Smart set-top box market low price homogenization shopping

The profit of a smart set-top box is only a few tens of yuan. Even if it depends on the profitability of content, the number of users must reach at least 1 million yuan to have commercial development value. What's more serious is that the license system restricts content providers' control of content. Constraints show that the smart box “box” is not an easy-to-profit project, but many companies including Xiaomi, Alibaba, LeTV, etc. have entered the box war one after another. Who can make the last laugh?

Large market for 500 million audiences

No one doubts that television will become the next smart terminal. According to the forecast of the third-party investigation agency Digital TV Research, the revenue capacity of China's Internet TV market will increase from 50 million US dollars in 2010 to 1.38 billion US dollars in 2016. At the same time, as of 2012, the stock of Chinese family color TVs exceeded 500 million units (users), of which 31% were flat-panel TVs that could access smart set-top boxes. Regardless of market size or market value, smart set-top boxes are extremely promising markets.

The history of smart set-top boxes is not long distant. From 2005 to 2006, Sony (20.13, -0.59, -2.85%), Microsoft (32.06, 0.48, 1.53%), and Nintendo have successively introduced a new generation of television game consoles, which have more or less intelligent set-top boxes. Basic functions are considered to be the origin of intelligent set-top boxes.

Since then, with the increase in the popularity of the Internet and the speed of the Internet, Internet video on demand has become an important application of the Internet market. In the United States, the number of users in the online video market has increased from nearly 100 million in 2006 to more than 200 million users. Online video has become the second largest video market in the United States, second only to television.

At the same time, Apple (464.98, -0.27, -0.06%) company through mobile phones, tablet computers set off a wave of mobile terminal intelligence, is also impacting other products in the consumer electronics field. TV, as a media platform that occupies a dominant position in the home, is just under the dual influence of massive network video and intelligent electronic products.

However, due to the complexity and vested interests of the domestic cable television system, there has not been a widely accepted road map for the intelligence and networking of television. The intelligent set-top box, as a product that not only provides networked and intelligent services but also has less impact on the existing pattern, has become the most powerful weapon for the princes to seize the last screen.

Currently, listed companies such as LeTV, Hua Digital Media, BesTV, and non-listed millet, Alibaba and other companies have joined the industry. However, the first meeting for these companies will be a severe scale competition.

As low as tens of yuan in profit

In 2011, the domestic consumption of smart set-top boxes was 1 million units; in 2012, it was between 2 million and 3 million units. This figure is almost negligible compared to the annual domestic consumption of about 40 million TV sets.

Liang Jun, deputy general manager of LeTV, once stated that the market potential of smart set-top boxes is very large and the scale will be counted in millions. Some people in the industry also believe that the market size of smart set-top boxes is about 6 million to 10 million units per year.

Compared with the TV starting at 1,000 yuan, each box with a starting price of around 300 yuan is undoubtedly the cheapest way to enter the living room. A brokerage analyst who has long been researching smart TVs told reporters: “The cost price of each box is now about 200 pieces. The box sold on the market itself is basically not losing money.”

The main reason for this low price status is that, except for companies with content advantages and internet background like LeTV and BesTV, there is a huge pure hardware manufacturer in the smart set-top box industry. The predecessor of this type of company is mostly a manufacturer of ordinary set-top boxes or other electronic products, attracted by the huge market potential of smart set-top boxes and dedicated to this industry.

Most of these companies do not have a content advantage, and they basically profit from selling hardware. It is the existence of such companies that guarantees that the market price of the box remains above the cost line, and the profit will not be too high. A hardware manufacturer of intelligent set-top boxes in the Shenzhen area stated that the company’s unit price of about 300 yuan for a smart set-top box is only about a dozen yuan.

However, this company's main market is not in the country. The company has a monthly production capacity of 200,000 units, and only 50,000 units are digested at home. They can still afford the low profits of the domestic market.

For the behavior of low profit but still insistence, an industry insider said: "The box is in the outbreak of the industry, it is time to compete for status, and the loss must be done."

In fact, even with high unit gross margins, box companies still seem to be keen on low-price strategies. Take Apple TV's box product, Apple TV, as an example. Third-party companies estimate that the product costs about 237 US dollars, accounting for 80% of the retail price. For other Apple products, the cost accounts for 60% to 70% of the retail price.

The reason why Apple is so priced is considered by the industry as a strategy to increase market share. The success of the Apple model shows that the hardware, as the physical bearer of the business, determines the entrance of software, services, and content services. To bind the service to the user, it must be controlled by the terminal.

