Traditional TV facing challenge from the Web

Hot competition

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Just two days later, Xiaomi unveiled its 47-inch 3-D smart TV at an amazing price of 2,999 yuan - about 1,550 yuan cheaper than the smart TV made by TCL. An updated version of Xiaomi's set-top box with a faster central processing unit was also launched in September.

"Any online video provider could become a virtual cable operator by streaming videos to television sets over the Internet, as long as it partners with an OTT TV license holder in China.

"The operator identity is very alluring to video providers, for TV audiences will have access to their platforms and content. Although none of the Internet companies has made a profit by providing OTT services, they expect to make money within five years," said Luan Xutao, director of the operator relationship department of Nielsen-CCData Media Research Co Ltd.

"In China, cable television operators are divided by regions, but online video providers may turn into national virtual cable operators.

"At present, the companies that launched OTT set-top boxes are still attracting users. Once their user population reaches a certain level, they will find tons of business opportunities," he said.

Industry observers predicted that Internet companies will march into the TV market on a large scale during the next five years. The number of servers ordered by Baidu for 2014 equals the total number of servers the company has purchased since it was founded.

Alibaba and Tencent Inc, one of China's largest Internet service portals, are also increasing their server purchases, according to an industry analyst who declined to be identified.

Compared with traditional consumer electronics manufacturers that only make TV hardware, Internet companies have the advantage of providing rich content and related services, said Liu.

"Many people asked me: 'What is OTT TV? Does it simply mean streaming online videos to TV?' That's not the case.

"The real significance of OTT TV lies in getting users to participate in the design, production and upgrading process of hardware and content. It requires stronger interactions between the users and the operating system," said Peng.