China's LeEco bets on a connected future

Co-founder and vice-chairman Liu Hong on the fast-growing firm’s global ambition to build an integrated media and telecommunications ecosystem.
LeEco chairman Jia Yueting (left) and Ding Lei, head of its auto division, unveil the company's new electric car concept.
LeEco chairman Jia Yueting (left) and Ding Lei, head of its auto division, unveil the company's new electric car concept.

When Liu Hong, the youngest Chinese journalist to have reported from the Arctic Pole, was bored with his day-to-day job editing propagandist new stories in Beijing, a chance meeting in 2003 with a businessman from Shanxi province changed his career and life.

Liu, then a 30 year-old sub-editor at the state-run China Radio International (CRI), met Jia Yueting, an adventurous businessman of the same age, who already had a string of his own businesses – including a private school and fast-food restaurant as well as steel and telecommunication interests – in his home province, some 300 miles to the southwest of China’s capital city. 

“When he [Jia] first came to Beijing in 2003, he only had one driver and Rmb200,000 ($30,000) in cash. But we hit it off instantly as we both saw the potential and trend of China’s internet industry,” Liu, now co-founder and vice chairman of LeEco (formerly known as LeTV), a fast-growing Chinese online entertainment and technology group, told FinanceAsia in an interview.

United by their shared passion for China’s buoyant technology sector, Jia and Liu together set up LeEco in 2004, originally a video streaming website which roughly translates as “Happy TV”. Liu also gave up on his “iron rice bowl” job at CRI, a move that would have been unorthodox at the time for most university-educated Chinese as it was a potential job for life.

“I didn’t tell my parents about my resignation till one year later. They thought I was out of my mind to throw away my iron rice bowl job, which was stable and prestigious in their eyes,” said Liu, the son of an employee at a local broadcaster and a doctor. 

But Liu said the bold decision wasn’t taken on a whim. After covering China’s first North Pole scientific expedition in 1999 at the age of 26 and the country’s 17th Antarctic expedition the next year, he became disillusioned with journalism. 

“I ended up editing stereotyped pieces [at the desk]. The work had no creativity. I didn’t know where the audience and the news value were. I was just wasting my life,” he said.  

Liu Hong

The departure proved to be inspired and eventually helped to slip both Liu and Jia into the country’s growing tome of rags-to-riches stories. According to the 2015 Hurun rich list, their individual wealth stood at Rmb3.1 billion ($480 million) and Rmb45 billion ($7 billion), respectively.

LeEco, starting with a two-person team, has developed into one of the country’s most popular online content providers and now claims to employ 10,000 people in mainland China, Hong Kong, and the US. 

One of its divisions, Leshi Internet Information and Technology Corp, was the first online video firm to go public in China. Listed on Shenzhen’s ChiNext, a Nasdaq-style and tech-friendly board in 2010, Leshi is currently the second-largest company on the board with a market capitalisation of Rmb109 billion ($16.8 billion). 

The online video firm, sometimes dubbed the Netflix of China, is also engaged in Chinese TV drama production and plans to acquire Le Vision Pictures, LeEco’s film production and distribution affiliate, for Rmb9.8 billion ($1.5 billion).

Le Vision Pictures has partnerships with some of the country’s most famous film directors, including Zhang Yimou and Tsui Hark. Apart from financing and distributing Hollywood imports into China, such as The Expendables 2&3, it has also partnered with Legendary and Universal Pictures on The Great Wall, an upcoming science-fiction film starring Matt Damon. 

In recent years, LeEco has shifted from its core video-streaming business, first by tapping into China’s already-crowded markets for smartphones and smart TVs. The company is known for selling devices at disruptive low prices to gain market share to help build up a large base of loyal customers for its paid online content, including television shows, movies, and live sports matches. 

“The first line you see when you turn on our smart TV is ‘I am not a television set but an entire internet ecosystem.’ We are re-defining the functions of TVs,” Liu said. “It will be hard for traditional TV manufacturers to compete with us by cutting prices, as they don’t have [revenues from] paid online content to subsidise devices.”

LeEco made a splash in the domestic smart TV market last year by selling more than three million sets, branded Super TV, and gaining a 6% market share against market leader Skyworth’s 20% share. Liu said the target this year is to sell 6 million units. 

All of this however comes at a price. Leshi Zhixin, a subsidiary of LeEco and its main hardware manufacturer, posted a loss of Rmb731 million last year, up from Rmb386 million in 2014 and Rmb47 million in 2013. 

“The hardware goes home and the profits will come later. That’s our strategy. During the [current] transitional period, we are not going to make a lot of profits. It won’t be more than five years,” Winston Cheng, LeEco’s senior vice-president of global corporate finance and development, told FinanceAsia

In the meantime, LeEco’s key selling point – the integration of good-quality video content and other online services into the devices – is resonating with some of China’s younger consumers, who generally tend to be more demanding when it comes to new customised products.

