TV Internet breaks into the inflection point

What is the next trend of the industry development? On the one hand, the concentration of industry traffic will increase rapidly and the terminal's stickiness and discourse power over content will be strengthened. We judge that the leading manufacturers will rapidly reach 2000 to 30 million activation terminals in 2-3 years, relying on the advantages of scale to form a centralized traffic flow, presenting a situation in which the concentration degree of the traffic concentration of smart TVs concentrates on television concentration. On the other hand, the integration of industrial capital has accelerated the creation of a new ecology in the industry. The future of smart TV ecosystem competition is the integrated operation capabilities of hardware + content, Internet giants will accelerate the acquisition of large-screen entrance through cooperation, and through the joint efforts of the Internet and capital to catalyze the rapid maturation of various new models. We expect that the capital integration of high-quality content and strong hardware is expected to gradually land in 2015, becoming a further catalyst for the development of the industry.

Why does the hardware terminal share the value feast of the TV Internet explosion? We believe that the core reason is that the terminal + operating system is the core entrance of the TV Internet. Fragmentation of hardware technology has strengthened the control of the operating system of the terminal enterprise and thus firmly controlled the user. The closed regulatory system has given the terminal enterprise the right to choose the content. Compared with the mobile Internet, the entrance of the mobile Internet is at multiple levels and the pattern is scattered; however, the major application distribution platforms still have a very high right to speak, and the ratio is as high as 30 to 50%. We believe that TV terminals will gain greater distribution value as more centralized traffic portals. In addition, the value of traffic portals is not only distributed, but terminal companies can also conduct advertising operations, data mining, and television e-commerce platforms. Current operating income is showing an outbreak of growth, and it is expected that follow-up operational data will continue to exceed market expectations.

What is the market space for hardware company users? The television internet is developing rapidly. The hardware terminal will gain huge incremental value through user operations. We estimate market space from two perspectives. To measure the overall market size, the overall market space for end-user operations is expected to reach 300 to 40 billion yuan in the long term. With a single-platform user value measurement, the long-term market share for leading users of the company is expected to be close to 10 billion. In the starting point of the TV Internet economic explosion, we believe that the dramatic changes in the profit model of hardware terminals will also drive changes in the valuation system.

Risk factors: Supervision is too strict; users are accustomed to training slowly; giants layout terminals regardless of cost.

Investment advice: The smart TV industry chain is growing faster than expected. The business model has entered an inflection point, and hardware value revaluation is expected to take the lead. Combining sales volume and stock market share, and smart TV field layout and promotion, A-share black leader TCL Group, Hisense Electric, Hong Kong stock TCL Multimedia, Skyworth Digital, and Shenzhen Konka A are the key recommendations. The leading company's stock price still has a large upside, and it is expected that the continuously exceeding-expected operation data and in-depth cooperation on content + hardware will become the follow-up catalyst for the sector.



First, the Internet accelerates penetration into the living room, and TV Internet explosion is imminent

(I) Slowing traffic growth on PCs and mobile devices

The number of PC users and mobile Internet users encountered bottlenecks, and traffic growth gradually slowed down. The development of the Internet in China has experienced two major eras: PC Internet and mobile Internet. Twenty years ago, China joined the global Internet family for the first time, and the PC Internet era officially started. Today, China has become the world's largest number of Internet users, nurturing a group of Internet companies with worldwide influence. In 2007, the launch of the Apple iPhone triggered the development of the mobile Internet market. After several years of rapid spread, China has more than 550 million mobile Internet users, with a market size of 210 billion yuan. However, as the number of users has gradually reached the bottleneck period, the growth of traffic and market size has gradually slowed down.


(B) The time when the TV Internet has entered a major outbreak

With the rapid deployment of smart TVs, the penetration rate of TV Internet users will soon exceed 10%. 2014 was the first year of heavy sales for China's smart TVs. The penetration rate of smart TV sales exceeded 50% for the whole year, and the cumulative stock of the industry was close to 30 million units, and the penetration rate of existing users reached 5%. In 2015, smart TV penetration rate is expected to reach 70~80%. The penetration rate of TV Internet users will soon surpass 10%. The number of active terminals of leading companies exceeds 10 million, and the average daily active users surpass 5 million to reach the starting point of scale operation. . (Note: The definition of user penetration: the proportion of smart TV stock in all TV stocks)


With the popularity of users and the surge in traffic, the TV Internet economy has entered a period of great eruption. Let us recall what happened when China's mobile Internet user penetration rate went from 10% to 30%. The large-scale outbreak of the application market led to the rapid formation of various profitable business models. The mature ecology of the PC Internet has been gradually transferred. In addition, the giants have accelerated their efforts to seize the entrance to the mobile Internet. All this without exception will appear in the television internet economy.

