Internet-linked televisions, many containing peer-to-peer download tools, are winning buyers in China despite piracy concerns and a battle between government factions over how to regulate the industry, according to analysts.
China's wealthy elite have taken well to Internet-connected TVs in the months since major vendors started selling them in the country. The devices allow downloads of movies and TV series, often through tools such as Xunlei, offered by a Chinese peer-to-peer download network operator that was sued last year for copyright infringement by members of the Motion Picture Association.
But one government regulatory body sees the TVs as a threat to profits at China's state-owned cable operators. And as authorities have taken steps toward regulating the Internet TV industry, at least two film distributors have unveiled plans to file copyright lawsuits against the TV makers themselves in recent weeks.
"Various content providers are sensing the attitude of the authorities and jumping on the related opportunities to advance or protect their own interests," said Mark Natkin, managing director of Marbridge Consulting in Beijing.
Xunlei is one of several peer-to-peer download tools that Internet TVs are using in China, said Natkin. Others include PPLive, PPS.tv and a service from Sohu, which also runs a major Internet portal. Haier, a major Chinese vendor of household appliances and electronics, has content deals with Xunlei and Sohu for its Internet TVs, said a Haier employee reached by phone who asked not to be named.
Sales of Internet-connected TVs in China will reach 500,000 this year and grow to about 14 million by 2013, technology consultancy iSuppli forecasts. A 42-inch Internet TV costs around 7,000 yuan (US$1,030) in China.
Chinese online video content provider NetMovie.com recently said it plans to file a copyright infringement lawsuit against Haier and three other major Chinese vendors selling Internet TVs, Changhong, TCL and Hisense. Online film distributor Union Voole Technology has filed a separate suit against TCL.
When asked about the suits, the Haier employee said the availability of pirated videos on Xunlei or other download networks was "a problem in their own operation." Haier chose Xunlei as a content partner because the service is convenient and has a large range of content, he said. Xunlei, widely popular among Chinese PC users, says it oversees tens of millions of downloads each day.
The removal of pirated content from Internet TVs in China will be a slow process, said Michael Qiang Zhang, an analyst at In-Stat.
"It's turning to the legal market, but on the way of course you have some pirated content," he said. "You can't actually avoid it. No one turns black to white in one night."
Pirated DVDs, software and CDs are often sold openly on street corners and in small shops across China. Copyright owners have also complained about pirated content appearing on Chinese streaming video Web sites such as Youku.com and Tudou.com.
On top of the lawsuits, China's Internet TV makers face a wave of regulation that could slow their industry's growth. One Chinese regulator, the State Administration of Radio, Film and Television (SARFT), has seen Internet TVs as an unwelcome source of competition for state-owned cable operators.
The peer-to-peer download networks used by the Internet TVs can support streaming, but some TV makers have balked at adding the feature for fear of speeding government regulation of the industry, said Natkin.
"The strongest competitive concern about this was from the cable operators," he said. "The cable operators are all part of SARFT's family."
SARFT issued an order in August banning companies from channeling Internet content onto TVs without a permit. But it is unclear whether any companies have applied for such a permit, and Internet TVs are being sold just as they were before the order.
"I think nobody actually cares," said Zhang.
Internet TV makers have the backing of China's IT ministry, which wants to regulate the industry but "not to kill it," Zhang said. That backing may have protected them from the permit order.
Internet-linked TVs are being promoted globally by top manufacturers, said Randy Lawson, a senior analyst at iSuppli. Japan, where many TV makers are based, may lead adoption of the devices, but Europe and North America will also see fast growth, he said.
Global sales of Internet-linked TVs will reach 15 million this year, about as much as will be sold in China in five years, according to iSuppli.