Su Nan, a 26-year-old financial professional in Beijing, bought a 43-inch screen Super TV for about Rmb2,000 ($308) last year. “For non high-end TV sets, there won’t be a big difference in terms of quality. The [online] resources each maker provides play a decisive role,” he said. 

In the battle for smartphones, competition is fiercer. LeEco said it had set a new record by selling more than four million smartphones in seven months last year, ten times more than its domestic rival Xiaomi when it first started out in 2011.

But it’s worth pointing out that the domestic market is far larger today than when Xiaomi launched. Last year, Shenzhen-based Huawei, the world’s third-largest smartphone maker by shipments after Samsung and Apple, sold 62.2 million units in China while Xiaomi shipped 67.5 million to claim the top position in the home market, according to technology consulting firm Strategy Analytics.  


The burgeoning firm has snapped up senior industry experts and bankers from state-owned institutions, multinational enterprises and Wall Street investment banks for businesses in other nascent and growing sectors in China. 

Among them are Ding Lei, a former Shanghai official and general manager of Shanghai General Motors, Winston Cheng, former head of Asia technology, media and telecommunications at Bank of America Merrill Lynch, and a number of well-known sports commentators from Chinese state broadcaster CCTV. 

“If I stayed in banking it would be relatively comfortable, but I do think if I had to move it has to be something exciting and with potential,” said Cheng, who left BAML in Hong Kong last summer after two decades in banking. 

For Cheng, who is now based in Beijing and has to commute between Hong Kong and the US too, work is made exciting and challenging by the fact he is leading LeEco’s global corporate finance unit, in charge of financing, investment, and mergers and acquisitions.

“The transition for me is a challenging one because I have gone from an international investment bank into an A-share listed Chinese company which wants to go international,” he said, adding this in return offers him ample room to add value. 

One change he introduced was to set up an investment committee with representatives from business, financial, legal, and strategy sides to improve the company’s corporate governance and decision-making. 

With more experienced professionals joining the young emerging company, LeEco has moved into new sectors, notably sports and electric cars where they see huge potential.


In late March the sports arm of LeEco, Le Sports, raised a further Rmb8 billion ($1.23 billion) in private funding. That valued the unit – for comparison purposes, think of it as the ESPN or Sky Sports of China – at Rmb21.5 billion.

Some 30 institutional investors participated in the Series-B round of funding, among them HNA Capital, a private equity unit of local conglomerate HNA Group, beating expectations in one of the biggest-ever capital raises seen so far in the Chinese sports industry.

“We didn’t plan to raise this much,” Liu told FinanceAsia on the sidelines of the Boao Forum in late March. “We initially aimed for only Rmb3 billion. The market enthusiasm was too high and pushed up the scale to Rmb5 billion. But even that couldn’t stop [investor demand].”

Liu said a number of big institutions and individual investors continued to contact Le Sports, which has the exclusive rights to broadcast English football’s historic FA Cup in China, even after the passing of the Series-B funding deadline on March 11. “I even received a phone call [from an investor] last night [when in Boao], saying he wants to invest,” he said.

The latest fundraising round comes as capital flocks to tap China’s underdeveloped sports market, which accounted for just 0.64% of Chinese GDP in 2014 and is seen ripe for massive development.

“I personally think more and more capital will be pouring into the [sports] industry as it just starts to release the potential. Many investors are still studying the true value of the industry,” Li Ruigang, chairman of state-backed investment firm China Media Capital, said during a panel discussion at the Boao Forum.

Liu Tao, a popular Chinese actress whose main works include Demi-Gods and Semi-Devils, adapted from a best-selling kung fu novel, and Nirvana in Fire, the Chinese version of The Count of Monte Cristo, invested in Le Sports late last year, taking an undisclosed stake. 

LeTV: China's Netflix?

“My family and I are really sporty. Sports are becoming an emerging industry in China. And Le Sports tries to cover the entire value chain of sports business from top to bottom. This makes it a leading player in the industry,” she told FinanceAsia. 

Le Sports’s valuation has grown more than sevenfold from its Rmb2.8 billion valuation in May 2015, when the company raised Rmb800 million ($123 million) from its Series-A financing round, with China’s two richest men Wang Jianlin and Jack Ma among the investors.

One financial adviser of LeEco told FinanceAsia that the storytelling skills of LeEco and its subsidiaries played a crucial role in the fundraising. “If you look at their [current] financial figures, you don’t think they deserve such high valuations, but they would try to convince investors by the concept of internet ecosystem and synergies among different subsidiaries to get the valuation premiums.” 

