New Owner LeEco Sees Vizio 'Evolving' Into 'Internet Ecosystem Company'

LeEco CEO Jia Yueting finally landed his Vizio prize after persistently pursuing the brand for three years, Vizio CEO William Wang told a media briefing at the NeueHouse Hollywood event venue. Over that time, Yueting “showed his sincerity and interest in becoming part of us,” said Wang in a rare public appearance for the Vizio CEO. Wang “had to reject” Yueting’s overtures “for the first few times.”

But the companies ultimately came to a “definitive agreement” for LeEco to buy 100 percent of Vizio and make it a subsidiary, Wang said. The deal, which is expected to close in six months, also involves the spinoff from Vizio of Inscape, the supplier of smart TV viewer data tracking services that Vizio bought last year, and the target of some two dozen class-action complaints filed against Vizio in the past year on video privacy grounds (see 1507260001). Wang will become 51 percent owner of Inscape and be its CEO, and LeEco will control the remaining 49 percent.

“Standing here today, announcing this truly exciting news to the world, I have mixed feelings,” Wang said. “As the owner and father of Vizio, I’m really reluctant to let it go.” But as Vizio’s chairman and CEO, “I know that this is the right decision to make for my hard-working employees and loyal shareholders,” he said. He hailed LeEco’s $2 billion purchase price as “a generous, but fair offer.” Wang has “faith” that LeEco’s investment “will pay off,” because it will make Vizio into an “even bigger and stronger brand, not just in the USA, but all over the world,” he said.

Wang used the opportunity of his briefing remarks to flex Vizio’s muscles as the number 2 TV unit-sales leader behind Samsung in North America. He recalled for reporters how he mortgaged his home 14 years ago to start Vizio with $600,000 in cash. Around that time, TV makers were trying to “rip off consumers by selling the digital TV at a ridiculously expensive price,” he said.

“A 42-inch plasma from Pioneer or Sony back then was completely unaffordable -- over $10,000. Can you imagine spending $10,000 for a TV in your home?” When Wang decided to “leverage” his contacts in the computer, components and manufacturing industries, Vizio launched its first plasma screens at “below 2,500 bucks,” and it became “an instant success,” he said.

“Little by little,” Vizio built its market share, distribution channel, customer support “and most importantly, we built out the best team in this industry,” Wang said. “The result speaks for itself. During the last 14 years, our market share increased obviously from zero to 20 percent, and it’s still growing.” Vizio also was profitable for the past 10 years “in a row,” he said. “I don’t know too many businesses that can say that.” Vizio “is the American dream at its best,” he said. “This is the modern story of how David took on Goliath. Today we’re multiple times bigger than incumbents such as Sony, Panasonic and Sharp, and we’re still growing.”

LeEco plans to keep all of Vizio’s existing workforce, said Winston Cheng, LeEco senior vice president-corporate finance and development. LeEco will license services from Inscape under a 10-year agreement, Cheng said. “Vizio will supply LeEco with approximately 8 million newly installed connected TVs annually, as well as strong channel and supplier relationships that management has built over the years,” he said. “While Vizio focuses on continuing to reach out to users through their connected displays, LeEco will support Vizio with its full ecosystem of internet, technology, content and cloud services.” LeEco sees Vizio as “a critical part” of its entry into North America, he said. LeEco in China and Vizio in North America together boast more than 28 million “cumulative smart connected TVs installed where we want to bring additional value to our users through future enhanced product and services offerings,” he said. LeEco’s “platform” has more than 730 million “total monthly active users,” more than those of Twitter and Snapchat combined, he said.

LeEco concedes $2 billion “is a lot to pay for a great company like Vizio,” Cheng said. But LeEco can justify that “seemingly high” price because it sees the future “potential” for a $900 billion “total addressable market” by combining hardware, content and services, he said. A “significant part of that” will be in high-margin, non-hardware related businesses, he said.

LeEco and Vizio “are both disrupters for their respective areas,” Yueting told the briefing through an interpreter. “Vizio is the disrupter for the consumer electronics area, LeEco is the disrupter for the internet area.” Vizio, through “its advanced model and philosophy,” was able to “take on and stand out among international giants, including Samsung, LG and Sony, and become the largest smart TV manufacturer in the United States,” he said. LeEco, for its part, wants to use “our complete ecosystem and disruptive pricing to create new values for the users,” he said. “So we hope that together with Vizio, we can bring our platform, content, device and application model to the U.S. users, and let them enjoy and build up their own ecotopia.”

Through the acquisition, LeEco wants to see Vizio “evolving from smart-hardware company into an internet ecosystem company,” Yueting said. Yueting sees the combined company as one of the world’s largest suppliers of smart TVs, he said. “But this acquisition is not just an add-up of sales. We also hope to have very deep ecosynergy, with the ultimate objective to provide brand-new, unique user experiences and values.” Yueting sees LeEco “comprehensively landing in the United States,” he said. “In two months, we will hold a grand launch. See you in two months in Silicon Valley.”

Vizio thinks the class-action complaints against the company’s Inscape smart TV viewer-tracking features “have no merit,” Chief Technology Officer Matthew McRae said in Q&A. “We’re going to continue to fight those vigorously as we go forward,” he said. It was Vizio's first known public defense of allegations that Inscape functions violate the federal Video Privacy Protection Act.

Vizio filed its S-1 registration statement a year ago “with a full intention of going public,” said McRae. Vizio’s S-1 disclosures “triggered, I would say, a fresh round of discussions with LeEco,” he said. Vizio had been in talks with LeEco for three years, “but these last six months are really where it came together.” In those talks, the two companies “found alignment” in their businesses, “but also some really exciting opportunities going forward to expand Vizio beyond North America and really let our products become part of that ecosystem.” Vizio’s board and senior management “felt that moving forward with LeEco in that aligned manner was actually a better opportunity for Vizio, and so we’re not moving forward on the S-1,” he said.

It’s the “full intention” of LeEco management to “continue” the Vizio brand as is, including “our product roadmap and the way we interact with customers and our supply chain,” McRae said. “You won’t see a lot of change there. But clearly, there are a lot of potential synergies going through, and while we’re not announcing anything specifically, you can expect the Vizio end points to become part of the LeEco ecosystem.” Whether it’s LeEco’s prowess in internet-delivered content or cloud-based services, “there’s a lot of opportunities for us to become part of that,” he said. “But the Vizio brand will remain and continue to operate separately.”