OFweek Smart Home Network News reported that the color TV and air conditioning industries have seen starkly contrasting performances in 2017, a year often referred to as a "cold year." Despite the sluggishness in the color TV sector, the air conditioning market has been thriving, as evidenced by the smiles on the faces of air conditioning company executives during industry conferences. In contrast, color TV companies have struggled to maintain their dignity amidst declining sales and profits.
According to data from Ovid Cloud Network, the domestic air conditioning market sold 49.6 million units in 2017, marking a year-on-year increase of 9.9%. Meanwhile, the domestic color TV market saw its retail sales volume drop to 21.81 million units in the first half of 2017, a decrease of 7.3% compared to the previous year. Despite this, the total sales revenue reached 74 billion yuan, representing a 4.3% year-on-year increase.
However, the growth in sales figures for color TVs masked underlying issues within the industry. Due to rising panel costs, which outpaced the price increases of finished products, the profitability of color TV companies has plummeted. In 2011, the net profit margin of China's color TV industry was still 3%, but it dropped to just 1.5% by 2014, and further fell below 1% in the first half of 2017.
Weng Zhenhua, General Manager of AVC's Black Power Division, pointed out that the increased operational pressures faced by color TV companies stem from several factors: the upstream panel price hikes, the diminishing returns of Internet dividends, and frequent price wars. "The influx of numerous Internet companies, particularly those offering low-cost competition, has led to significant overconsumption in the TV market," he said. "This trend has been exacerbated by factors such as the new normal economy, real estate controls, and rising panel prices."
In 2016 alone, the color TV industry conducted 18 promotional campaigns of varying sizes, six times more than in 2015. These low-price promotions successfully conditioned consumers to accept the idea that "higher quality can be purchased at a lower price," ultimately lowering consumer price expectations.
The phrase "land-strength water control" aptly describes how these dynamics have given rise to price wars. Currently, there are no fewer than 20 Internet TV brands in the market, nearly matching the total number of traditional brands. By comparison, while Xiaomi has ventured into air conditioning and refrigerator products, white goods companies have largely managed to fend off attacks from Internet firms.
As Liu Buchen, an observer of the household appliance industry, explained to China National Grid, the Internet business has a strong correlation with color TV products, making it easier for Internet companies to enter the market and gain acceptance among consumers. Conversely, the weak connection between Internet companies and white goods products, combined with the high capital requirements of the latter, has allowed leading firms in the white goods industry to maintain their stronghold. This explains why many industry insiders remain skeptical of Xiaomi's ambitions in the air conditioning sector.
For years, the domestic color TV market has been dominated by what is known as the "Gang Long Zhishui" phenomenon—five traditional brands, Hisense, Skyworth, TCL, Changhong, and Konka, have dominated the scene, while the white goods sector has seen a more stable control by two or three leading players. Liu Buchen noted that the lack of large, dominant brands in the domestic color TV market means that no single entity can exert pricing power. Consequently, annual price wars have driven profit margins ever lower.
Moreover, the color TV industry has historically lacked core technologies and lacks a strong voice in the global supply chain. From CRT to LCD and now OLED, QLED, 3D, and 4K, the rapid advancements in display technology have been largely controlled by Korean, Japanese, and Taiwanese companies. For instance, while panel costs account for about 65% of the total cost of a TV, most domestic manufacturers rely heavily on external suppliers, limiting their ability to negotiate pricing power.
In stark contrast, white goods companies like Gree, Midea, and Haier have mastered core technologies. Unlike the high-tech nature of the black box industry, white goods have relatively lower barriers to entry in terms of core technology. For example, air conditioning technology has remained largely unchanged since its inception in the early 20th century, with most innovations focusing on aesthetics, comfort, intelligence, environmental friendliness, and energy efficiency. This stability has allowed Chinese companies to leverage cost and scale advantages to dominate foreign competitors.
Additionally, as functional and practical products, air conditioners, refrigerators, and washing machines fulfill essential needs—cooling, freezing, and cleaning—and face fewer direct competitors or alternatives compared to color TVs. Color TVs, on the other hand, serve as multifunctional devices for entertainment and information dissemination, placing them in direct competition with mobile phones, computers, and tablets. This dynamic has intensified the challenges faced by traditional color TV companies, who must contend with international rivals, Internet startups, upstream supply chain constraints, and the encroachment of competing screens.
As the Moroccan thinker once realized, his competitor wasn't another person or even a taxi but rather a shared bicycle. Similarly, traditional Chinese color TV companies must navigate not only the competition from international rivals and Internet firms but also the threats posed by upstream suppliers and the dominance of other screens. The color TV industry continues to struggle as companies find themselves embroiled in a full-blown battle for survival.
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