LeEco draws up ambitious plan to conquer the world

Next year, Matt Damon will play a mercenary who goes to China in search of novel weapons, only to stumble upon a secretive army that defends the country from invading monsters.

“The Great Wall,” out in February, is the most expensive film production in Chinese history. It’s produced by LeEco Global Group, a Beijing-based company that’s virtually unheard of in the West but is planning its own invasion – of the US.

LeEco, for those who haven’t heard of it, makes an entire lineup of digital devices, including ultra-high-definition TVs and smartphones and virtual reality goggles marked with its Le brand. In July, it acquired the California TV maker Vizio Inc. for $2 billion.

It’s also a multi-faceted entertainment company, producing films like “The Expendables 2” and shows like “Go Princess Go,” which tells the story of a 21st century playboy who travels back in time to ancient China. It operates a popular Chinese video subscription service and also makes electric cars and a smart bike (it has laser pointers, a heart rate sensor and built-in speaker).

Like other tech companies, LeEco (Le means happy in Chinese, and Eco is short for Ecosystem) dreams of weaving all these products and services together. Start a LeEco movie on your LeEco smartphone, resume it on your LeEco TV and finish in your LeEco autonomous car. The company hopes this vision can resonate outside its home country. At an event on Wednesday in San Francisco, LeEco is showing off a selection of products, including UHD TVs, smartphones, virtual reality goggles and electric bikes, which will soon go on sale to US consumers.

In China, LeEco sells its hardware at razor-thin margins. It derives profits from selling subscriptions to movies and television shows (some of it produced by LeEco), in addition to offering access to streamed sporting events, digital music and cloud storage.

The business model will be difficult to export to the US, since the company does not yet produce any original TV shows or movies targeted to American audiences. But it’s trying. In September, LeEco recruited Adam Goodman, the former president of Paramount Pictures’ Motion Pictures Group, to join its Le Vision Entertainment unit in Los Angeles. He’s tasked with replicating the global blockbusters that he produced at Paramount, including the “Mission Impossible” and “Star Trek” franchises.

The company also has ambitions in Silicon Valley. It has persuaded executives from Samsung and Qualcomm to join its American team. Earlier this year, LeEco purchased 49 acres of land from Yahoo in Santa Clara, where it plans to build headquarters for up to 12,000 employees.

These moves have many analysts scratching their heads. “When can they generate enough revenue and profit to self-drive all of this investment? They’re kind of opaque,” said IHS Markit analyst Paul Gagnon. “It’s a lot of investment without a lot to show for it.”

Chief Executive Officer JiaYueting, who goes by YT, is a 43-year-old self-made billionaire who got his start working in IT at a local tax bureau in China’s Shanxi Province. At a recent interview in the company’s temporary office in San Jose, California, he wore a Silicon Valley uniform: T-shirt, jeans and sneakers. He speaks limited English.

“The risks are high. Branding is our disadvantage,” Jia said in an interview in Mandarin. “But that’s where we think we can turn our disadvantage into an advantage, because we’re creating this new model.”

In 2004, Jia founded Leshi Internet Information and Technology, one of the first companies in China to stream copyrighted TV shows and movies to paying subscribers. Today the service has more than 730 million users. Jia entered the smart TV businesses in 2013 and the smartphone market in 2015.

Earlier this year, he showed off an electronic concept car, dubbed LeSee, and in September raised more than $1 billion from a consortium of Chinese investors to make it. Like other tech companies, Jia predicts a future dominated by autonomous vehicles, which he thinks will become yet another place to kick back and watch television.

Jia owns stakes in LeEco and its multiple affiliated companies. He owns about a third of the publicly listed entity Leshi, 50% of LeEco Global Group (which includes the smartphone and TV companies and self-driving car initiative), 60% of China’s ride-hailing company Yidao, and 70% of Los Angeles-based electric-car startup Faraday Futures, according to Winston Cheng, head of corporate finance.

His convoluted corporate kingdom relies on a risky financing model. Leshi, the streaming service, is publicly listed on the Shenzhen Stock Exchange and the only profitable entity, according to Cheng. Jia has borrowed against his shares in Leshi for cash that he invested into his other companies, regulatory filings show.

Cheng says the plan is to raise a series A round for LeEco Global Group early next year from international investors and eventually go public in the US “My biggest concern is the speed of growth,” said Cheng, who also expressed worries about what he called a “new business model that hasn’t been done elsewhere.”

Of course, many tech companies are offering a version of connected hardware and services. Google, Amazon and Apple all sell devices that offer users exclusive content and services. LeEco doesn’t yet have a product as elegant as the Amazon Echo and the similar Google Home, which answer queries and can control home appliances.

“I think we’re still in the early days of this integrated devices, content services world,” said Christopher Vollmer, an analyst at PwC. “LeEco seems to have had both the learning and success of executing elements of that in China.”

LeEco’s aggressive approach to international expansion contrasts with the strategies of the big three Chinese tech giants, who are moving slowly in the US Alibaba, Tencent and Baidu have opened modest offices in Silicon Valley, and have made investments in US startups. Baidu has an artificial intelligence lab in Palo Alto that is working on driverless car technology and speech recognition for Chinese consumers. The top smartphone maker in China, Huawei, has struggled to gain traction in the US, while Xiaomi, a smaller competitor, hasn’t started offering phones here, though it recently started selling a television set-top box.

“LeEco’s a big and disruptive player in China, but many of the Chinese companies that do well in China and then look outside for that extra growth have been marginally successful,” Gagnon said. “On the whole, especially in the US, they struggle because consumers are so entrenched with the traditional established brands that it’s hard to disrupt that.”