Free metal jacket: China’s LeTV giving away Le 1s smartphone to loyal subscribers of its video-streaming services as hardware takes back stage

Company says even retail price of 1,099 yuan is below cost; expects to profit from combination of fixed contracts and migration of customers among various services

PUBLISHED : Tuesday, 27 October, 2015, 3:50pm
UPDATED : Tuesday, 27 October, 2015, 8:28pm

Le 1s, the new flagship smartphone from LeTV, is retailing for 1,099 yuan (US$173) in China despite costing over 1,300 yuan to produce per unit, the Chinese entertainment company said on Tuesday.

Its specifications keep pace with most flagship phones from other makers: It features a 5.5-inch screen, 2.2 Ghz processor, 3G of RAM and 32-gigabytes of storage.

However it is still significantly cheaper than the new iPhone 6s (6,888 yuan) or Note by Xiaomi (1,799 yuan), the leading smartphone vendor in China often billed as a cheap Apple clone.

“The new price shows we are at a time of negative profit for hardware,” said Jia Yueting, CEO of LeTV Holdings, at a launch event in Beijing.

China’s smartphone market is become saturated as local players like Xiaomi, Huawei and ZTE vie for customers with more established foreign brands such as Apple, Samsung and LG.

The situation is becoming even more squeezed as non-electronics makers throw their hats in the ring: Pepsi recently announced it would be releasing a branded smartphone in China in partnership with a local company that it has not named.

Mobile phone operators and game console companies have, of course, long been prepared to take a hit on their hardware costs in order to profit from the related software.

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This has proven an acceptable business model as consumers can enjoy heavily subsidised phones if they sign a fixed-term contract, while gamers must shell out a whopping US$50 for each new title, a sum that soon aggregates beyond the US$300 or so cost of the console itself.

LeTV is one of China’s largest providers of streaming video. It has accumulated a wealth of content, from TV shows and movies to the broadcasting rights for high-profile sports.

The latter includes the right to broadcast English Premier League soccer matches in Hong Kong from next season. The company charges a monthly subscription fee of HK$99 in the city.

The new smartphone is also a nifty way to boost LeTV’s subscriber base as those who sign up for longer packages for its smart TV and set-top box can get the handset for free.

Letv has been using a similar tactic to sell its 70-inch flatscreen TVs, which retail for 9,979 yuan but come with two years’ complimentary access to LeTV’s streaming service.

Its TVs are so in-demand they usually require a delivery time of two weeks, the company said.

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The company also released a 120-inch flatscreen TV - called the uMAX 120 - on Tuesday. Billed as the world’s biggest 3D TV offering 4K resolution, it stands 1.62 metres tall and is competitively priced at 499,000 yuan.

LeTV is also facing fierce competition in the online streaming business.

This month, e-commerce giant Alibaba offered US$ 4.6 billion to fully purchase Youku Tudou, another major video site in China. This means China’s three biggest internet conglomerates - Alibaba, Tencent and Baidu - now all own streaming services.

Such sites are forking out heavily to acquire exclusive content and form alliances with major Hollywood studios, but none of the others have produced their own smartphones or TVs - yet.