BDA-老虎全球乐视集团深度研究报告-20151109

BDAReportonLeshiGroupNovember9nd2015ForTigerGlobalManagementUseOnly©BDA20152TableofContentsExecutiveSummaryIntroductiontoLeshiGroupAnalysisofLeshiGroup’sListedBusiness(300104.sz)AnalysisofLeshiGroup’sUnlistedBusinessExecutiveSummary-OutlookofLeshiGroup’sMajorBusiness(1/2)3MarketSize

(2015)MarketShare

&TrendUSD3BN(YoY50%)onadsrevenue11%Leshi’sProspectsOnlineVideoAdvertisingListedBusinessWillmaintainitsmarketpositionasthe5thplayerBleakearningoutlookintheviewofcompetitivelandscapeandrisingcontentcostSmartTVTVDramasVideoCloudService35MNsets(YoY12%)onshipments9%USD3BN(YoY23%)ontradingvalue<1%N/AN/AWillcontinuetogaingroundfromtraditionalTVmakersbenefitingfromitslowpricestrategyWillbearalossduetogloomyretentionrateofpayinguserWillremainarelativelysmallscaleresultedfromlimitedresourceandcapacityofdirectorsandproductionWillremainacashburningbusinessforseveralyearsasthereisnoclearmonetizationmodelforvideocloudserviceproviderRevenue(USDMN)

(2015E–2016F)500339+48%1,010777+30%0%2016F2015E+40%ExecutiveSummary-OutlookofLeshiGroup’sMajorBusiness(2/2)4SmartPhoneUnlistedBusinessMoviesSportsSmartAutoWineE-commerceMusicMarketSize

(2015)MarketShare

&TrendLeshi’sProspects421MNsets(YoY7%)onshipments<1%HardtomakeastandduetoextremelyintensecompetitionWillbearalostforupcomingyearsUSD6BN(YoY47%)onboxofficerevenue4%Leshioutperformsitsrivalsinthedistributionbusiness,whilelagsbehindtopplayersinthefilmproductionindustryHighuncertaintyandRiskforprofitabilityN/AN/AWillremainacashburningbusinessforseveralyearsbroughtbyrocketingcopyrightcostandunclearmonetizationmethods126,000(YoY137%)onsalesvolumeN/AHavenotlaunchedtheirproductsN/AN/ALeshiisnowjusttestingthewatersformusiceventbroadcastingbusinessOnlineticketformusiceventhasn’tbeenproventobeacceptedbyusersUSD130BN(YoY12%)onGMV<1%OnlyoccupiesatinyshareofmarketWillbearalossinrecentyearsRevenue(USDMN)

(2015E–2016F)+51%+29%~15+50%+21%+60%2016F2015E~8N/A5TableofContentsExecutiveSummaryIntroductiontoLeshiGroupAnalysisofLeshiGroup’sListedBusiness(300104.sz)AnalysisofLeshiGroup’sUnlistedBusinessLeshiGrouphasdevelopedvariousbusinesslines

coveringthreemainareas:contentproduction,onlinevideoandhardwaremanufacturing6Source:BDAresearchandanalysisMappingofLeshiGroup1LeTV.com2LeshiTV5LeshiSmartphone3FlowerFilm&TVHardwareManufacturingContentProductionOnlineVideo6LeVisionPictures4LeshiCloudComputing7LeTVSports8LeAuto10LeMusicRevenue2014(USDMN)IntroductiontoBusinessLinesofLeshiGroupNameBusinessIntroductionLeTV.comLeshiTVFlowerFilm&TVLeshiCloudComputing1234LeshiSmartphoneLeVisionPicturesLeTVSportsLeAuto5678LeMusic9W10ComprehensiveonlinevideowebsiteofTVdramas,films,etc.SmartTVproductionandsellingTVdramaproductionanddistributionProvidingclientsvideocontentprocessingSmartphoneproductionandsellingMovieproductionanddistributionSportscompetitionsbroadcastingOfflinecontests

organizingNewenergyvehiclesdesign,productionandsellingReal-timebroadcastingofconcertsandmusicfestivalsB2Cwebsiteofwinesandotheralcoholicdrinks375521N/A9N/AN/AN/AListedUnlisted7TableofContentsExecutiveSummaryIntroductiontoLeshiGroupAnalysisofLeshiGroup’sListedBusiness(300104.sz)AnalysisofLeshiGroup’sUnlistedBusinessIn2014,therevenueofLeshi’slistedbusinessreachedUSD934MN,withthesmartTVsectoraccountingforthelargestshare8Unit:USDMNRevenue1ofLeTV(2009–2015)Source:CompanyinformationNotes:1.ExchangerateRMB/USDis7.3

