PCs providing both Internet access and video-viewing capabilities will continue to act as the media center for most households in China, but TVs with built-in Internet connectivity will be rival devices and try to usurp that role in the years to come, according to an IHS iSuppli China research topical report from information and analytics provider IHS.
A study on consumer electronics devices in China showed that more users and households preferred either their PCs or television sets as the vehicle for delivering media content like videos and broadband access, instead of comparably suitable gear such as high-definition set-top boxes (STB) or Internet Protocol TV STBs.
Underscoring their appeal, both PCs and TVs will benefit from rising shipments in the years to come at faster rates than STBs. PC shipments into the domestic China channel will rise to 115.7 million units by 2016, up from 73.9 million last year, equivalent to a five-year compound annual growth rate (CAGR) of 9.4 percent.
Domestic shipments of liquid crystal display televisions (LCD TV), meanwhile, will grow at the less expansive five-year CAGR of 5.3 percent to 54.7 million in 2016, up from 42.2 million in 2011. Of the LCD TV total, however, Internet-enabled TVs will claim increasing share, climbing in shipments from 11.8 million units to 52.5 million units during the same five-year period, demonstrating that sector’s intent to win over new customers via broadband-access features rivaling similar PC abilities.
The fight to take the throne
With Chinese consumers now having more choices on how they can enjoy digital content, the battle is on to see which device can claim pride of place as home media center. The selection can have significant implications for that device’s supply chain, and it could also mean the exclusion of other devices from consideration, given that Chinese households normally do not have plenty of spare cash for adding alternative gear to serve as secondary media centers.
Here, the PC appears to be winning as the main source of evening entertainment in China’s households—for playing games, reading, watching videos, listening to music, communicating and emailing, as well as shopping. Younger consumers in general spent more time on PCs, while older segments of the population used the TV more often. One-sixth of those aged 21 to 30 did not have television sets, mainly because they are single and rent an apartment. Another one-sixth did not watch TV even though there was a set at home, preferring instead to use their computers.
To strike back, TV manufacturers are actively designing Internet connectivity into new TV models, in a clear ploy to lure younger consumers. Retail prices are coming down, and TV sizes are getting larger. The latter is an important factor to current PC users, as viewing is enhanced and improves the overall screening experience—an advantage that not even the largest PC display can counter. Hoping to extend their position further, TV manufacturers are also working with Internet service providers to create hybrid products able to access the Internet via a Wi-Fi module, and show TV programming through a set-top box—equivalent to what an all-in-one PC can do.
STBs languish, as multiple standards create confusion or fragment the market
Also aiming to become the vehicle to deliver entertainment to Chinese homes is the high-definition set-top box and the Internet Protocol TV set-top box. Both devices, however, run against a number of obstacles that prevent more widespread adoption by households.
While Chinese cable operators avidly promote HD STBs as home media centers, the quality of service is poor. No single standard exists for cable TV Internet access—a problem for customers, as every operator has its own customized front-end and terminal equipment, making it an expensive proposition for subscribers every time they upgrade. China’s TV operators traditionally have also used the cable subsidies provided by the government to enlarge profits—not necessarily plowing back resources to their business to benefit the customer.
Other problems include the existence of many small operators with weak capital resources, lacking the capability to improve network equipment. The general lack of programming is likewise a big hurdle, given that only 15 HD channels in China are available with little differentiation. China’s domestic HD STB market is set for only moderate growth in the years ahead, climbing from 3.8 million units in 2011 to 7.9 million by 2016.
A fourth device, the Internet Protocol TV set-top box that provide broadband Internet subscribers in China with their own box for watching TV programming on PCs, also suffers from quality issues. Broadband subscribers that already have a TV set seem unmoved by IPTV STBs. Younger customers, for instance, watch less TV to begin with, so the TV capability of the box is immaterial to them. Older customers, meanwhile, complain of the poor quality of IPTV service, and choose to watch TV programming from their cable or high-definition set-top boxes. Domestic IPTV STBs will reach 9.6 million units in 2016, up from 5.4 million in 2011.
For Chinese manufacturers overall, the challenges to become profitable in the consumer home media space are huge, given the fluid nature of the domestic market, coupled with a host of other issues, such as increasing production costs for the players, the intense price wars that are waged to win customers and the lack of core technologies.
In particular, the last factor means that manufacturers of end equipment are obliged to cooperate with a multitude of partners including content providers and various operators, in order to offer a viable package of products and services that meets the needs of Chinese customers.
To beat competitors, brand owners need to have core competencies that rivals are unable to copy and set up easily.