Traditional TV Facing Challenge from the Web

Hot competition

Just two days later, Xiaomi unveiled its 47-inch 3-D smart TV at an amazing price of 2,999 yuan — about 1,550 yuan cheaper than the smart TV made by TCL. An updated version of Xiaomi's set-top box with a faster central processing unit was also launched in September.

"Any online video provider could become a virtual cable operator by streaming videos to television sets over the Internet, as long as it partners with an OTT TV license holder in China.

"The operator identity is very alluring to video providers, for TV audiences will have access to their platforms and content. Although none of the Internet companies has made a profit by providing OTT services, they expect to make money within five years," said Luan Xutao, director of the operator relationship department of Nielsen-CCData Media Research Co Ltd.

"In China, cable television operators are divided by regions, but online video providers may turn into national virtual cable operators.

"At present, the companies that launched OTT set-top boxes are still attracting users. Once their user population reaches a certain level, they will find tons of business opportunities," he said.

Industry observers predicted that Internet companies will march into the TV market on a large scale during the next five years. The number of servers ordered by Baidu for 2014 equals the total number of servers the company has purchased since it was founded.

Alibaba and Tencent Inc, one of China's largest Internet service portals, are also increasing their server purchases, according to an industry analyst who declined to be identified.

Compared with traditional consumer electronics manufacturers that only make TV hardware, Internet companies have the advantage of providing rich content and related services, said Liu.

"Many people asked me: ‘What is OTT TV? Does it simply mean streaming online videos to TV?' That's not the case.

"The real significance of OTT TV lies in getting users to participate in the design, production and upgrading process of hardware and content. It requires stronger interactions between the users and the operating system," said Peng.

Apart from offering 5,000 movies and 90,000 episodes of TV series to subscribers, LeTV has also upgraded its television operating system every weekend since July, based on customer feedback.

Following user suggestions, the company provides a remote video surveillance service for the home that allows parents who are at work or on a business trip to stay connected with their children. It also launched a software application to turn a smartphone into a remote control for its smart TV.

In the future, users will be able to post comments on TV screens while watching movies and receive instant responses from their friends.

They will also make decisions on which TV dramas should have special channels of their own so viewers can watch any episode they like at any time.

"For traditional consumer electronics manufacturers, their job is done once they deliver a TV set to the customer. But for Internet companies like us, our job has just started," said Peng.

With the further development of OTT TV, new business models will be created based on a large screen, according to Liu.

For example, while watching the main characters having dinner at a fancy restaurant, the audience may pause to read a brief introduction to the restaurant that will cover its location, specialties and head chef.

If they like a dress worn by an actress, they can easily discover its label and try it on virtually on TV, having a full-body scan before making a purchase.

Statistics reveal advertisers prefer TV to other types of media. About 76 percent of advertising expenditure is allocated to TV networks in China every year.

So the advertising value of an online video portal is bound to improve if it appears on the TV terminals of millions of users nationwide, and the portal can help marketers advertise across all screens, said Luan.

However, an effective profit model has not yet emerged, even though many OTT TV and set-top boxes are burgeoning across China. Industry analysts said that whether OTT video service providers can recover their huge investments in copyrighted content and hardware is still in question.