2.Othersincludesvideocloudcomputingbusiness+116%2015Q1-Q3+76%2014Q1-Q3201420132012201120102009RevenueBreakdownbySegment(2014)Others212(1%)26(3%)TVDramasPayingSubscriptionResaleofContent

Copyright97(10%)215(23%)209(22%)OnlineVideoAdvertisingSmartTV&OTT375(40%)TheironlinevideoandcontentbusinessfacedadeclininggrossmarginandtheirsmartTVbusinesshadadeeplynegativemargin9+140%+55%In2013,LeTVlaunchedsmartTVs.EachsetwassoldbundledwiththeannualpayingmembershipfeeofUSD67.Thisexplainswhytherevenueofpayingsubscriptionsgrewrapidlyin2013and2014ThegrossmarginofsmartTVsisnegativeduetotheirlow-pricingstrategySource:CompanyinformationOnlineVideoAdvertisingRevenue(Unit:USDMN)+26%-15%+443%N/AN/A+102%+133%20142013201220112015Q1-Q32014Q1-Q3+73%GrossMargin42%ResaleofContentCopyrightSmartTVN/APayingSubscriptionCommentsN/AAswithotheronlinevideoplayers,LeTV’scorebusinessisvideoadvertisingSince2008,LeTVhadboughtalargenumberofexclusivecontent,especiallyTVdramas,andithasearnedquitealotofrevenueinresellingthemtoothersThegrossmargindropisduetotherisingcostofcontentandLeTVhaslostitsedgeintermsofcopyrightdistribution.2011-49%-37%20132014N/A2012LeTV’sEBITprofitfellclosetozeroin20141054%29%15%41%2009201020112012201320142015Q1-Q3GrossMarginofLeTV,2009–2015Source:Companyinformation2015Q1-Q3201127%17%10%1%20092014201320102012EBITMarginofLeTV,2009–201516%10%22%2%2012201020142013201120092015Q1-Q3NetMarginofLeTV,

2009–2015BecausethesellingpriceofsmartTVsisbelowBOM-cost,themargindropssharply.In2015,weforecastthatLeTVwillearnUSD1.6BNonrevenue;duetoitslossofsmartTVsector,itwillseea-2%ofnetmargin11Unit:USDMNRevenue

ForecastofLeTV(2009–2016F)2016F20132014+116%2015E+32%20122011+73%200920102015E20142016FNetMarginofLeTV,

2014–2016FSource:Companyinformation,BDAanalysisAgenda12OnlineVideoSmartTVTVDramasVideoCloudServiceSmartPhoneMoviesSportsSmartAutoWineE-commerceMusic113OnlineadvertisingisthemainsourceofrevenueforonlinevideocompaniesinChina;thesizeofthismarketreachedUSD2BNin2014,themajorityofwhichcomesfromPCSource:iResearch+53%3%97%2011582100%MobilePC20142,08121%79%20131,3425%95%2012912Unit:USDMN“Withthelarge-scalepopularityofsmartphonesandtablets,usersaregettingusedtowatchingvideosonthemobileend,sorevenuefrommobileadvertisingisrisingrapidly.”--IndustryExpert+41%20142013201220112011N/A201420122013+311%MarketSizeofOnlineVideoAdvertising,2011-2014“PCstilltakesthemajorshareoftheonlinevideoadvertisingmarket.AdvertisersarealmostallfromtheFMCG,auto,e-commerceandcosmeticsindustries.”--IndustryExpertUnit:USDMNAPCEndMobileEndUnit:USDMNWhatWeHeardPC’sonlinevideoadsweredrivenbythegrowthofVV,thenumberofadsperVVandprice,inwhichrisingVVservesasthemaindriver14Unit:USDMN+41%2014201320122011PCEnd:MarketSizeofOnlineVideoAdvertising,2011-2014ASource:iResearch,BDAanalysis+14%165NumberofAnuualVisits158153111+11%NumberofAdsPerVV120132014+11%20112012PricePerCPMXX=Unit:USD/’000adsUnit:#Unit:BNBNote:1.iResearchdoesn’thavetheVVdataforonlinevideoandthenumberofvisitsisinlinewiththenumberofVV“Therisingvisitsnumberisthekeydriveroftheonlineadvertisingmarketandthepenetrationofonlinevideousersiscontinuouslygrowing.”--IndustryExpert“In2011and2012,avideowouldshow4adsbeforeplayingandeachadlasted15seconds.Nowthenumberofadshasrisento5~6andintotallastsnearly1.5minutes.”--IndustryExpert“VideoadsareusuallypricedonaCPMbasis.ThepriceperCPMrisesbyabout10%everyyear.”--IndustryExpertWhatWeHeardVVgrowthisdrivenbyariseinonlinevideoUVs;consideringthatpenetrationinChinaisstilllow,thenumberofUVswillcontinuetogrow15Unit:BN+14%2014165201315820121532011111PC:AverageMonthlyUVBSource:iResearch,BDAanalysis+11%2014490201345320124292011361-4%+3%2014201320122011Unit:#/UVUnit:MNPCEnd:NumberofAnnualVisits,

