In recent years we’ve seen more and more interest from TV manufacturers around getting more involved in advertising thanks to the capabilities available on smart TVs, and this trend continued at this year’s CES. As manufacturers continue to awaken to this opportunity, we could see a rare win-win for the market says Ashwin Navin, CEO and co-founder of Samba TV, while the manufacturers themselves could see their business models completely shaken up.
Some may assume that the most exciting outcome from CES 2020 was the latest hardware innovations, particularly in what will, for many, be the single largest consumer electronics purchase made in the year ahead – televisions. And sure enough, the latest innovations in 8K resolution and flexible displays packed the halls of the Las Vegas convention centre.
What was different this year, however, was the explosive growth of streaming and the impact it is having on reshaping the $172 billion global television advertising market. For the first time, TV manufacturers leaned into the streaming wars with a powerful point of view on the future of consumer engagement. CES 2020 will be remembered as the year connected television viewing became mainstream and in the process, provided television manufacturers a coveted seat at the advertising table.
Long viewed by many as simply the “pipes” delivering television content into households, Smart TV manufacturers have big plans for evolving the rapidly growing industry which will add more than a quarter billion new televisions to the market over the next three years.
Lost among the headline grabbing presentations from Quibi, Disney+, and other streaming players were the multiple announcements from TV manufacturers foreshadowing their move to capture billions of dollars in advertising revenue from the millions of households shifting their viewing habits away from linear television to connected content.
The shift that is underway is one reason the entire manufacturing business is enamoured by the Roku juggernaut. Once a purveyor of cheap streaming boxes, Roku is now a $16 billion TV operating system which has seen its overall business accelerate on the back of a robust advertising business that is not dependent on the creation of new content. In fact Roku, like all Smart TV manufacturers, sits uniquely apart from the streaming wars of Netflix, Amazon and Disney in that they benefit from every new entrant. Each new subscription added by any company is another set of eyes watching another show for another thirty or sixty minutes each day. Each offering new opportunities to develop consumer advertising programmes for markets hungry for new avenues of engagement. Roku realised early on that their positional advantage controlling “the last mile” of video content provided a unique opportunity to upend the advertising model and shift spend away from pure content creators to the actual platforms on which they are delivered.
It is now absolutely clear that Roku is in a driving position to shape the future of TV advertising, leveraging the capabilities of the Smart TVs they control, and every major television manufacturer is now positioning to get in on this same game. All of the non-Roku manufacturers have taken notice and now want their piece of the pie, including the other operating system providers in the space, Amazon and Google.
The result of this “awakening” by manufacturers will be significant investment in services that transform the viewing experience and business model for TVs. This includes ongoing growth in new apps with branded buttons on remotes, paid for by media companies, as well as new AI technologies to assist consumers in content discovery and personalisation, all tied back to viewership data and a tightly integrated advertising model.
This new revenue gold rush for manufacturers will also reset an old truth about TV sets which have historically been subject to incredibly high price deflation – a trend that isn’t slowing.
As the business model for content (advertising, subscriptions, payments and analytics) gets intertwined with the hardware, manufacturers will very soon be able to reduce their hardware prices to below cost, knowing that they can recover the difference through new revenue streams as they tap into the billions of dollars in advertising that will be spent reaching consumers who have walked away from linear television. This new model will likely unleash a new wave of innovations while also reducing the cost for consumers.
Research and actual practice has shown that two-thirds of viewers are willing to watch ads in exchange for free content, and as subscription fatigue sets in, viewers will likely embrace the combination of a lower-priced TV set buoyed by free content made possible by a better, more targeted and relevant advertising experience.
This model has caught fire in tech advanced markets like China, where TVs have been subsidised by advertising for years (replacing the government subsidy that launched the electronics industry and proliferation of TVs in domestic China).
The good news for manufacturers and content owners alike is that the new age of connected television advertising will not be a zero sum game. There will be plenty of room for both to benefit.
For the future model of ad supported content to succeed, manufacturers must work closely with the media publishers because ultimately content discovery is controlled by the hardware. Whether the gateway to content is pressing ‘channel up’ and ‘channel down,’ or being included in the TV UI, the TV search box or even dedicated remote control buttons pointing directly to a particular app like Netflix, Smart TV makers are going to get a piece of the revenue from content and advertising, and collect extremely valuable viewing data from the users themselves. That data will unlock powerful insights for marketers seeking to engage the unreachable audiences who have abandoned linear programming.
It is a rare win-win for the market that will reset the role of TV manufacturers for years to come.
