LeEco not only is China’s Netflix, it also makes good, cheap phones. And it’s entering the US
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BEIJING, CHINA - APRIL 20: (CHINA OUT) Jia Yueting, co-founder and head of LeTV, introduces new smartphone on April 20, 2016 in Beijing, China. Photo credit: VCG/VCG via Getty Images Israel

BEIJING, CHINA - APRIL 20: (CHINA OUT) Jia Yueting, co-founder and head of LeTV, introduces new smartphone on April 20, 2016 in Beijing, China. Photo credit: VCG/VCG via Getty Images Israel

LeEco has high hopes for US market entry come November. Should Netflix and Apple, among others, be concerned?

LeEco, the “Netflix of China” and an up and coming smartphone maker, debuted a number of products for the American market last week, ranging from mobile devices and music apps to driverless vehicles and VR technology. Founded in 2004, the Chinese company has now set up shop in California and made several hundred hires to date, giving its operations there significant leeway in managing the US end of operations.

Despite LeEco’s household name in China, where its market capitalization is between $10-15 billion, it has only surfaced above the radar of most techies in the US recently.

What makes LeEco unique is that it’s not only an affordable, high quality smartphone developer that has created its own ecosystem – an open Apple, of sorts – it has also integrated that “ecosystem” of devices with content-sharing across mobile, tablet, and AV platforms. Although LeEco has only been in the smartphone business since 2015, it has sold over 4 million devices within China since then and hopes to reach 15 million in 2016.

It has even beaten Samsung on some metrics in India according to The Economic Times, though far and away the South Korean company is ahead in sales volume and brand name recognition. Yet Samsung’s recent Galaxy Note 7 woes can only help LeEco, given the media, regulatory, and consumer backlash against the South Korean tech giant in the Asia-Pacific region for its handling of the recall and now, total production shutdown of its combustible Galaxy Note 7 devices.

Whether the Samsung Galaxy Note 7 stumble will also help in the US, though, remains to be seen. There are a number of issues the tech company has to confront in making the crossover to the US, and a real likelihood that the initial rollout may mean soaking up losses to build a brand name in a market heavily skewed in favor of existing platforms for mobile devices and content delivery.

Expanding content ecosystems

BEIJING, CHINA - APRIL 14: (CHINA OUT) Letv founder and CEO Jia Yueting holds a press conference for the launching of EUI system on April 14, 2015 in Beijing, China. Photo credit: VCG/VCG via <a href="http://www.imagebank.co.il/">Getty Images Israel</a>

BEIJING, CHINA – APRIL 14: (CHINA OUT) Letv founder and CEO Jia Yueting holds a press conference for the launching of EUI system on April 14, 2015 in Beijing, China. Photo credit: VCG/VCG via Getty Images Israel

LeEco, as LeTV, first emerged as an over-the-top (OTT) delivery system in China: its subsequent forays into consumer electronics, especially mobile, have strongly emphasized that origin and all Le device branding is content ecosystem-centric. (LeEco’s driverless car, the LeSee Pro, and smart bicycle will even have built-in streaming entertainment options compatible with other Le devices, though it is still just a prototype.)

LeEco has done well at home with selling its platforms and integrated content. In China, LeEco secured lucrative streaming rights for multiple soccer leagues through 2019, including FIFA, showing “among the most contested content on Asian TV,” according to Variety, and hopes to develop the relationship it began with the US National Basketball Association in 2014. (In contrast, only recently has Netflix gotten serious about getting into this field.)

Such deals all came with large price tags, though – several hundred million in the case of one global sports partner, the English Premier League. And, according to TrendForce, “With the domestic market approaching saturation, branded Chinese LCD TV vendors see overseas expansion as the only means to grow their market shares and raise their brand recognition.” This includes LeEco, though the company has reiterated it is less concerned about high profit margins moving forward: probably a necessary sacrifice in the short-term to expand its international reach.

LeEco will develop its US operations along these lines as well, and as aims to use disruptive pricing strategies to make a mark early on. From its Indian market experience, it also has familiarity with building English language mobile user interfaces and effective Qualcomm Snapdragon processors going for it. While many Chinese content producers have been able to tap into US markets already, these are often diaspora demographics that are only a small percentage of the total number of customers to be had. But, in terms of TV sets – which will be linkable to Le smartphones – LeEco already has a well-developed plan.

This summer, LeEco spent $2 billion to acquire LCD TV manufacturer Vizio. Vizio is already a familiar enough brand name in the US that this will help the company, and with the sale LeEco will become the sixth-largest TV manufacturer in the world.

Pivot to, then from, Asia

LeEco will also want to replicate its online shopping successes in India through LeMail in the US, hoping that people will become more accustomed to making smartphone purchases in this manner rather than from wireless carriers. But this may prove harder than past experiences.

As BGR noted in its favorable review of LeEco’s LePro 3 and Le S3 due out in November, “Because there’s no brand-name recognition, no easy financing option and no AT&T rep suggesting the phone to you in a physical store,” LeEco faces a tougher time beating out other tech companies, even though LeEco’s phones are quite affordable. Considering the tech giant’s market capitalization in the tens of billions of dollars, however, LeEco can probably endure losses and lower profit margins for a while as it makes its opening moves.

LeEco’s first foreign ventures have been in India, where earlier this year it started selling its smartphones through online retailer Flipkart. Flash sales and discounts have helped it greatly there, as has been the case for other foreign majors focusing on online shoppers. It also rebranded itself as Le Ecosystem (LeEco) going forward into international markets. “LeTV is where we started, but LeEco is our future,” Le Holding’s Vice President of Strategy said at the time, emphasizing its goal of developing a full spectrum of integrated product offerings worldwide. (LeEco also now sells Le devices in Russia.)

The initial rollout of LeVidi streaming services in India met some criticism, especially the YouTube settings and search functions, which NDTV described as inferior to YouTube’s own app.

LeEco will also open an R&D center in Bangalore, India with the hope of building up a base there to eat into the shares of the current smartphone market leaders: Samsung, Micromax, and Intex. (As in the US, in fact, LeEco has made key local hires in India from Samsung to help advance its in-country operations.) From there LeEco hopes to continue expanding into entertainment, e-commerce, VR, and transportation options.

LeEco already has content partnerships with Showtime, Vice, and Lionsgate, and bought up licenses for distributing sports and entertainment media. Beginning with YouTube videos in India, for example, it has been aggressively marketing its services and partnering with local providers to offer more movie, TV, and music subscriptions to Le device users. For the US, it promises to unveil “a major new content partner” when it launches EchoPass video services in the US in November. So far, few of the content providers named by the company appear to be exclusive or, as Business Insider noted, all that different from having their apps on Roku, with the exception of Lionsgate.

It is unclear who this content partner is – rumors of a Netflix-LeEco deal have been floating around for months, but have never been confirmed.

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