2011-2014PC:AnnualVisitsPerUVXPenetrationofOnlineVideoUsersinChina’sPopulation36%34%32%27%VideouserpenetrationisstilllowWhatWeHeard“Since2012,withtheriseofsmartphones,manyonlinevideousershaveswitchedtheirwatchinghabitsfromPCtomobile,sotheirtimespentonPCsisdecreasing.”--IndustryExpert“InChina,thenumberofonlinevideousersisgrowingsteadily.Duetotherelativelylowpenetrationwithinthepopulation,Ithinkonlinevideouserswillstillgrowataround10%annually.However,VVperuserisunchanged.”--IndustryExpertTheincreasingnumberofVVandtimespentperVVhascausedthetotaltimespentononlinevideotogrowsteadily16Unit:BNhours+23%201441201335201231201122PCEnd:NumberofAnnualVisits,2011-2014Source:iResearch,BDAanalysis+14%2014165201315820121532011111+8%2014201320122011Unit:minutes/visitUnit:BNPCEnd:AnnualSpendingTimeonOnlineVideo,

2011-2014PCEnd:TimeSpentPerVisit,2011-2014XBForaplayerinonlinevideo,increasedspendingoncontentdrawsinmorevideotraffic,thusbringinginmoreadrevenue17TrafficContentInvestmentAdsRevenueLeTVSohuYouku+TudouiQiyi+PPS19612551AnnualSpending1onContent,2012-2014Unit:USDMNAnnualAdRevenue,

2012-2014Unit:USDMNLeTVSohuYouku+TudouiQiyi+PPS232AnnualTimeSpentbyUsers,

2012-2014Unit:BNhours10LeTVYouku+Tudou6Sohu5iQiyi+PPS84511633115

Source:iResearch,BDAinterviewsandanalysisNote:1.Wedon’thavethecontentexpensesofTencentAccordingtoadsrevenue,Youkuisstillaheadofpeers,however,ithasbeencontinuouslylosinggroundtootherplayers18Source:iResearch,BDAinterviewsandanalysisOthers2014Youku+Tudou10%iQiyi+PPSTencentLeTVSohu20139%20126%BreakdownofAdRevenuebyOnlineVideoPlayersinChinaAdsRevenueofOnlineVideoPlayers,2014496Sohu399iQiyi+PPSTencent215236LeTVYouku+Tudou223Unit:USDMN“DuetotheguidingoftrafficfromQQIM,Tencent’sonlinevideoadshavetakenquitealargeshare.LeTV’sotherproductslikeTVsorphoneshaveadsontheironlinevideo,sopartofitsadsrevenuearefromownbusinesses.”--IndustryExpertRevenueAccordingtoPCtraffic,thoughLeTV’sUVlagsbehind,itsuserspendingtimerankedthird1901/1407/1307/1501/1612016018020024026028014022030001/1532007/1434001/13LeTVSohuTencentYouku+TudouiQiyi+PPS247289336PCEnd:MonthlyUV,

Apr2013–Aug2015Unit:MN01,10030020001/1607/1501/1507/1401/1407/1301/131,0009008007006005004001001,2001,3001,155394430iQiyi+PPSYouku+TudouTencentSohuLeTV905183PCEnd:

