Letv defends spending spree, as first player from mainland China to ‘crack’ Hong Kong speculates to accumulate subscribers

As it splashes out on content, company claims to be on verge of announcing more deals with big Hollywood studios

PUBLISHED : Thursday, 12 November, 2015, 6:26pm
UPDATED : Thursday, 12 November, 2015, 6:26pm

Chinese online video-streaming giant Letv has been investing aggressively in its operations in China and Hong Kong, but it defended its spending spree this week by saying that internet companies often need to make such moves at an early stage before seeing large profits.

“The key is to accumulate a pool of users,” said Mok Chui-tin, the company’s chief executive for Asia Pacific.

Since it established an international office in Hong Kong in August last year, Letv has become the first major Chinese player in this industry to stake a claim in the city with a series of bold moves.

Chinese rival iQiyi targeted Hong Kong in April, but has yet to start streaming video to internet users in the city.

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Letv gained something of a first-mover advantage this September by purchasing the rights to air English Premier League soccer matches in Hong Kong next season for the reported sum of US$400 million.

It has also spent over HK$20 million (US$2.58 million) on producing a local TV drama in super-high-definition 4K, and partnered with local broadband provider HKBN to offer a video-streaming service that certain subscribers in the city can receive for free.

Mok said such large financial outlays are not likely to cease anytime soon.

The company plans to add 1,000 hours of content to its Hong Kong streaming library every month, he said, adding that it will produce another 4K TV drama series, and is on the verge of announcing more content deals with “major Hollywood studios”.

Meanwhile, it is seeing shipments of its set-top boxes to the city grow healthily.

On Wednesday, it announced that it had sold 100,000 in the territory. The boxes allow users to play Letv content on a regular television. The company also sells smart TVs in Hong Kong, which play its content directly.

But competition is rising from local players like NowTV and foreign big-hitters such as Netflix.

NowTV, the city’s largest pay-TV provider, already offers HBO GO and Fox Movies Play, among other services. It is owned by local telecommunications giant PCCW, which in April won the right to operate a free television channel in Hong Kong.

The channel, called ViuTV, will also provide streamed content for mobile devices, PCCW said.

Netflix said it will launch in Hong Kong early next year, but Mok said it may not be able to bring its whole collection due to copyright restrictions.

“They may not have much content to broadcast here, ” he said.

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In mainland China, Letv is competing with streaming websites backed by heavy-hitting internet conglomerates. These well-financed companies are splashing out on content deals and producing original material.

Backed by Chinese search engine giant Baidu, iQiyi recently signed a deal with NBCUniversal and plans to spend more than 60 per cent of its whole budget for next year on creating original shows,it said earlier.

Letv is trying to keep pace. Late last month, its founder and CEO Jia Yueting sold 100 million Letv shares for a reported 3.2 billion yuan (US$502.4 million) to offset its spending spree.

Importantly, the company is still making a profit. Its third quarter earnings report showed that it made a total profit in excess of 370 million yuan for the period, up 72.8 per cent growth from the same period one year earlier.

Mok believes Letv’s key advantage lies in its “ecosystem” of knitted-together business units that supporting one another, including smart TVs and smartphones.

It hews to a policy of selling cut-price hardware to attract subscribers to its streaming service. It claims to be retailing its latest smartphone at below cost price, while its video streaming service has been added as a default feature of the handset.