable competitors from outside the industry are pushing into the internet TV market in a big way. Lenovo, Leshi and Xiaomi all have aggressive plans to build the new business.

Smart TVs can destroy the traditional TV industry as new entrants offer their products at cut-throat and often subsidized prices. While incumbent players earn most of their money from selling the hardware — the TVs — newcomers are almost giving them away.

The reality is that many smart TV operators hope to generate entirely different income streams and cash flows from services provision, such as games, content and Apps. Once a critical mass of users is reached, the new generation TV companies can also go for another huge revenue pie — the advertising market.

Skyworth has been making on average HK$1.3 billion a year since 2010. The invasion of Smart TVs can erode those profits easily by driving down the hardware margin, a stab to the heart of its profit model.

Noticing the downfall of Nokia, Blackberry and Motorola when smartphones became the mainstream, Yang sensed how easily a big corporation can be swept away by tide of technological advances.
To survive and stay as a leading TV maker in the internet era, Yang decided that the only way forward is to ride the wave rather than fight it.

“Embrace internet or leave,” that is the message Yang sent out recently to Skyworth staff, many of whom are still resistant to change. “We don’t want to play defense, we want to build this into a big new business,” the CEO said.

Skyworth teamed up with Alibaba and has already launched three smart TV models under the “Coocaa” {酷开} label. This year, 30 new models are in the pipeline. Why so many? Yang cites the case of Samsung overtaking Apple as the top smartphone maker.

“Apple relies on very few models but Samsung offers a much wider selection, helping it surpass Apple in market share,” Yang explained.

Skyworth counts on Alibaba for cloud technology. The e-commerce giant is also bringing its Alipay and other applications to the party. Meanwhile, Skyworth is also forming alliance with content suppliers and game makers to enrich its Coocaa platform.

The smart TV industry is still in an experimental phase and a sustainable business model is yet to be found. Yang believes games appealing to the elderly and educational content for kids could be some of the killer offerings.

In a future dominated by smart TVs, Yang expects to see a new ecosystem to evolve in the coming years and the emergence of some great enterprises along the new value chain.

Smart TV could be the next big thing, but certain conditions need to be met before the products become a household must-have and for the industry to truly take off.

Sharing his vision, Yang said the number one issue is customer experience. Product features need to be more user friendly before a model can be a hit. “The interaction part has to be more simple and precise; preferably a user can get what he wants with a one-touch button,” he said. “Some sort of device to fuse the remote control and game control will be needed, for example.”

Improved internet infrastructure is also critical, Yang added.

Transformation is never easy. Unlike new entrants who can freely design the company around the smart TV concept, Skyworth cannot just throw away its existing business, on which many of its workers depend for a living.

Yang has chosen a less radical path of change by incrementally allocating more resources to the new smart TV division while continuing to milk the old business for all it is worth. He is “planting the seeds of reform” and hoping that the smart TV generation will soon take root.

– Contact the writer at [email protected]

RC

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