In theory ‘smart TVs’ TV sets should be providing TV manufacturers with an opportunity to make a significant play in TV advertising. They are in many respects the gatekeepers to the TV experience and in the early days of connected TV it looked like they were set to take a slice of ad revenues and to leverage their data to enhance targeting.
However, some are shying away from the opportunity. A few attempts at operating systems from TV manufacturers have been abandoned (including Sharp’s AQUOS NET+ and Philips’s Net TV). And several manufacturers are now choosing to simply integrate third party operating systems from the likes of Roku, Amazon and Android. Roku announced in 2017 that one in eight smart TVs shipped in the US ran its OS, and the company has since signed up more partners to its Roku TV programme.
But this pullback shouldn’t be overestimated. Some who discontinued their own OS’s have since returned with a new product – Philips for example last year launched its ‘Saphi’ range of TVs, a home grown user interface built off the back of Linux.
Paul Gagnon, executive director of analysis and research for consumer devices, said that around 40-45 percent of smart TV shipped worldwide run on a proprietary OS, such as Samsung’s Tizen OS or LGE’s Web OS. Only fifteen percent run on third party OS platforms, the likes of Android TV, Roku TV, Fire TV and Firefox.
The remaining 40-45 percent are devices which use Android or Linux derivatives, which are skinned uniquely, and aren’t always in compliance with Google Play store requirements for apps.
Pair this with the fact that nine in ten TVs sold in the US nowadays are smart TVs, and it appears penetration isn’t really a problem for smart TV manufacturers – they’re proving fairly successful as putting TV sets with their own operating systems in consumers’ hands.
But are consumers actually using their smart TVs to access IP-delivered content, or are they simply bypassing their capabilities in favour of third party devices instead?
At first it might seem counter-intuitive that consumers would pay extra for a streaming stick when they already own a smart TV set, but there are a few reasons they might do so.
Smart TVs’ software has often proven to be slower and less ‘smart’ than streaming sticks, with less regular updates. And smart TVs don’t tend to have the same scale as Roku, Amazon or Android, meaning they will likely give access to fewer apps, and those apps they do host might have less regular support (this might be one of the reasons Android re-skins are so popular, since they give access to the Play store’s library of apps).
And consumers don’t necessarily need to buy a whole new device anyway – those who own games consoles can use those as their OTT portals instead.
It’s hard to say for sure to what extent consumers are choosing to use plug-in devices to access OTT content instead of their smart TV’s own capabilities. Gagnon said that IHS is starting its consumer research in the area, but has no data yet, and smart TV makers themselves haven’t given any insight.
But we can draw some inferences from comScore data released last year. The data found that streaming boxes and sticks accounted for 36 percent of OTT streaming hours, while smart TVs accounted for 20 percent. Streaming boxes and sticks are more commonly owned than smart TVs (47 percent vs 37 percent), but this still leaves smart TVs’ streaming hours disproportionately low.
So it seems to some extent consumers will bypass their smart TV’s capabilities and use a plug-in device instead. But again this effect shouldn’t be overestimated – 71 percent of those who own smart TVs use them for streaming content according to comScore (even if they sometimes us plug-in devices as well).
Inventory
For the time that customers do spend on smart TVs own UIs to access OTT content, what abilities do manufacturers have to serve them ads?
The first question is how much inventory the TV maker has access to, and there are several possible sources. They can go down the same route as Roku and Amazon, requesting a slice of TV and networks and digital publishers’ ad inventory to sell. This has proven so profitable for Roku, once a pure hardware-sales business, that it expects ad revenue to have topped hardware sales revenue in its 2018 results.
This isn’t a realistic option for manufacturers which use reskins of Android TV for their OS – Google is the gatekeeper here, not the manufacturer. And those who run their own operating systems seem to have avoided this path so far.
But this could change. Jodie McAfee, SVP of sales and marketing at Vizio subsidiary Inscape (which handles advertising for Vizio TVs) believes high competition between various content providers will put more power in manufacturers’ hands. “As hundreds of MVPDs, networks, apps and the rest compete for attention, Smart TV makers are an essential and unskippable access point to the customer,” he said. “Traditionally that relationship is a commodified one, but as technologies enable interactivity, and UX becomes a key differentiator, the game is changing.”
For the moment though, most are opting to monetise their own inventory – running display and video ads on their home screens. Samsung for example offers ‘native TV’ ads, either autoplay video or app links, which appear on the user interface.
These ads are usually primarily pitched to app and content owners who use the smart TV’s platform, allowing them to promote their content and appear higher on search results, but they can also be used by non-TV brands too.
Some manufacturers have also launched their own streaming services, which come pre-installed and highly promoted on the smart TV platform. These give the manufacturer the ability to run pre or mid-roll ads without having to coerce other media owners into giving up a slice of their inventory.
LG, for example, launched its own service ‘Channel Plus’ in 2016, which allows it to serve pre, mid and post-roll ads into TV streams. Vizio made a similar play last year with the release of WatchFree.
Data
The second consideration is how much data TV manufacturers can use for targeting.
Many will use automatic content recognition (ACR) software to track users’ viewing habits – what sort of content they’re interested in, and how much they watch. McAfee said this is where TV makers interested in advertising are primarily investing, stating that ACR and screen level data are integrated into all technology stacks being built for the future of TV advertising.
ACR data collection has raised privacy concerns, thrown up by Vizio’s ongoing lawsuit over the ways its data harvesting practices. But McAfee says the company has been successful in getting users to opt-in to data collection, claiming that Inscape now has the “largest single source opt-in footprint” on the market.
Vizio is by no means alone in use of ACR data, with Samsung, Sony and LGE among those who use viewing data to target their ads.
With this data knitted into whatever inventory the TV makers have access to, it certainly looks like there’s an opportunity to make substantial revenues from ad sales.
But so far these ad revenues appear to be relatively small scale, with progress perhaps hampered by privacy concerns. None of the TV makers are yet reporting ad revenue as a substantial proportion of income in the same way that Roku does. “For the most part, smart TV makers haven’t been doing a great job of monetizing their platforms,” said Gagnon.
