What's on the Box?

Baidu Wants to Get Smart About TVs

It's a way to deliver ads and content straight to China's living rooms.
Photographer: Kylie McLaughlin/Getty Images
BAIDU INC - SPON ADR
-12.50
At Closing, May 21nd
240.51 USD
SKYWORTH DIGITAL HLDGS LTD
-0.03
At Closing, May 21st
3.83 HKD

Baidu Inc. just bet 1 billion yuan ($158 million) that smart TVs, and their operating systems, have a bright future.

Skyworth Digital Holdings Ltd. announced on Friday that a wholly owned subsidiary of the Chinese search engine will take an 11 percent stake in its Coocaa business. While Hong Kong-based Skyworth's own interest gets diluted, it shouldn't be too disappointed. Coocaa's valuation will go from 3.9 billion yuan eight months ago to 9.2 billion yuan.

Smart Stuff

Coocaa's valuation has jumped after Baidu's latest investment

Source: Skyworth, Hong Kong Stock Exchange filings

It was an investment by Tencent Holdings Ltd. in June that gave Coocaa that previous valuation, and that came on the heels of an earlier round of funding from Baidu's video-streaming affiliate, iQiyi Inc.

Coocaa is both a brand of smart TV as well as the operating system and platform that underpins it. Shares in Skyworth, which gets the bulk of its revenue from making the TV sets, are trading at less than half the HK$8.08 peak they reached in May 2015 amid slowing sales growth and two years of losses.

The Sky Is Falling

Skyworth Digital's shares have dropped amid slowing sales growth and losses

Source: Bloomberg

Coocaa is Skyworth's attempt to turn TVs from a mere commodity product into a value-added device. It wants to leverage the platform to sell content and advertising.

That's where Baidu comes in. Ads remain the search engine's bread and butter, and TVs are still ubiquitous enough to offer an entry into Chinese households. Coocaa has an installed base of only 27 million units, yet 49 percent of those are switched on at least once a week. Skyworth expects Coocaa's revenue to almost double this fiscal year to HK$300 million ($38 million), driven by ads and content.

This low base, content and ad focus, along with a prime position in Chinese households, makes Coocaa the kind of business Baidu would want to tap. Having social networking giant Tencent as a fellow investor is a bonus.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Tim Culpan in Taipei at tculpan1@bloomberg.net

    To contact the editor responsible for this story:
    Katrina Nicholas at knicholas2@bloomberg.net

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