The TV Internet economy has grown from nothing. The long-term market scale is as high as hundreds of billions and the space is vast.

(1) The market size of video services will reach 100 billion yuan (including TV video advertising and content payment services). The value of China's traditional TV ecology market is about 200 billion yuan, including 130 billion yuan in traditional TV advertising and 70 billion yuan in cable TV viewing service fees. As the user's viewing time and traffic are gradually transferred to the smart TV, the market value will also shift. At the same time, all types of internet innovations are expected to increase users' willingness to pay for premium content, and the market size associated with television internet video will develop rapidly. In the long term, it is expected to reach a scale of 100 billion.


(2) The total market size of video game and application services is expected to reach 50 billion RMB in the long term. TV games: At present, the global video game market is worth US$30 billion, which, excluding hardware sales, the game payment market is about US$20 billion, accounting for a stable 20% of the global game industry. According to the forecast of iResearch, in the long run, the scale of China's game industry will exceed 200 billion yuan (in 2014, 110.8 billion yuan). Assuming that video games will start from scratch, the percentage will reach 10 to 15%, and the market scale will reach 200~ 30 billion yuan. Other types of applications and derived advertising services: such as online education, music, and social networking, the estimated market size will also exceed the billion-dollar level.


(3) The conservative estimate of the size of the TV shopping market will reach 3,000 to 500 billion. In 2014, the scale of China's online shopping market reached 2.8 trillion yuan, with a growth rate of 50%. According to iResearch, China's online shopping market is expected to exceed 7 trillion yuan in size for a long time. Assuming that the proportion of shopping on the TV side will reach about 5% in the future, the market size is expected to reach 3,000 to 500 billion yuan.

Second, the terminal + operating system is the core of the TV Internet portal

(I) Compared with the decentralized entrance of the mobile Internet, the TV Internet portal is concentrated

The entrance to the mobile Internet presents a diversity of features and a decentralized pattern. The bottom is the hardware + operating system, by creating a closed or semi-closed mode, forming a strong user stickiness and traffic import role, such as Apple + iOS, Xiaomi + MIUI. Followed by a pure operating system level, such as MIUI and other customized operating systems. At the application store level, application distribution platforms such as 91 assistants and 360 mobile assistants are available. The APP level is a Super App, such as WeChat, Baidu Maps, and Public Comments.


(B) TV Internet: Terminal + operating system is the most important traffic entrance

Due to the closed nature of television systems, fragmentation of hardware technology standards, and user operating habits, the entrance to the TV Internet will be concentrated at the terminal + operating system level, where the operating system is the core of operations.

The fragmentation of technology makes the combination of the terminal and the operating system very tight, and the operating system is firmly controlled by the hardware manufacturer. Because TV hardware has different technical standards and models, and it needs to provide live signal support at the same time, the TV operating system needs to be combined with different chips and hardware as the bottom layer, and it is difficult to develop and maintain. Hardware manufacturers have experienced many years of exploration in the R&D of operating systems before they have formed a unified operating platform. We believe that the operating system is the key to the operation of the user. The mainstream manufacturers will not pass the control of the operating system to a third party, and the difficulty of the flashing of the TV system will be very high. The control of the user will be firmly controlled by the hardware manufacturer.

Closed supervision of television systems gives hardware terminal options. The content of the TV screen is subject to strict supervision by the SARFT. The choice of the content provider is transferred from the consumer to the terminal enterprise. The application of the APP is also required to be reviewed by the terminal enterprise for registration by the licensee. Meanwhile, the SARFT requires the terminal to be prohibited. Provide users with ways to install APPs such as USB flash drives and SD cards. Therefore, the power of users to independently select content is greatly reduced, and television manufacturers essentially grasp the content and the right to choose the APP through the control of the operating system and become the most important traffic entrance.

The user's operating habits determine that the EPG has a strong traffic import effect, and the third-party platform has a smaller living space. The user's operation requirements for the TV are simple, and they do not carry out multi-level self-exploration like the mobile phone. Therefore, the TV EPG has a strong traffic import effect, and the third-party application platform and the super-app can hardly become the traffic and application distribution platform in the television field. For example, TCL and iQIYI have two cooperation modes. The first one is to apply the Fantastic Standard Edition App on the application interface, the other is to launch iQiyi TV+, and the iQiyi content is integrated in the EPG. Both are active users. The rate difference is more than 3 times.

