A number of domestic Internet firms have recently started developing smart TVs, which is expected to bring substantial changes to the country's television industry.Beijing-based LeTV Information Technology Co was the first IT firm to dip a toe in China's TV sector by launching two smart TV models, named "Super TV," in May. On September 3, China's biggest search engine Baidu's online video provider iQiyi launched a 48-inch smart TV called "TV+" in partnership with domestic TV maker TCL Corp.Beijing-based Internet firm Xiaomi Technology Co then unveiled a 47-inch smart TV on September 5, and domestic e-commerce giant Alibaba launched three smart TV models on September 10 in partnership with Shenzhen-based appliance firm Skyworth. Analysts said that Internet-enabled smart TVs are becoming a new industrial trend, and traditional TV manufacturers will face a challenge as more and more IT companies compete for a slice of the market. New waveTraditional TV set design has not seen substantial changes in recent years, and with the increasing popularity of smartphones and tablets, many people have started to spend less time watching TV.But if TV screens can be used as Internet terminals, smart TVs could be a gold mine, Liang Jun, a senior vice president of LeTV, told the Global Times in an earlier interview in May.A smart TV usage study released by global market research consultancy NPD DisplaySearch on August 29 showed that 71 percent of consumers in emerging markets, including China and Brazil, planned to purchase smart TVs in the next 12 months, nearly twice the number in mature markets like the UK and France.Yu Liangxing, president of Beijing-based All View Consulting (AVC), predicted at the 2013 China Digital TV Annual Festival that China's sales of smart TV sets and video on demand services are expected to reach 300 billion yuan ($49 billion) in 2013, rising to 600 billion yuan in 2015. Data from AVC indicated the market penetration of smart TVs reached 32 percent in 2012, increasing to 37.2 percent in the first quarter of 2013. Traditional TV makers have sensed the new trend and started developing their own smart TVs.But with IT firms also entering the market, traditional TV makers are facing a big challenge.LeTV's two smart TV models have seen strong sales so far. Both its 60-inch X60 and 39-inch S40 models ranked first in terms of sales in July among 16 similar kinds of products produced by other firms including Samsung, Sony and Skyworth, according to data from Beijing-based China Market Monitor Co. Amid this new change in the market, some TV manufacturers may find it hard to survive, Yang Dongwen, president of Skyworth, said at a press conference for the launch of the firm's Coocaa smart TV. The cooperation between Skyworth and Alibaba could allow Skyworth access to profits in new areas, such as shared advertising income, said Jia Jinghua, a Shandong-based independent analyst.Partnership potentialThe main part of the costs in producing TV sets is buying the display panels, Lei Jun, CEO of Xiaomi, said during the press conference for the launch of the company's smart TV on September 5. "Around 60 percent of a TV company's income is spent on buying display panels. The most recent generation of displays hit the market so quickly that TV makers had no time to use up the previous generation, resulting in huge inventory pressure. Therefore, the current profit margin has dropped to 15 percent or 20 percent, down from 50 percent three years ago," said Jia. As it gets harder for TV makers to gain profits, IT firms' business models could offer a new area of revenue."Our revenues largely come from advertising income and content fees," a PR representative for LeTV told the Global Times on September 12 on condition of anonymity. In addition to the price of the smart TV, consumers must pay an additional one-year content fee of 490 yuan to LeTV, bringing the total price of a LeTV X60 to 7,489 yuan and its S40 to 2,480 yuan. The company's good sales performance in July indicates that such a payment structure is reasonable in China. Given that IT companies are more experienced in establishing and running online advertisements, TV makers could benefit a lot from cooperating with them, said Jia.Partnering with IT companies could also reduce the costs of developing smart TVs, he noted. "In the past, traditional TV makers produced smart TVs on their own, including hardware and software. But this did not work well, due to their lack of mature Internet technologies. It was also costly because they had to buy online video content from the providers," Jia said.Price war concernThough IT firms are expected to boost innovation in the traditional TV industry, some analysts expressed concerns about a potential price war.Smart TV sets released by IT companies are being priced lower and lower, which is likely to force traditional TV producers to reduce their prices as well, said Liu Buchen, a home appliance expert at Zhengzhou-based Jiachunqiu Media.The general market price for a 42-inch smart TV is around 4,000 yuan, but Xiaomi's 47-inch smart TV was priced at just 2,999 yuan. Alibaba and Skyworth then further lowered the price of their 42-inch Coocaa model to 1,999 yuan.This is likely to drag the whole TV sector into a price war, which could harm traditional TV makers' brand value, Liu said.Jia said that although the price is low, the companies can avoid high costs as the displays they are using are not necessarily from the newest generation, but the ones unveiled some two years ago."However, the profit margin will be further reduced during this process, and some traditional TV brands may find it difficult to survive," he said.China's TV industry is undergoing a revolution and the integration of hardware with Internet technology will determine the fate of traditional TV makers, said Skyworth President Yang Dongwen.