In the current market, the new millet box is 299 yuan/set; LeTV's C1S box hardware is free, but the one-year charging content is priced at 290 yuan; BesTV is selling 699 yuan/station. Among them, the price strategy of the first two is obviously similar to that of Apple.

Even if the market size of 2 million or even tens of millions of boxes can be realized, it is still not enough to attract the heroic enterprises to get their money back. The brokerage analyst mentioned above told reporters: “Relying on selling boxes to earn hard-earned money is by no means the premise of everyone seizing the TV screen.”

“Only the future will make money through fee-based services, advertising, and various applications. It will be a long-term model. However, all this requires a certain number of customers as the basis. According to the IPTV experience, users must have at least 1 million or more. The value of business development," said the analyst.

At present, box products of companies such as Xiaomi, LeTV, Hua Digital Media, and BesTV are still in the early stage of market development, and none of them has a scale of one million. In foreign countries, Netflix has more than 24 million users in the online video industry and Apple TV sales exceed 4.2 million.

No matter what kind of profit model is adopted, there is still a huge gap between all box manufacturers currently relying on the market size required for making money from content. This clear expectation in close proximity, together with the economies of scale necessary for profit, has led to fierce competition in the box industry.

It can be foreseen that the manufacturing and sales of smart set-top boxes will still maintain a low-price price strategy. In order to occupy the television screen in the living room, I am afraid that any enterprise at this stage is difficult to abandon price competition.

License Limiting Factors

In this bloody knockout game, the market size is only a prerequisite, and only companies that can convert the number of customers into revenues may be able to laugh at the end.

However, the low price of hardware brings another problem that is the decrease of customer stickiness. "Now that the price of the box is very low, a few thousand dollars for a smart phone can be changed in a year or two, and the frequency of replacement of such a cheap box may be more frequent. That is, through the hardware price war into the box of the living room, if It can't be glued to users and it can easily be kicked out," said the analyst.

The return rate of the box market supports this judgment. The reporter learned from the interview that the non-branded smart set-top boxes sold on the Internet are currently committed to 15 days of "unconditional return" services in order to increase their sales. The return rate of the entire non-brand smart set-top box market exceeds 10%!

The figures above are only statistical returns and do not include direct repurchasing data. The return rate of box products shows extremely low customer stickiness.

In addition to the factors of low prices, the homogeneity of content is also an obstacle to limiting the stickiness of box companies.

In 2011, SARFT issued the "Requirements for the Operation and Management of Holding Internet TV License Organizations." According to this document, the Internet TV integration platform can only choose to connect to the Internet TV content organization service platform approved by SARFT; temporarily, it is not allowed to open the technical interface of broadcasting and TV program broadcasting services.

This means that all boxes must work with statutory licensed platform vendors, and the broadcast content is restricted by licensees and cannot engage in live broadcast services. Since then, the SARFT has issued seven licenses in succession. The licensees are members of the Broadcasting Department, such as CNTV, Hua Digital Media, and BesTV.

Some analysts believe that the licensing system leads licensees to have absolute control over content. Such strict control will weaken LeTV, which is an Internet company with a lot of content resources in itself, and it is unable to exert its content differentiation advantage. Moreover, even if there are content advantages, this advantage is smaller than expected.

It is understood that most of the current box contents on the market come from Beijing Superior Pengle Technology Co., Ltd. The website of the company shows that it owns more than 4,000 movie works at home and abroad, more than 25,000 TV shows, and all kinds of boutique program reserves added together. Duration has exceeded 50,000 hours. This number has no obvious disadvantage compared with some content providers.

What's more serious is that according to the requirements of SARFT, box products cannot have TV live broadcasting. When the user needs to watch TV, the TV must be tuned to the television mode, and the box must be opened when the movie is needed. This tedious operation will inevitably affect the box user's experience, resulting in a lower boot rate of the box.

Although brands such as LeTV and Xiaomi have strictly complied with the requirement of not providing live TV, there are still many box products on the market that can realize the live broadcasting of TV channels. These non-compliance competitors solved the poor application experience of the box and were more attractive than regular box products.

The above analysts said: “The current box products have very serious content homogenization. In the future, only companies with advantages in brand and content breadth and update speed can develop sufficient customer stickiness. No doubt, The box brands that own content resources are more likely to cultivate user stickiness, but this also requires a certain degree of innovation and breakthroughs."