When it comes to the Indian consumer tech industry, the name on everyone’s lips over the past couple of years is Xiaomi. From being a relatively unknown Chinese brand barely a few years ago to securing the numero-uno position in the smartphone industry in India, the unprecedented meteoric rise of Xiaomi is well documented and worth every second you invest in reading. However, while Xiaomi might have made its name in India due to the immense popularity of their smartphones, they are more than just a smartphone OEM. Back in their native China, Xiaomi is also known for their laptops, mobile apps, smart water purifiers/air purifiers, smart lights and plenty of other smart connected devices, in addition to their smartphones. It was only a matter of time before Xiaomi tried to expand and replicate their ecosystem in India as well. The launch of the Xiaomi Mi TV 4 and the Mi TV 4A smart televisions marks the first step in Xiaomi’s bid to take control of the emerging smart home ecosystem in India.
However, the launch of this new line of Mi TVs has left plenty of people confused and led to the few questions:
- Why is a smartphone manufacturer delving into the TV market?
- What is the potential for growth in the Indian TV market? What is Xiaomi’s strategy behind this strange move, and is it likely to end in success?
Let’s have a closer look.
State Of The Indian TV Market
Before we delve into Xiaomi and their new lineup of smart TVs, it is important to understand the state of the Indian TV market. Currently, about 780 million Indians have access to a TV. Urban TV penetration has topped 87%, but rural penetration still lags behind at 52%. The Indian television industry has reached INR 660 billion in 2017. Rapid and consistent growth is expected over the next few years. By 2020, the number of TV household is expected to reach 200 million.
Even now, however, an overwhelmingly large portion of the population (86%) uses CRT (cathode-ray-tube) TVs. This leaves plenty of potential for growth for smart LED TVs. According to Raj Nayak, COO of Viacom18, 27% of all television owners owned smart TVs. This number is expected to rise to 35% in 2018.
Of course, the growth of the hardware sector, in this case, is also highly dependent on content development. Once again, India is doing extremely well in this respect as well. The Indian Media and Entertainment sector was worth $19.59 billion in 2016 alone. Estimates suggest that the industry will grow at about 13.9% CAGR, reaching a whopping $37.10 billion by 2021 in valuation. This growth rate is also appreciably above the global average for this industry. As the quality and quantity of media content improve and evolve, so do the methods of content consumption.
There is a cable digitization revolution occurring in India as we speak. Seminal decrees such as the digitization mandate and GST (Goods and Services Tax) implementation kick-started an overhaul which is gaining rapid momentum. This has undoubtedly contributed to the growing popularity of LED smart televisions in the country. The popularity of these devices has been further aided by the introduction and subsequent demand for OTT (Over The Top) video streaming services such as Netflix, Hotstar, Amazon, etc. According to Counterpoint Research, Hotstar, Voot, Amazon Instant Video, Sony Liv and Netflix have a combined subscriber base of nearly 100 million people, with a valuation of $280 million. Aggressive growth at 35% YoY is expected over the next few years.
All the above data and facts prove one thing – the Indian television market is ripe for smart TVs to take over. An already competitive market is set to heat up even more as various OEMs seek to cash on its potential.
A Quick Look At The Xiaomi Mi TV Lineup
While quite new to the Indian TV market, Xiaomi has already expanded its portfolio to three primary offerings. The flagship product is the Mi TV 4, which features a 55-inch LED panel with a full-fat 4K UHD resolution of 3840×2160. The panel also supports HDR (High Dynamic Range) and is powered by a 64-bit quad-core Amlogic Cortex-A53 SoC with 2 GB of RAM and 8 GB inbuilt storage. Xiaomi is also marketing the Mi TV 4 as the ‘slimmest LED TV’ in the world, with its 4.9mm thickness 38% slimmer than the Samsung Galaxy S8 smartphone. On the lower end of Xiaomi’s catalogue is the Mi TV 4A. The larger 43 inch variant of the Mi TV 4A features a Full HD 1920×1080 resolution panel, whereas the smaller 32-inch variant features an HD Ready 1366×768 resolution panel. Both variants are powered by an Amlogic quad-core SoC with 1 GB of RAM and 8 GB of internal storage.
Something to consider here is that while small, Xiaomi’s TV portfolio already accounts for a variety of niches. The 32-inch, 43-inch and 55-inch TV sizes together account for 80% of the TV market by volume, and also offer a variety of resolutions and feature sets. The idea here is to have a product designed to fit every customer’s requirements.
While all of this sounds impressive, it is hardly groundbreaking.
So then why is there such a fuss being created about the Mi TV lineup? The answer, as with all things Xiaomi, is the pricing. The flagship Mi TV 4 is priced at only INR 39,999, whereas the Mi TV 4A’s 43-inch and 32-inch variants cost INR 22,999 and INR 13,999, respectively. This pricing is frankly absurd, especially considering that many competitor offerings are priced at more than double of this. At such prices, Xiaomi’s profit margins are bound to either be razor thin, or non-existent. So why is Xiaomi selling TVs if they are not making any appreciable profit? The answer emerges once we look at their smartphone strategy and their purported plans for the future.
Why And How Is Xiaomi Seeking To Compete In The TV Market?