MonthlySpendingTime,

Apr2013–Aug2015Unit:MNhoursSource:iResearchTrafficIntermsofnumberofvisitsandtimespentperUV,LeTValsorankedthird2001/1607/1501/1507/1401/1407/1301/13LeTVTencentSohuiQiyi+PPSYouku+TudouPCEnd:NumberofMonthlyVisitsPerUV,Apr2013–Aug2015Unit:#01/1607/1501/1507/1401/1407/1301/13iQiyi+PPSYouku+TudouLeTVSohuTencentPCEnd:MonthlyTimeSpentPerUV,Apr2013–Aug2015Unit:minutesSource:iResearchTrafficOnmobileend,LeTVlagsbehinditscompetitorsintermsofMAU2110/1504/1510/1404/1410/1301/1407/1401/1507/15iQiyiPPSYoukuTudouTencentSohuLeTVMobileEnd:MonthlyActiveDevices1,Nov2013–Sep2015Unit:MNNote:Referstothenumberofsmartdevicesinuse07/1510/1504/1501/1510/1407/1404/1401/1410/13LeTVSohuTencentTudouYoukuPPSiQiyiMobileEnd:

MonthlyActiveUsers,Nov2013–Sep2015Unit:MNSource:TalkingDataTrafficLeTValsolagsintermsofusertimespentonmobileend2205/1504/1503/1502/1501/152,2002,0001,8001,6001,4001,20001,00080060040020008/1507/1506/151,9981,056311LeTVSohuTencentYouku+TudouiQiyi+PPS1,853453MobileEnd:TotalMonthlyUserTimeSpent,Jan2015–Aug2015Unit:MNhoursMobileEnd:MonthlyTimeSpentPerUV,Jan2015–Aug2015Unit:minutesSource:iResearch08/1507/1506/1505/1504/1503/1502/1501/15LeTVYouku+TudouiQiyi+PPSTencentSohuTrafficToattractmoreattentionfromusers,allonlinevideoplayershavespentvastamountsofmoneytoacquiremorevideocontent;LeTVfocusesonTVdramas232012N/A114HasthelargestnumberofUGCCoversalltpyesofcontentStrivestoself-produceminiseries.AnnualSpendingonVideoContent

(Unit:USDMN)20132014196125N/A112137N/A295276OverallEvaluation

ofContentMainVideoContentSource:Companyinformation,BDAinterviewsandanalysisHasthemostnumberofdomesticTVdramasStrivingtoself-producetheirownhighqualityTVdramasFocuseson

AmericanandBritishTVdramasCoversafewdomestic

hitTVseriesFocusesondomesticvarietyshowsCoversafewdomestichitTVseriesHasitsownTVdramaandmovieproducingcompaniesFocusedonmoviesandcurrentpopularTVdramasExample《万万没想到》《盗墓笔记》《GameofThrones》《中国好声音》《芈月传》ContentLeadingplayerscontinuetonotonlybuyhugeamountsofcontentbutalsoincreaseinvestmentinproducingtheirown24ContentSpendingofOnlineVideoWebsites(2014)Purchased

ContentUnit:USDMNiQiyi+PPSLeTVSohuYouku+TudouSelf-producedContentBreakdownofiQiyi’sSpendingon

Self-producedVideoMinimoviesVarietyshowsTVdramas65%Source:Companyinformation,BDAinterviewsandanalysisContentIntermsofthemaintypesofprogramswithonlinevideoviewers,TVdramasaccountforoverhalfofallviewinghours25TVdramasMoviesVarietyshows8%10%11/1301/1403/1405/1407/1409/1411/1401/1503/1505/1507/15UGC,others09/139%55%57%07/1357%55%8%49%7%9%52%51%9%9%55%9%9%51%8%53%57%8%52%9%55%PCEnd:BreakdownofMonthlyViewingHoursSpentonOnlineVideo,July2013–July2015Source:iResearchContentThoughthousandsofTVdramasormoviesareproducedeachyear,thefewmostpopularvideostookthebulkofviewers’time2604/1410/1404/1507/1507/1401/1401/1532%42%24%61%33%68%69%69%PopularTVDramas’ShareofMonthlySpendingTimeTop7TVdramasTop70~100whoseMAUisover2MNTVDramas04/1504/1407/1507/1410/1401/1501/1435%30%11%17%18%35%35%28%PopularMovies’ShareofMonthlySpendingTimeTop7moviesTop40~50whoseMAUisover2MNMovies04/1507/1501/1407/1404/1410/1401/1584%48%85%57%44%89%83%40%PopularVarietyShows’ShareofMonthlySpendingTimeTop7varietyshowsTop50~70whoseMAUisover2MNVarietyShowsSource:iResearchContentIntermsoftophotTVdramas,iQiyihadthemostcoveragein2015272015.6Source:BDAanalysis

