The smart TV is now the most important video consumption device in US households for a variety of reasons. Roku's big announcement yesterday about smart home products (cited as a “natural extension of the business by Mustafa Ozgen, president, Devices, Roku Inc.) is very interesting given the role of the TV for consumers and the opportunity to integrate the smart home and entertainment ecosystems together.
Not only is the TV consumers’ most-adopted video device and their most favored as the primary device for watching video, but it is also the device best able to collect data on consumers’ combined entertainment consumption behavior and serve them targeted advertising. The companies controlling the smart TV platforms in use today are in control of the most significant point of entertainment aggregation in the home, and one that that they can also leverage as a significant source of recurring revenue via the value of the data collected.
Top Smart TV Trends
Service providers have entered the CE Market to regain control of aggregation. Service providers are increasingly creating entertainment devices beyond the traditional set top box that integrate their video platform – and smart TVs are seen by the biggest service providers as the new opportunity to manage the point of aggregation to their advantage. Pay TV operators in the US and globally are steadily committing to creating and selling home entertainment devices such as smart speakers, streaming video devices, hybrid soundbars, and smart TVs that integrate ties to their business or ecosystem. Service-provider-managed smart TVs are an opportunity for service providers to once again own the point of aggregation and role of aggregator in an era where the managed pay TV set-top box is falling in relevance.
Smart TV platforms have yet to become a purchase driver for consumers – fundamentals still drive the purchase decision. Though today’s smart TV platforms incorporate voice assistants, connection to smart home ecosystems, super-aggregation, free ad-supported content, and other new enhancements such as cloud gaming, interviewees indicated that consumers have yet to show that the smart TV platform is a significant influence on their purchase decision. Instead, the TV market fundamentals of brand, price, screen size, and picture quality remain the main criteria for consumers.
User experiences are increasingly super-aggregated. Smart TVs are increasingly consumers’ favored device on which to consume content from multiple sources. Consumers today however are inundated by content choice and seek a personalized and simplified content consumption experience. Today’s smart TV platforms increasingly reflect this, aggregating multiple content sources together to present a content-first interface to users that is populated with personalized content choices irrespective of source. Though the execution of this concept varies widely by smart TV platform, this is a trend that is expected to persist and deepen.
In-house advertising and measurement capabilities have transformed the smart TV installed base into a source of long-term recurring revenue for many TV manufacturers. In the cost-sensitive, margin-constrained, highly commoditized TV market, manufacturers are constantly seeking ways to drive higher revenues and profits. Though some manufacturers formerly relied on third parties to drive their advertising businesses, they are increasingly seeking to grow their own capabilities and maximize their share of revenue. For the TV manufacturers that can spin up their own advertising and measurement businesses, the growing installed base can be leveraged to generate long term recurring revenue. This is a revenue stream that did not previously exist for TV companies a few years ago, and substantially changes the definition of what it means to be “in the smart TV business.”
The balance of power in addressable advertising and in viewership measurement has collectively begun to shift towards platform owners. The shift in consumer consumption habits towards streaming, and the rise of the smart TV to become today’s most-owned streaming device in broadband households, now makes the smart TV an important point of content consumption in the household. This is underscored by the smart TV’s position as the single point of convergence where traditional linear terrestrial broadcast consumption, streaming consumption, and the use of attached entertainment devices (such as streaming media players or game consoles) can all take place.
Smart TV platforms are increasingly leveraging free content as a competitive differentiator, and a driver of platform value. Integration of free ad-supported services, both FAST and AVOD, was previously a differentiator for some platforms. Today however, all major smart TV platforms in the market integrate some form of free ad-supported content access. While that has now become table stakes for the market, exclusive and original content is potentially the next content-driven angle of differentiation for smart TV platform competitors. Integrated and/or exclusive free ad-supported content is seen as a driver of value for smart TV platforms, as the additional engagement it creates results in increased advertising and measurement revenue generation for the platform.
Outside of top-tier companies, TV manufacturers are increasingly reliant upon third party smart TV platforms – these platforms have democratized smart TV software competency. Developing and maintaining an operating system is a time and capital-intensive long-term commitment. Unless there is substantial strategic and financial justification to develop their own platform, most TV manufacturers outside of the top companies are willing to rely on a third-party platform - offloading all the hassles related to cost, content agreements, compatibility testing and so on. TV manufacturers are typically neither software, nor application developers, nor content aggregators.
Smart TV platforms differentiate via software features and enable the introduction of new functionality later in the lifecycle. Though TV manufacturers utilizing third party platforms are always concerned about how to differentiate their smart TVs against competition using the same platform, platform providers are placating these concerns via the software itself. TV manufacturers have the option of differentiating their smart TVs via customized software features and functionality and building in specific capabilities that can be enabled when the TV is connected to same-brand ecosystem products. Additionally, the use of standardized platforms enables TV brands to inherently take advantage of ongoing advancements and upgrades to the base platform by platform owners, and the ability to deploy new functionality throughout the lifecycle on the back of software updates.
Today’s smart TV platforms are seen not only as an operating system solution, but also an enabler of the ability to easily deploy newer and differentiated features via standardized over the air software updates.
Roku's interesting move into the smart home market is a signal of more to come - we will be watching!
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