Evan Shapiro is an Emmy- and Peabody Award-winning producer, a professor of media at NYU/Stern School of Business and Media Studies at Fordham University/Gabelli School of Business. He is also a strategist for Foxxum/rlaxx TV and cartographer of the Media Universe.
Here Evan Shapiro explores the CTV operating system landscape and how it will develop in the coming years. Shapiro predicts a shift from CTV devices to “CTV only”, and a race to control the biggest share of the CTV OS market.
The world buys approximately 250 million televisions each year. Average consumers replace their televisions every seven years. By 2025, one billion new televisions will be sold, virtually all will be connected televisions, with operating systems built into the sets, that allow users to connect directly to the internet and the various streaming apps they use.
Whoever controls the operating systems in those televisions will control access to those buyers for the programmers who make and distribute TV content, and the advertisers who want to sell them stuff and things. And that, dear reader, is the new and future business model in TV manufacturing.
( NOTE: The margin in making TVs drops dramatically every year, along with the prices of most televisions on the market. Yes, there are high end sets on the market. But for the most part, the profits and prices for televisions, and the devices that connect to them, are a race to the bottom.)
The future of the TV device market is now a race to become what Apple and Google are to smart phones. In 2021, Apple generated $85.1 Billion in gross sales in their App Store. Alphabet generated $47.9 billion via Google Play. This is 99 percent of all app sales on earth. There are virtually no other players in this space.
The fees (aka taxes) Google and Apple take on these revenues average about 26.5 percent. This means that Apple made $22.5 billion, and Alphabet earned $12.7 billion by serving as gateways to their customers for Netflix, HBO Max, Spotify and a myriad of other app publishers. This is the business that companies in the CTV space hope to emulate.
There are currently far more players in the CTV OS business than in the smartphone platform business, and the war to control the next billion connected TVs sold will be feverish, considering how fragmented the current marketplace is. Conviva has started releasing their Q4 2021 Streaming report, and it shows some interesting trends that help predict where the market is going, and how the war will be won.
The data shows pretty clearly that the era of “Connected TV Devices” is coming to an end, and the era of “Connected TVs ONLY” has started. Last year the largest growth for streaming content, by far, was on smart TVs, with direct connections to web-based apps. All but one of the connected TV devices lost streaming market share in 2021. Streaming devices, as a whole, lost two percent of the streaming share market last year, whereas CTVs as a group increased by 37 percent.
Yes, Roku includes dongles in their universe of 55 million CTV homes and commands a huge share of the streaming TV market, with 31.8 percent worldwide, 41 percent in the US, and 12 percent growth in 2021. But a good percentage of Roku’s streaming use comes from their Roku-powered TCL CTVs, which do not use the Roku dongle, but rather their operating system inside the TVs. Considering the overall loss of share among the device cohort, we can extrapolate that their increase was weighted heavily towards the CTVs.
Meanwhile, Samsung and LG CTVs saw substantial increases, and Android/Google TV garnered the largest increase at 42 percent. Consumers are buying new TVs, and each comes out of the box with the most-used apps pre-installed and ready to use. The downside of the inexpensive dongles sold in the last five years is that they are easily forsaken when a new, shiny TV arrives. Considering those 250 million sets sold every year, and the billion to come out by the end of 2025, this shift from dongles and devices to smart TVs and operating system platforms is quite likely not an anomaly, but a trend that will accelerate every month of each year.
Beyond this major development, though, there are some significant signs of major battle fronts in the screen wars. Roku’s partner TCL launched six new Google TVs in August 2021. Additionally, Sony launched a slew of Google TV powered sets last year. Chromecast saw zero percent growth in 2021 and has been losing market share steadily for years. It seems quite clear that Alphabet has moved on from their dongle and is now focusing nearly exclusively on their CTV OS. I have spoken to regional CTV makers around the world, who emphatically confirm this strategy, reporting significant deals with Google, and huge increases in TV sales share for Google-powered sets.
Amazon’s Fire TV – a dongle with a large share of connected TV homes in the US and 16.5 percent of streaming use worldwide – saw a significant drop in streaming in 2021. However, Amazon also launched their own smart TVs late last year; too late for streaming data on those sets to be fully factored into this report. While they will obviously continue to make their connected devices for a while, it seems clear that they too are leaving the dongle behind.
Here’s the thing: Google is the largest search engine on the planet, controlling 94 percent of search share. Amazon is the largest e-commerce platform on earth, with a habit of watching what sells, and then undercutting the market with replicated, less-expensive products. It seems quite likely that two years ago, in 2020, both companies saw the transition from connected devices to CTVs happening at a rapid rate in their data and decided to drop their dongles and go all-in on CTVs.
And therein lies the rub for everyone else in the streaming market. Google remains the largest search engine, with the ability to push smart TV searches towards their partners’ Google/Android TV-powered CTVs in every region on the planet. Amazon sees on their commerce platform which sets and what features on those sets sell best, to a much larger scale than the individual CTV brands themselves. This allows them to shift their strategies and lower their prices to beat the market. The enormous amount of data and influence these two companies have, give them immense fire power in the screen wars. Their trillion-dollar market values also give them the ability to lose money on each set sold, in favour of increased market share and the revenues they model out by the time those billion sets are deployed in 2025.
All to play for
The spoils of the CTV wars will be enormous. Hundreds of billions in advertising, subscription, and commerce revenues over the 25 years. Each home trades out their TV only every seven years, but they turn it on every night. The margins on selling TVs are relatively insignificant compared to the ability to dictate the terms for those revenues on those sets.
Samsung and LG know this. That’s why they have invested heavily in their own operating systems and now in their own programming channels. They are quite well positioned to ride the wave of the billion sets to be sold in the next four years. But these two companies combine for less than 25 percent of the global CTV sales market. This leaves a huge chunk of the market – 180 million-plus CTVs per year, 750 million CTVs by the end of 2025 – in play.
I have little doubt that dongles and devices will not be major factors in the CTV market in four years. So, my major questions in the screen wars are:
Will Roku find a way to step up their international expansion through partnerships with TV makers? If not, how will they counteract the invasion of Google into their TCL territory?
Will the gaming wars between Sony and Microsoft spill over to the CTV market? After all, most every game played on an Xbox or PlayStation will be played on a CTV. Microsoft has shown a propensity to spend big, recently acquiring Activision for $69 billion. Will they target a CTV platform such as Roku for their next acquisition? Between TVs and consoles, Sony has nearly as large a CTV market share as Samsung. But they do not have an operating system and have allowed Google to invade their TVs. Having just spent $3.6 billion acquiring the gaming studio Bungie, might they also step to reinvigorate their once dominant TV share through acquisition or partnership?
Early reports on Amazon’s Fire TVs are excellent – easy to set up, simple to connect to Alexa, and competitive in price. Can they truly take on Samsung for market share? Can they recreate their FireTV dongle roll-out which garnered massive market share – stealing mostly from Chrome and Apple TV – in a remarkably short time? Can they improve on their dongle’s lack of international traction?
Despite huge growth in 2021, right now Alphabet still has a relatively small CTV market share – around 11 percent globally. But the data above, along with their Sony and TCL deals, show they have the momentum to beat, and the resources to take on all comers. Can anything stop the march of Alphabet’s Google/Android TV to world domination?
Watch this space.