Le Sports, for instance, recorded net losses of Rmb33 million and Rmb320 million in 2014 and 2015, according to a report by Chinese financial publication Caixin

Le Sports is not the only LeEco unit under pressure to improve the return on capital employed.

While the revenue of the video streaming website Leshi increased more than 11 times to $2.07 billion last year compared with 2012, its net profit margin over the same period fell from 17% to 4.4%, according to its annual reports.  

But it’s loss-making two year-old Le Sports that is increasingly hogging the limelight, having hit the headlines with a series of big moves that underline its grand ambitions. 

Last September, it reportedly beat PCCW in a $400 million bid for the exclusive rights to broadcast English Premier League matches in Hong Kong from 2016 to 2019, doubling what the city’s telecommunications giant run by billionaire Richard Li, son of Li Ka-shing, used to pay. 

Earlier this year, Le Sports spent Rmb2.7 billion buying the broadcasting rights for two years to Chinese Super League football from China Media Capital. (CMC paid the league a record-breaking Rmb8 billion last year to own the exclusive rights for five years). It has also acquired rights to stream US Major League Baseball and Wimbledon tennis.

Liu revealed that Le Sports is likely to become the first subsidiary of LeEco to go public in the next three to five years, but he declined to elaborate further about where a listing might take place and how big it might be.

Set up in March 2014 on the back of predecessor, Le Sports says it has media rights to 310 sports events, including US NBA basketball and Formula 1 racing. According to consulting firm iRearch, Le Sports had 14 million unique visitors each day, representing 3% of China’s online video users, as of October 2015.



Most recently, LeEco has also made a push into the development of new-energy vehicles, unveiling a self-driving electric car in Beijing on April 20. 

The company hopes the concept car, which can purportedly reach a top speed of 130 miles per hour and is named LeSEE, will compete head on with the Model S of US pioneer Tesla. 

The company provided few technical details at the time but was immensely optimistic about its potential.

“When everyone was questioning us over our ability to develop a car like this and was laughing at us, we are still able to be here and show you this car,” LeEco’s co-founder and chairman Jia said, almost in tears at the event. 

According to him, LeEco has big plans to re-define the auto industry. “We are not just building an electric car, we are building a new way of transportation for the future.”

LeSEE, jointly developed for more than a year by LeEco and its international partner – Los Angeles-based auto startup Faraday Future – comes as Beijing actively encourages auto makers to deploy self-driving and new-energy cars on China’s public roads to improve road safety and cut pollution. 



Faraday Future, in which Jia is a major investor, is spending $1 billion building a 900-acre factory in Nevada, where it hopes to manufacture LeSEE-like cars in the next few years. LeEco has also teamed up with British luxury carmaker Aston Martin to develop electric cars targeting high-end consumers. 

But rather than taking the company off on a tangent, LeEco’s car-making adventure is merely another component of its grand plan to create an interconnected ecosystem. 

“We see cars in the future as a screen with four wheels. You will be completely connected with the outside world just as you are at home or office,” Liu said. “Like our smartphones and TV sets, cars would likely double the performance at half the price.”

However, some senior executives at traditional auto companies as well as other electric carmakers sounded a note of caution.

“They have a long way to go from the concept car launch to mass production. Making cars is much more complex than making mobile phones or TV sets as it involves more components and therefore suppliers,” one Beijing-based executive at a large German auto company told FinanceAsia

“Consumers care about the security of vehicles first and most, then maybe internet-featured functions,” he said. 


Having built up a solid presence and a strong brand recognition at home where the economy is slowing, LeEco is next targeting the US and India.

“This year marks the start of our globalisation,” co-founder Liu said. “America represents mature, developed economies and has the most picky consumers. If our business model cannot succeed there, we won’t see our global expansion [as] a success. India represents the developing counties and can bring us more consumers.”

In India, the Beijing-based digital giant has already made great strides, selling about 220,000 smartphones in 30 days during its first online product launch in January. It has also forged partnerships with local content providers Eros International and Yupp TV. 

Speed: the LeSEE

“It’s much easier to consolidate content in India than in the US, with lower costs and fewer barriers,” said Liu, who intends to adopt a different strategy when it comes to the US market, by teaming up with smaller, independent studios instead of the six big film companies.

LeEco also plans to target US-based Chinese consumers, to help establish a foothold. There were about 4.5 million people of Chinese (excluding Taiwanese) descent living in the US in 2014, making it the largest Asian group, according to the US Census Bureau. 

When it comes to betting on the company’s plans for building a fully connected digital ecosystem, the former Chinese radio journalist is not shy when asked about LeEco’s ultimate goal. 

“We’ve developed from a pure video site to a firm engaged in seven big industries. Our goal isn’t about surpassing BAT, Apple, or Amazon, but to become a fully globalised company.”

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