TVDramaswithTopMonthlyVV《花千骨》

2015.1

《武媚娘传奇》

2015.2

《千金女贼》

2015.3

《锦绣缘》

2015.4《妻子的谎言》

2015.5

《虎妈猫爸》

iQiyihaspurchasedalmostallofthepopularTVseriesthisyear,thusithasspentthemostoncontent武媚娘传奇,锦绣缘,妻子的谎言and花千骨werefirstbroadcastedonHunanTV千金女贼wasfirstairedonJiangsuTV虎妈猫爸wasfirstairedonDragonTVandTianjinTVApartfromUGC,YoukuhasboughtthemostpopularTVdramasLeTVinvestedlessmoneythanYoukuandiQiyionTVdramasSohuspenttheleastonTVseriesTVDramasContentYoukuandTencenthadthemostcoverageofhitmovies282015.6Source:BDAanalysisMovieswithTopMonthlyVV《失孤》

2015.1

《一个人的武林》

2015.2《心花路放》

2015.3

《黄飞鸿之英雄有梦》

2015.4《智取威虎山》

2015.5《奔跑吧！兄弟》

2015.7

《钟馗伏魔》

MoviesContentSohuhadmorevarietyshowsthanothers292015.6Source:BDAanalysisVarietyShowswithTopMonthlyVV《爸爸回来了》

2015.1

《奔跑吧兄弟》

2015.2《我是歌手》2015.3《快乐大本营》2015.4《花样姐姐》

2015.5《花儿与少年》2015.7

《极限挑战》

VarietyShows

HunanTVdidn’tselltheonlinevideocopyrightof‘IamaSinger’and‘HappyCamp’tootherplayers.ItonlybroadcaststhemonitsownonlinevideowebsitenamedMangoTV.UsercansearchesforitonallfivevideowebsitesanditwillguidetotheMangoTVwebsiteZhejiangTVHunanTVHunanTVDragonTVHunanTVZhejiangTVDragonTVTVStation

ContentUnderthepressureofrisingrightscosts,onlinevideoplayershaveturnedtoself-producedcontentstopossesstheirownrights…30UpdatedOnlinevideoplayerswishtoexploitIPthemselvesandhavetheirownrights,andtheseuniquecontentsdifferentiatethemfromothersTogetuserstospendmoretimewatchingtheirvideos,onlinevideoplayerstendtobuyexclusivebroadcastingrightsforcontent,thustheaveragepriceperepisodeofTVdramashasrisensharply,duetointensebiddingcompetition.Giventhehighcostofcontent,onlinevideocompaniesareunabletogetagoodreturnHavetheirownIPcontentrightsIncreasingpriceofpurchasedcontentAlotofhotcontentsareoffthemarketTraditionalTVstationsalsohopetodeveloptheirownonlinevideobusiness,sotheyarenotinclinedtoselltheirpopularvarietyshowstotheonlinevideoplayers,suchas‘IamaSinger’,producedbyHunanTV.ThiscontentisonlyshowedonHunanTV’sownonlinewebsite,namelyMangoTVReasonsforonlinevideoplayertoself-producecontents+23%20141582013130201294201184AveragePricePerEpisodeofTVDramasforOnlineVideoUnit:USD‘000“HunanTValsodidn’tselltheonlinevideocopyrightof‘HappyCamp’tootherplayers.ItonlybroadcaststhemonitsownonlinevideowebsiteMangoTV.”--IndustryExpert“NotonlythetraditionalTVdramaproducingcompaniesbuyIPtomakedramas,onlinevideowebsitealsohasjoinedthefight,wishingtodeveloptheirowndramastoraisevoice.”--IndustryExpert123Source:BDAinterviewsandanalysisContent…boosttrafficandhaveflexiblecontroloftheinvestments31Onlinevideowebsitescanpreciselybudgettheircostaccordingtothethemeandcastingoftheirself-producedcontentsBeforetheproducingaseriesofdramaorvarietyshow,implantedadvertisingcouldhelponlinevideoplayerscoverover50%oftheproducingcostsatadvanceWhenthedramaorvarietyshowarebroadcastingonline,onlinevideowebsitescouldeasilychoosetoincreaseorcuttheirinvestmentdependingonthepopularityoftheprogramInvestmentsandpaybackofself-producedarewellcontrolledReasonsforonlinevideoplayertoself-producedcontents5Self-producedcontentwhichisusuallyshorterthantraditionalfilmanddrama,canutilizethefragmentedtimeofviewersandboosttotalviewsandwebsitetrafficBoostnumberofviewingusersandtraffic4Updated“Generallyspeaking,mostself-producedvideoisonly10minutesperepisodewhichonlytakeashorttimetoviewit.Thoseshortvideoscanwellbringincrementalusersandviewingtime.”--IndustryExpertSource:BDAinterviewsandanalysisReturnTimelineofiQiyi’sself-produced‘奇葩说’SecondSeasonRevenueofimplantedadsbeforeshooting:Producingcost:USD~20MN60%ofbudgetRevenueofnamedadswhenbroadcasting:20%ofbudgetRevenueofonlinevideoadswhenbroadcasting:Grossmargin:30%ofbudget~10%ofbudget“Accordingtotheexperienceof‘奇葩说’firstseason,iQiyicanwellcontroltheexpensesofthesecondseasontoavoidlosingtoomuch.”--IndustryExpertContentHowever,theprofitmarginofself-producedonlinecontenthasnotbeenproventobebetterthanforothercontent…32UpdatedROIofiQiyi’sSelf-produced‘TheLostTomb’ROIofiQiyi’s

