LeEco Chairman Yueting Jia (left) celebrates with Vizio CEO William Wang.

In a deal that could be as disruptive for the over-the-top content streaming industry as Vizio’s entry was to U.S. television manufacturing, China-based Internet content giant LeEco announced Wednesday that it is acquiring Irvine, CA-based Vizio for $2 billion.

LeEco founder and CEO Yueting Jia said he aims to use the No. 2-ranked U.S smart TV company to build an ecosystem for the delivery of content, Internet services and home theater hardware to a global market place. The company said the acquisition of Vizio will make it the world’s largest internet TV access point.

Currently Vizio TVs are distributed only in the United States and Canada, but LeEco executives said they expect to expand the TV hardware business to a global platform.

LeEco executives said they had pursued making the deal for two years, but didn’t find a receptive seller until about six months ago.

In announcing the deal, which still awaits regulatory approvals, William Wang, Vizio co-founder and chairman, said: “I have mixed feelings. As the owner and father of Vizio, I am very reluctant to let it go. But as the CEO and owner of the company, I know this is the right decision to make for our hardworking employees and loyal shareholders.”

LeEco, which recently changed its name from LeTV, is China’s largest Internet-based content distribution company, and has been selling televisions in its home market under the LeTV brand at low prices that some observers have said are priced at or below cost in order to build a large base of purchasers who will subscribe to its LeCloud streaming services and view advertising sold by LeEco and streamed on its hardware and service platforms.

Read more about LeEco’s acquistion of Vizio after the jump:

The practice is essentially the model used by smartphone carriers. LeEco also happens to make and market smartphones and services in China.

According to a company statement: “LeEco is a leading global company that provides breakthrough experiences through an open, integrated ecosystem enabled by its Internet and cloud platform. LeEco develops intelligent hardware that serves as the interface to connect individuals, interact with them and to enrich their lives through premium content and applications.”

Not so ironically, Vizio revealed through a since-withdrawn IPO statement last year that it was using datamining technology of its own built into Vizio smart TVs to gather customer viewing data, which it can sell to content providers, potential advertisers and others to beef up margins lost on its low TV-pricing strategy.

Although ultimately failing to generate the capital Vizio management was seeking, the IPO did generate about a dozen lawsuits now pooled in a class action case against Vizio for allegedly selling TV equipment that mine viewing data without customers’ prior knowledge.

Under the agreement, the Vizo hardware and software businesses will be owned and operated as a wholly owned subsidiary of LeEco, while the Vizio datamining business, Inscape, will be spun out as a separate, privately owned company. It will continue to license its technology for 10 years to LeEco for use in its televisions.

Wang will become CEO of Inscape after the sale is completed. LeEco said it plans to keep Vizio’s employees as it moves forward with its plans to develop entertainment ecosystems. Employees will have the option to invest in LeEco’s businesses both in the U.S. and globally, the company said.

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Historically, Vizio has distributed TVs primarily through warehouse clubs, Walmart, Target, Best Buy and others, eschewing smaller dealers that aren’t equipped to sell the volume Vizio’s model requires. In recent months, Vizio has added some higher-end and higher-margined TV lines, which the company is now trying to get seated in smaller A/V electronics dealers with assisted selling floors.

In the deal, Vizio will be keeping all of its current distribution agreements.

LeEco will take on development and marketing of Vizio TVs, sound bars and IP streaming devices to complement its existing LeEco higher-end TV marketing business, which it was just starting to get established in the United States.

leeco vizio logoIn a statement issued at the acquisition announcement, Jia said: “LeEco believes in breakthrough technologies, a complete ecosystem and disruptive pricing. Acquiring Vizio is an important step in our globalization strategy and building our North American presence. From its inception, Vizio introduced a disruptive business model that changed the industry and aligns with our vision of breaking boundaries to deliver consumer-focused products, software and services.”

LeEco said it provides Vizio immediate global scale to bring its innovations to consumers worldwide.  From a hardware standpoint, LeEco will be focused on TV, smartphones, electric cars and virtual reality systems, all of which can benefit from LeEco’s streaming content platforms.

Like LeEco, Vizio shares a similar vision of creating premium products with the latest innovations and making them accessible for everyone – from budget-minded students to custom home theater cinephiles – without sacrificing quality or performance,” LeEco’s statement said.

Meanwhile, Vizio and LeEco TVs will give LeEco a platform for its Netflix-like OTT streaming services, that include home-grown movies and television programs in China. Currently, LeEco is working with Matt Damon and Universal on a major feature film called “The Great Wall,” which will make its debut in China around the end of the year, before heading to release in the United States.

LeEco’s content production business, called Le Vision Pictures, currently makes around 10-15 Chinese-language films a year. It is expected to produce about 20 English-language films including The Great Wall, and previously co-financed The Expendables 2.

By Greg Tarr


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