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Jia Yueting, 44, the founder of LeTV, once dreamed of creating a super-Chinese business empire on the same scale as the sum of the three major U.S. technology giants Netflix, Tesla and Apple.
With such a dream, Jia Yueting quickly expanded its territory from a streaming video platform into a multinational integrated business group, selling a variety of products, including television, cloud computing, smart phones to electric vehicles, according to his words To illustrate Jia's ambitious global development blueprint, in January 2016, LeTV renamed the brand name Literally LeTV to LeEco, the abbreviation of LeTV Ecology.
Regrettably, the rebranding of the brand was contrary to expectations. As the music industry fell into the dilemma of funding chain of billions of dollars, its chain reaction even touched the top level in China.
Stars fall
LeTV used to be a smash hit star technology company, and some former music workers and outside experts told CNBC that in fact the culmination of the fall of the former celebrity was precisely the grand goal of Jia Yunting - himself and the rest of the population 'Shared ecology', this goal is actually 'out of reach.'
The reason why this once-famous company crashed into the domestic and international markets was mainly because it heavily relied on borrowing to finance its ever-expanding project, and most of the projects failed to maintain its funding chain.
Reflecting on the course of the music scene, a former musician pointed out that the company's efforts are like gambling.
The lady who worked for LeTV America said to CNBC: "The company strategy developed by Jia Yueting has always been very advanced, but they require considerable enforcement." In order not to affect the reputation of the person concerned, the woman asked CNBC not to Reveal her real name.
"Ordinary companies or employees are rarely able to implement strategies without any leaks, not to mention a company that is experiencing rapid expansion," she said.
By the end of 2016, the rapidly expanding LeTV has become a big name in the business community that can not be underestimated, and the structure of the company has become quite complicated.Jia Yuetting hopes to use a unique digital platform on the hardware of LeTV, such as mobile phones and smart cars, In order to create such a fully integrated ecosystem, LeTV quickly opened 15 subsidiaries and 68 affiliated companies.
Before December 2016, most U.S. consumers still did not know the name of LeTV, and LeTV's services were not available in the United States, but LeTV did not stop its efforts to open up the U.S. market.
In June 2016, LeTV purchased from Yahoo, a land parcel of approximately 198,000 square meters located in Santa Clara County, California, near its headquarters.TV also claimed that it plans to hire 12,000 locally and build a company in Silicon Valley Reported earlier this year that Facebook has just over 9,000 employees in its headquarters in Menlo Park, California, and has about 20,000 employees at its headquarters in the San Francisco Bay Area.
A former employee who worked for LeTV in Hong Kong last year commented: 'There is no problem with optimism, but you can not talk too much.'
The anonymous former LeTV employee on the phone told CNBC: 'All the other companies are joking about us. You have only 200 and how can you increase to 10,000 by 2018? That's more than Facebook!'
The source said he was disappointed with LeTV and lost confidence in the future of the company, so he resigned last year.
LeTV is a well-established company, but top-level people do not understand markets outside of China and he (Jia Yunting) wants to do too much, but his knowledge background is not so deep. "The former Hong Kong employee pointed out:" And , LeTV recruited staff is not strong enough, their strength may not meet the needs of the company.What can money do? Money can not solve the strategic problem, money can not buy talent.
However, even the funds are slowly out of the question.
Silicon Valley's various media outlets are scrambling to report that the new face of music as a radical expansion plan in the region when domestic investors in China began to worry about the financial status of music.
Fund chain red light
At the beginning of 2016, postings on social media outlets such as Weibo and WeChat in China's domestic media pointed out that the earnings of LeTV, a music company listed in Shenzhen, was on the red light.
LeTV said in its 2016 annual report that the Company's receivables, which are receivable from the provision of goods and services, amounted to RMB8.68 billion (equivalent to approximately USD1.28 billion) for the full year, an increase of RMB5.32 billion A total of 783.79 billion U.S. dollars).
In 2016, LeTV revenue increased by only RMB8.93 billion (about RMB1.31 billion). That is to say, accounts receivable accounted for almost 60% of the total revenue of LeTV.
In the meantime, the earnings report showed that LeTV net cash flow from operations showed net cash of RMB1.08bn (approximately USD157.64m), a negative growth of 221.97% from the previous year.
One side is the soaring accounts receivable, while the sharp drop in cash flow, double attack, the net cash flow will be depleted.
In addition, music and related parties surge in turnover has also been widely questioned in the country, it is suspected that music may be before the use of financial tricks in the earnings report to exaggerate the sales data.
In 2016, LeTV announced related-party sales of RMB11.78 billion (approximately 1.77 billion U.S. dollars), an increase of 655% over the previous year. Such sales accounted for more than half of the total revenue of the Company.