(III) Convergence of traffic portals, highlighting terminal value

1, television terminal distribution value highlights

The distribution rate of various types of mobile internet application stores is as high as 30 to 50%. Due to the extreme decentralization of the development side of the mobile Internet, major mainstream application distribution platforms have a high level of discourse and are divided into proportions as high as 30 to 50%. Taking Xiaomi as an example, millet's distribution ability is extremely strong thanks to the semi-enclosed ecosystem created by Xiaomi's mobile phone + MIUI system. In July 2014, MIUI’s monthly revenue for the first time reached 100 million yuan, of which more than 60% came from game distribution. MU mime on the MIUI line recharged RMB 26 million on the first day and MIUI’s revenue reached RMB 3 billion in 2015. the above.


The concentration of TV Internet traffic is more prominent. With the continuous growth of sales of smart TVs by mainstream TV manufacturers, smart TV terminals will form several major distribution platforms in the future and have a strong voice. We predict that some leading TV makers will obtain a 10% to 20% share in the video content field, and obtain more than 30% worth of value in video games, TV education, and various application terminals.

Short-term video advertising will be the first to fall into the pattern, and video games and other application markets are waiting for the outbreak. Youku Tudou and iQiyi will begin on-line TV-side video advertising business this year, with annual targets exceeding 100 million yuan. It is expected that some black power leading companies will receive tens of millions of video advertising revenues in 2014. With respect to video games, when the scale of the industrial stream enters the outbreak, major game companies such as Tencent and Xishanju have begun to enter the game development on the TV side. The development of the future video game market is worth looking forward to.

2. The value of traffic entrance is not only divided into

The value of innovative business and advertising operations is highlighted. First share two data, (1) TCL global broadcast service (ie TV theater line, please refer to the previous report of CITIC Appliances for a detailed introduction to the global broadcasting business) After 2 months of trial operation, the current user scale reaches 300,000, daily camp Revenue over 30,000 yuan, of which two-thirds of advertising revenue. We expect that the global broadcast will reach 5 million users by the end of 2014, and as the content of the film continues to improve, its operational capacity will also increase substantially. In 2016, it is expected to contribute more than RMB 200 million in revenue and tens of millions of yuan in net profit. (2) Skyworth Digital’s direct Hollywood business has reached 30 million revenues in 2014, of which Skyworth is more than 60%, and we expect its direct Hollywood business revenue to reach RMB 60 million in 2015.

The advertising business market is huge. The product form of the smart TV allows TV manufacturers to add advertisements on the display interface of any video and application. With the continuous enhancement of the hardware platform effect, the rapid outbreak of advertising business will bring about a considerable income scale for hardware manufacturers. In the simple form of boot advertising only, the current market value (for a single leading manufacturer) has reached tens of millions of dollars. Once television manufacturers form a daily-active terminal with tens of millions of levels, their advertising value is no less than a medium-sized television station.

Data Operations - Precision Marketing Gold Mine. Through the control of the operating system, TV manufacturers can obtain the user's viewing information (for the sake of privacy protection, only the content that is played in the normal way is played). On the one hand, through the analysis and aggregation of viewing data, an accurate rating report can be formed to provide guidelines for television stations, advertisers, and content producers. On the other hand, as users continue to collect data for viewing, feature portraits of each user will be formed, laying the foundation for accurate marketing and service delivery. At present, Huaneng Technology, a joint venture of TCL, Changhong, and Broadband Capital, and Coolcom, a subsidiary of Skyworth Digital, have started data operations.

E-commerce shopping platform - to do Taobao TV field. TV e-commerce market has a vast space and can cooperate with TV content and advertisements to create a new shopping experience. At present, some of the leading companies have tested the water TV shopping business on their smart TVs, and they have obtained 1 to 3% of unequal shares based on sales or sales profits. We believe that as the number of terminal companies in leading companies grows, their platform effects will continue to increase, and they will have the basis for the development of a TV e-commerce platform, with a long-term potential.

Third, industry trends: rapid increase in traffic concentration, the trend of capital integration

(I) Rapid increase in traffic concentration, significant power for black leader

In the future, there will be a situation in which concentration of smart TVs concentrates on TV concentration. At present, the market share of black-lead LCD TVs is about 15%, while the smart TV market share is close to 20%, and the share of foreign brands has shrunk dramatically. As the penetration of smart TVs continues to increase, some low-end brands will gradually withdraw from the market. With the lack of smart TV content, foreign brands will continue to decline in their share, and the leading market share is expected to continue to increase. In addition, leading manufacturers have explored the field of smart TV users for many years, and the actual operational terminals have outstanding stocks. They will take the lead in realizing scale operations, and it is expected that the concentration of traffic in the TV field will far exceed market expectations.