AdsBusinessAdsRevenueTotalContentCost295399

201426%GrossMarginofOnlineAds,2014Unit:USDMN“Justconsideringthecontentandadsrevenue,Ithinktheindustrialgrossmarginisabout20~30%.”--IndustryExpertAdsRevenueProducingCost

2014~10%GrossMarginof‘TheLostTomb’Unit:USDMN‘TheLostTomb’(盗墓笔记)isaverypopularnovelandhasalargenumberofaudiencesinChinaThisdramaisthefirstattemptoftheonlinevideoplayerfrom‘lowbudget,massproduction’to‘biginvestment,qualityproduction’.Ithasfamousdirectorsandactors,withthesameshootingprocessastraditionalTVdramasThetotalproducingcostisaboutUSD14MN,withiQiyiaccountingfor40%ofit,sothecosttoiQiyiisaboutUSD5MN.ItgeneratedadsrevenueUSD6MNoniQiyi,sogrossmarginis~10%,whichislowerthanpurchasedcontentThetotalcostcontainspurchasedandself-producedcontents,whichaccountfor87%,13%respectivelyAdsrevenueisalsogeneratedfrompurchasedandself-producedcontents.However,iQiyididn’treleasethebreakdownofthemSource:Companyinformation,BDAinterviewsandanalysisContent…andtrafficfromself-producedcontentisonly1/10ofthatofpurchasedcontent,whichmeansitstillplaysasmallrole3307/1507/1401/1401/1503/1403/1505/1405/1511/1409/14Self-producedPurchasedPurchasedasamultipleofSelf-produced:8X3X6X3X28X7X2XiQiyi’sself-produceddrama盗墓笔记beganexclusivelyplayingoniQiyiinJuly2015MonthlyUV:TopPurchased

VS.TopSelf-producedVideoSelf-produced~13%Purchased87%10XAverage:ShareofSpendingonSelf-ProducedContentin2014iQiyi:ExpenseVS.Traffic

ofSelf-producedContentSelf-producedPurchased90%~10%ShareofVVfromSelf-ProducedContentin2014Source:iResearch,BDAinterviewsandanalysisContentSubscriptionbusinessesarestillwaitingfortakeoff,becauseonlyasmallportionofusersareaccustomedtopayingforvideocontent34OnlineVideoSubscriptionBusinesses,2015ERevenuefromSubscriptions%ofAnnualPayingUsers~300<10<10~20~15Unit:USDMN3.0%<1.0%<1.0%~2.0%~1.5%Subscriptionrevenueisstillinitsinfancy,yetithasalreadymadeprogressChineseusersareaccustomedtofreecontent.FewofthemarewillingtopayforvideoswithoutadsAdsarestillthemainmaturesourceofrevenueforonlinevideocompanies.Payinguserscanremovetheads,creatingacontradictionintheirbusiness.Duetointensecompetition,allplayershaveseentheirsubscriptionbusinessgrowslowlyLeTV’srevenuefrompayingusersishigherthanthatofitspeersmainlybecauseItssmartTVandsmartphoneproductsaresoldbundledwiththeannualsubscriptionfeecostingUSD67LeTVsacrificesprofitsfromitssmartTVstoattractconsumerstosubscribetotheirmembershipservice.Thepuresubscriptionrevenueoftheirwebsite(subtractingtherevenuefromTVcustomers)isalmostsameasiQiyi’sAsa%ofVideoAdsRevenue90%~2%~2%~2%~3%SubscriptionSource:BDAinterviewsandanalysisThevideocontentresalemarkethasseenslowgrowth;LeTV’sstrengthinthissectorisweakening35Source:iResearch,Companyinformation11316013820142011+19%2013201219155%43%53%OtherPlayers57%45%47%50%50%LeTVUnit:USDMNMarketSize:ResaleofOnlineVideoContentsCopyright