Investors began to sell music videos due to the risk of music looming cash crisis, and by the end of 2016, music video stock dropped 55% from a record high in 2015. Before the company applied for suspension in 2017, it fell again during the year 14.3%.
According to a former employee of LeTV Hong Kong, I recall that the company was facing cash flow problems probably around last July 2016. I heard someone called the phone at the company's office in India, and some advertising agencies are asking for payment, But we have no money to pay for them.
CNBC contacted a music spokeswoman, asking her to comment on the improper management of the company and its financial accounts that could be cash-for-cash, the spokesman declined to comment.
Domino effect imminent
Late last year, Ms Jade acknowledged that LeTV faces serious financial problems, and soon the situation deteriorated: LeTV shelved its plan to build an electric car manufacturing plant in Nevada; the media broke the news that LeTV plans to sell the company's headquarters in Silicon Valley, And laid off hundreds of people in the area; LeTV canceled the acquisition of Vizio, a U.S. television maker, and Vizio filed a lawsuit demanding that LeTV give $ 100 million in compensation for the termination of the acquisition.
In China, negative news about the suppliers suing them for Loewe Bad Debts emerged.On July 3, 2017, due to a default on Loyalty Loans at China Merchants Bank Shanghai Branch, a Shanghai court ruled that the freeze on LeTV and Jia Yunting 1.24 billion yuan in assets (about 182 million US dollars).
A few days later, he took all his positions with LeTV, including LeTV chairman, and said he would concentrate on building the future of Faraday's car company, LeTV, and hopes to make the company a competitor to Tesla in the future.
Music due to the media focused on the reputation of many damaged, Jiayue Ting the company's power to the Chinese real estate developers Sunac China chairman Sun Hongbin. Sun Hongbin brought a new management, the appointment of a new chairman of the music.
In January of this year, Sunac China, a heavily indebted company, provided 2.4 billion U.S. dollars in emergency relief to LeTV and obtained shares in the film and television business at the core of LeTV.
The fall in music is seen as a lesson by Chinese regulators, who have recently been paying close attention to so-called 'shared ecology' and cracking down on suspicious affiliate deals.
China's top shot
In early October 2017, Chinese media "21st Century Business Herald" quoted Beijing-based investment bank sources as saying China Securities Regulatory Commission began to require listed companies to increase their disclosure and reduce related party transactions.
According to the newspaper, one source mentioned that the SFC has started to step up the regulation of such companies for those science and technology enterprises with complex enterprise structures or multiple related parties.
The source told Twenty-first Century Business Herald: "The risks exposed by Tesco have taught the entire market and regulators are concerned about the connected transactions arising from the shared ecology."
This trend is also reflected in a series of recent regulatory injunctions: In early October 2017, the CIRC issued a regulatory letter to five insurance companies that prohibited them from engaging in related party transactions in the funds utilization category with their parent companies, including Bohai Life Insurance .
The Commission also began to deal more severely with the issuance of new shares to raise the financial indicators and capital requirements of the disclosure requirements of the more stringent data released by the SFC show that the end of the third quarter of 2017 the issuance of new shares approved rate of 80.99% , A decrease of nearly 10 percentage points over the passing rate of 90.96% in the same period of last year.
The fourth quarter of 2017, the Commission expected to implement more stringent standards: Since the end of September the same year the issuance examination committee members took office, the new share issue approval rate of only 56% on the 7th of this month, the issuance examination committee a day Which rejected only five new-share IPO applications and approved only one, Reuters reported, which created the lowest single-day approval of the issuance examination committee since 2015.
A source who works for a brokerage in Beijing revealed to CNBC: "Recently, the supervision of compliance audits has been much tougher."
The source, who claimed anonymity due to occupational reasons, said: "The overall approval rate for the issuance of new shares has dropped to its lowest level in nearly a decade.
Music as the future
Now, music is still at the cusp.
Jia Youting has said he will stay in the United States, and will remain relatively silent on music-related issues, the debt holders at arm's length.China LeTV employees are very much in need of information about where Jia Yunting now and when he will return.
Last month, a Chinese technology media reported that Jia Youting may return to U.S. regulators to file for bankruptcy in Faraday's future and sell the company to U.S. investors.
However, a LeTV spokesman denied Faraday's bankruptcy news in the future.
Regardless of whether Jia Yunting continues to hold a low profile or eventually return to Faraday's' Return of the King ', one thing can be sure: the term' shared ecology 'was once a hallmark of Chinese enterprises' overseas expansion and transnational operation and is now regarded by the Chinese government as Danger signal.