During the past year, new entrants such as Xiaomi, LeTV and Lenovo have been raising eyebrows in the industry with TV sets priced up to 30% lower and sold via e-commerce channels in China. This has led some to conclude that current TV brands are now facing “disruptive” competitors and retailing models.Xiaomi is a well-known Chinese smartphone handset maker, shipping 18.7 million smartphones in 2013. Not content to limit their lineup to phones, Xiaomi announced its first TV, 47” 3D smart TV, in the second half of 2013, positioning it as the first TV set for the young generation.

Xiaomi officially awarded production contracts for a 49” 4K 3D TV model to Taiwanese OEMs, and these have been available since Q1’14, priced at an incredibly low 3999 CNY ($650). A 55” 4K model is being planned for 2H’14, and there is a possibility of new 40” and 50” models in the coming months.

More aggressively, LeTV, a Chinese online video and Internet TV content provider, recently launched two new LCD TV models – the 40” S40 Air and 50” S50 Air – priced at 999 CNY ($163) and 1999 CNY ($327), respectively. In a business model similar to that of mobile phone retailing, both sets must be purchased with a 2-year service contract at a cost of 980 CNY ($160).

Due to a lack of existing distributors and experience in the TV industry, both LeTV and Xiaomi have asked TV OEMs for manufacturing and supply chain management, including RMA servicing for the entire Chinese market. In general, the prices for these “fighter” models are 20% lower than those found in traditional channels, such as national chain stores Gome and Suning, regional department stores, and supermarkets.

This pressures major local TV brands to compete with the newcomers. To avoid conflicting with current price systems in traditional brands, major local brands have launched new sub-brands; KKTV from Konka, Coocaa from Skyworth, and iQIYI from TCL. These are only sold through online channels.

Newcomers do not need to worry about customer conflicts because they only focus on a single type of distribution during their initial market launches, but traditional TV brands have to focus on multiple channels. Due to a fierce price war in e-commerce channels, major TV brands have been suffering from low profits. According to the latest announcements from major Chinese TV brands, both revenues and profits slumped in Q1’14, primarily caused by increased competition with newcomers.

However, newcomers face some growth limitations because the online distribution strategy is risky. Even though e-commerce is taking share from traditional channels, the speed with which consumers embrace these channels remains to be seen. Currently, only about 10% of TVs are sold via online channels in China, but there is potential that this will surpass 30% in the coming years.

For now, LeTV and Xiaomi have sold fewer than 500k LCD TVs, and the profitability still remains a concern. It is difficult to make money by providing added-value service due to the small scale of adoption, and it is difficult for even the largest and most efficient to make money on hardware; for long term profitability newcomers will have to expand their distribution, manage competition with traditional TV brands and channels, and find creative ways to promote and gain profitability from value added services.