Leading hardware manufacturers will continue to increase their voice in the industry chain. Due to the existence of certain thresholds for black-box manufacturing and distribution, and not years of accumulation, it is difficult for an entirely new brand to reach sales of more than 300 to 4 million units in the short term. Mainstream black manufacturers will quickly reach 2,000 to 30 million active terminals in 2-3 years, forming a large number of active users. Not only does it constitute a barrier to distribution, but it also greatly enhances the stickiness of content that lands on the platform and further enhances the attractiveness of the platform. Therefore, it is expected that the leading hardware manufacturers will continue to increase their voice in the industry chain.

(B) The contents of hardware and strong forces, the trend of capital integration

The smart TV ecosystem competition is the integrated operation capabilities of hardware + content. As the number of mainstream black-box manufacturers continues to increase, the difference in comprehensive operating capabilities will determine the future competitive landscape of the industry. How to better mine user value and increase ARPU is the key to maximize the platform effect. Under the new industry environment, content and hardware will be integrated and developed. High-quality content will attract users, realizing the value of realizing traffic, and enhancing the attractiveness of hardware. The hardware faces the user as the entrance of content channels and traffic, and the content is rapidly distributed. Guarantee, and can consolidate the content stickiness, realize the real control to the user.


The rapid maturation of the new model is inseparable from the promotion of capital and the Internet. It is expected that the in-depth cooperation at the equity level is expected to become a new trend in the industry. The cooperation of content providers, Internet companies, and hardware terminals at the service level is only the beginning. The rapid maturation of the new smart TV model is also driven by the strength of external capital and Internet. At present, leading hardware manufacturers have established independent subsidiaries or teams responsible for smart TV business, and some of them have started independent financing. With reference to Xiaomi Investment iQiyi, we expect that further financing and the introduction of external partners to promote business development will become new trends in the industry.


Dr. Peng has already released barley television. We do not expect that companies will continue to get involved in the terminal business in the future. However, we are firmly optimistic about the value of the powerful ecological chain. There will still be new players in the industry chain extending to the hardware terminal based on their own business advantages. They hope to create their own traffic entry platform. This just reflects the core entrance position of the hardware terminal in the TV Internet. However, in the next 2-3 years, it is a precious time window for the development of the TV Internet. The Internet giant has had no time to explore TV manufacturing. Choosing a leading black power company with scale advantages is the right choice. Let professional people take charge of professional affairs. We firmly value the value of strong ecological alliances.

Fourth, risk factors

The regulation of Internet TV has been tightened; users have been accustomed to training slowly; Internet giants have deployed terminals regardless of cost.

V. Investment Strategy

(I) Innovation in terminal valuation system and sharing of television Internet value feast <br> There is a huge space in the TV Internet market, and the valuation of the black-power leading system is expected to be innovated. With the continuous accumulation of terminal inventory size and number of users, the income and profits of the black-to-be leading from the users' operations will grow rapidly, and the long-term space is vast. With the changes in the profit model, the corresponding valuation system is also expected to emerge. Based on the overall market size, the market share of end-user operations is expected to reach 300 to 40 billion yuan in the long-term. According to the scale of the TV internet economic market and the proportion of black power taps, the value of black-net industry users is expected to reach more than 35 billion yuan in the long-term.


Based on a single platform user value estimation, the leading company's user operation market space is expected to approach 10 billion for a long time. We assume that leading manufacturers have long reached 50 million active terminals, which are calculated at an ARPU value of 150-200 yuan per terminal, corresponding to a value of 75-10 billion yuan.

(II) Investment advice

Smart TV penetration rate is about to pass 10%, which is the starting point of the TV Internet economic explosion. At this stage, terminal hardware (one of the three major players in the industry chain under the supervision of the new policy) has the highest elasticity of value revaluation, and maintains the power of the black power leader. The firm recommendation. At the end of 2014, China’s smart TV stock accounted for 5% of TV inventory. According to the sales volume, we expect smart TV penetration rate to exceed 10% this year. The number of active terminals for leading companies will exceed 5 million units, and the scale of smart TV operations will increase. In the beginning, the business model stepped into the outbreak. Maintain a firm recommendation for Black Power's leading companies.

Combining sales volume and stock market share, and smart TV field layout and promotion, A-share black leader TCL Group, Hisense Electric, Hong Kong stock TCL Multimedia, Skyworth Digital, and Shenzhen Konka A are the key recommendations. The current stock price of the leading company is still about 10 to 15 times that of the 2015 PE, and it still has a large upside. Continuing over-expectation of operational data and in-depth cooperation with the content + hardware will become the catalyst for the follow-up of the sector.





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