TheonlinevideocontentresalemarketwillseeslowgrowthOnlinevideoplayerstendtobuyexclusivebroadcastingrightstocontentandnotresellthemtootherplayersMoreover,onlinevideowebsiteswouldliketoexchangehotvideoswithothers,ratherthanresellthemLeTVtookhalfoftheonlinevideocontentresalemarket,withadecliningtrendLeTVwasthefirsttoenterintothecontentcopyrights.From2008,LeTVhadboughtalargenumberofexclusivevideocontent,especiallyTVdramas,thusacquiringasignificantamountofrevenueinresellingthemtoothersAlongwithcompetitionfromotherplayers,LeTV’snumberofexclusiveTVdramasislowerthaninpreviousyears.Itsshareofcopyrightresalewilldecline“Exclusivebroadcastingofpopularvideossurelycanattractalargegroupofusersinashorttime.iQiyi’sDaomubiji(盗墓笔记)

isagoodexample.However,givencostconsiderations,ifvideoplayerswouldliketomaximizerevenuethentheexchangeofvideosbetweeneachotherisabetterway.”--IndustryExpertResaleofContentIt’sestimatedthatLeTV’sadrevenuewillseeagrowthrateof50%anditscontentresellingbusinesswilldeclineslightly36Unit:USDMNForecastofLeTV’sRevenuefromContentReselling,2011–2016FResaleofVideoContentMarketSizeofOnlineVideoContentReselling,2011–2016F+18%69%+21%Others2016FLeTV2015E47%201245%53%31%27813823255%67%33%201419150%50%2013160Unit:USDMN201220142013-5%+13%2016F2015EUnit:USDMNForecastofLeTV’sRevenuefromOnlineVideo

Ads,2011–2016FOnlineVideoAds2016F+94%2012+52%2015E20142013Source:iResearch,BDAanalysisLeTVdidn’tgetasmuchexclusivecontentasitspeersdidin2015,thusitsresalerevenuewilldecreaseMarketSizeofOnlineVideoAds,2011–2016F1,34290%89%20133,12694%20142,08111%2015E11%10%LeTV6%+46%+51%Others4,4082016F89%20129129%91%Unit:USDMNAgenda37OnlineVideoSmartTVTVDramasVideoCloudServiceSmartPhoneMoviesSportsSmartAutoWineE-commerceMusic2AsthepenetrationrateofsmartTVsisapproachingceilingandtheTVindustrytendstobestagnant,weestimatethatshipmentvolumeofsmartTVswillbearound35millioninthisyear38Source:AVC,DisplaySearch,BDAinterviewsUnit:MNTraditionalTVsSmartTVs2016E457

(16%)38

(84%)2015E4520124329

(68%)14

(32%)20114238

(92%)3

(8%)24

(50%)48201331

(70%)13

(30%)45201435

(78%)10

(22%)24

(50%)ShipmentVolumeofSmartTVsandTraditionalTVs,2011–2016EWethinktheTVindustryhaslimitedgrowthpotentialwhilethepenetrationrateofsmartTVsseemstohavereachedaceilingMarketdemandfortelevisionsetsisoverdrawnbythe“householdappliancestothecountryside”policyandtheeffectwilllastforatleast3yearsTheweaknessofthehousingmarketwasaffectingsalesofTVs,newdemandforTVsdecreasedby1.5millionin2014ConsideringthelonglifespanofTVs,theindustrywon’twitnessamassreplacementperiodinthenearfuture123Withlimitedgrowthpotential,China’ssmartTVmarketisoccupiedmainlybydomestictraditionalTVmanufacturers;LeTVonlygetsasmallshareofthewholemarket39Smart