Contrary to what many may believe, Xiaomi is not just a smartphone OEM. They are known to make a whole range of products including consumer appliances. Xiaomi, however, is very much rooted in connectivity based smart tech, not just mere home appliances. Most of their consumer appliance offerings are ‘smart’ devices, which offer a whole host of benefits over their more traditional counterparts. The Xiaomi Mi TV 4 and Mi TV 4A fall firmly in this category as well. Just like their smartphone business model, Xiaomi is treating the hardware as a content delivery mechanism, rather than a profitable product. In fact, Xiaomi’s strategy for their TVs seems to be eerily similar to their smartphone strategy. Xiaomi’s plan for driving sales can be summed up as follows:-
- Razor Thin Margins – Eschewing profitability on the hardware itself allows Xiaomi to severely undercut its competitors in terms of pricing, while not having to compromise on quality. This results in products that are cheaper than their multi-national competitors, yet superior in quality to local Indian offerings. Xiaomi then turns a profit from content delivery and services instead.
- Unorthodox Retail Model – Xiaomi bucked the trend, and started off with an online-only retail model that reaped several benefits. Manu Kumar Jain, Head of Xiaomi India, once claimed that brands lose up to 5%-20% of their margin following the traditional retail model. While he was referring to the smartphone industry at the time, a similar principle can be applied here. By cutting down on overheads and other margins, Xiaomi can afford to pass on those savings to consumers, thus developing a loyal userbase. Xiaomi is now gradually opening Mi branded stores for their products to develop an offline presence as well.
- Effective, Yet Cheap Marketing – As with their sales channels, Xiaomi’s approach to marketing has been unorthodox, yet wildly successful. By successfully leveraging social media and sales events during festive seasons, Xiaomi has developed highly efficient cost-effective marketing strategies. Just for reference, Xiaomi’s SG&A ( Selling, General and Administrative) expenses were a tenth of Apple’s in 2014. They seem to employ similar tactics with the Mi TV lineup.
- Strong MiFan Community – Unlike all the smartphone brands who failed to capitalise on the network-power of existing customers, Xiaomi made sure to rope in and engage every customer under MiFan community. No matter how big or small contribution a customer makes to Xiaomi’s revenue the company enthrals him by making him feel equally important. The strong Mi Fan community has emerged as one of the important driving forces of Xiaomi unparalleled growth, both in India and China.
- Local Flavor – As with their smartphones, Xiaomi has shown that they understand the requirements and desires of their user-base very well. Their devices focus on features that their consumers desire most and provide extensive local language support in order to expand accessibility and reach. This is also applicable to the Mi TV lineup, which features support for a host of local languages as well.
There are a lot of parallels to be drawn between Xiaomi’s smartphone and smart TV strategy. The reason for that is, Xiaomi’s end game for both is the same. Xiaomi is attempting to create their own ecosystem here, just like they have done in China. Eventually, the goal here is to have their customers using a range of smart and interconnected Xiaomi devices. Instead of making money from the devices they sell, Xiaomi aims to generate revenue by facilitating content and service consumption via their device ecosystem.
This is evident in the headlining feature of the Mi TV lineup – PatchWall UI. PatchWall is an Android-based tiled user interface developed in-house at Xiaomi exclusively for their smart TVs. The goal of this endeavour is convenience and minimalism. PatchWall puts the content itself front and centre. It integrates content from various sources into one seamless interface and uses artificial intelligence to provide viewing suggestions. PatchWall even has the ability to integrate content from set-top boxes, although that requires an adapter which is sold separately. Currently, Xiaomi has partnered with Hotstar, Voot, SonyLiv, Hungama Play, Zee5, TVF and more, and are claiming 500,000 hours of streaming content out of the box. Xiaomi also claims that 80% of this content will be free. Plans are in the pipeline to partner up with streaming giants Netflix and Amazon as well. Voice services integration is also another planned update in the future. That could potentially open the door for Virtual Digital Assistant services, which is another hugely promising industry. Xiaomi is hoping to get people invested in their ecosystem now so that they can reap the rewards later.
Can They Succeed?
Despite Xiaomi’s tag as newcomers in the Indian TV market, only a foolish man would bet against them. Xiaomi’s have shown that they have cracked the Indian market with the immense success they have achieved in the smartphone world. By adapting the same strategies for their smart TV business as well, they already have a ready-made recipe for success. They have also done something like this before; Xiaomi co-founder Wan Chuan outlined the rapid growth in popularity of smart TVs in China facilitated by Xiaomi – the share of smart TVs there increased from 5% to 80% in just 4 years.
However, all this does that mean that this will be a cakewalk for Xiaomi. They face stiff competition on all fronts from the likes of LG, Samsung and Sony (who collectively have more than 75% of the market share) at the high end and Vu, TCL, etc. at the lower end. In addition, they face the prospect of sky-high customs import duties on flat panels, which can further cut into their profits. There is also the risk that their smartphone business model may not translate all that well over to TVs. Traditionally people like to view TVs in person before committing to a purchase, opportunities for which are quite limited under Xiaomi’s current retail model. Finally, Xiaomi is likely to face several new logistical and after sale service-related challenges. Their post-sales service framework is likely to be less robust compared to their incumbent rivals, something that could dissuade potential customers.