The Rise Of The Smart TV Ecosystem

As television’s migration to streaming has begun to take shape this year, one of the more interesting developments has been the evolution of two distinct viewing and advertising ecosystems, one centered around content providers-- the multibillion dollar streaming services (Flixes) and the network-owned free ad-supported streaming TV services (FASTs), and the other around hardware providers--smart TV OEMs and their FASTs and their data services.

If the rise of the first group seems obvious, the rise of the second seems anything but.

Smart TV OEMs were more or less written off in the earlier years of streaming--they had vastly miscalculated the value of an easy to use interface to consumers and, finding nothing but confusion, lack of interoperability and an inability to easily update apps, viewers turned to external streaming devices like Roku and Amazon Fire TV which had none of those issues. These external streaming sticks quickly became the norm, with programmers developing apps and releasing updates for those devices long before they released versions for the OEMs...if they even bothered to release versions for them at all.

That began to change a few years ago as the smart TV OEMs realized that they were losing money and customers by not making their interfaces and operating systems a priority. This was particularly true of the “big three” U.S. OEMs--Samsung, VIZIO and LG, whose new interfaces were also made upgradeable so they could handle the latest versions of a wide range of streaming apps 

All three also rolled out their own FASTs so that viewers had thousands of shows to watch right out of the box. Which also provided the OEMs with an additional (and growing) revenue stream from ad sales.

This transformation coincided with Roku’s realization that there was value in being the native operating system on a TV (versus being the streaming stick you plugged into the HDMI jack). The company struck deals with TCL and other low-priced Chinese manufacturers to have the Roku OS be the operating system on their U.S. sets, which turned out to be an extremely smart bet, as Roku now accounts for 38% of all TVs sold in the U.S.

It’s All About The Dat

While all four hardware companies (LG, Roku, Samsung and VIZIO) have solid advertising businesses, their data plays are what really stand out.

VIZIO’s Inscape division, which collects data from over 17 million opted in smart TVs, was instrumental in creating the growing market for ACR data, joined by Nielsen’s Gracenote, which collects data for Roku. (The two have also been instrumental in creating a new market for linear addressable overlays via Project OAR and Nielsen’s new linear addressable solution, respectively.)

Samsung has its own proprietary ACR product, and LG recently entered the game with their purchase of a controlling interest in Alphonso. Together, the four have deep glass-level insight into viewing habits on both linear and streaming that far exceeds set top box and other data sources.

These data sets have helped make all four company’s ad inventory valuable to advertisers who can rely on strong reporting stats from a single source that are far more complete then what they’d get with the network-owned FASTs and Flixes whose inventory is scattered across dozens of operating systems and devices, including laptops, tablets and mobile phones, which massively complicates their ability to get an accurate read on who is watching.

The hardware manufacturers are able to use the data they have to run a variety of complementary ad units too, everything from display ads on their main menus to mobile ads that make use of the IP addresses of (opted in) smart TVs.

A Rising Tide

As much as the mainstream media likes to make the shift to streaming all about winners and losers (hence their overuse of terms like “streaming wars” and “Netflix killer”) in reality the situation is more of a rising tide lifting all boats.

The hardware-driven smart TV ecosystem is complementary to the content-driven network TV ecosystem with vast amounts of overlap between the two. The Flixes and FASTs of the network ecosystem are realizing that improved interfaces on smart TVs mean that more and more users are going to be ditching their streaming sticks, and thus they’ve very good about providing and updating native apps for the smart TV’s OS’s. This then creates a better experience on the smart TV, which means more viewers are watching directly on the smart TV OS, which means more people watching the smart TVs own FASTs and the ads that go with them. 

Advertisers reap the benefit on both sides, via better measurement, greater inventory and larger audiences.

The only real loser here may be Google, whose new and improved Chromecast device (it finally has a remote!) is hitting the market just as viewers are giving up on external streaming devices. 

“May be” is the operative phrase here though, as both Google and Amazon are showing signs of diving deeper into this market by following Roku’s lead and rolling out TVs embedded with their respective operating systems. Both may find the market outside the US, where Roku is not as well known and where more streaming is newer overall, to be greener pastures for this maneuver.

Stay Tuned

The rapid rise of the smart TV ecosystem is an important development in the shift to streaming, and as such, TV[R]EV is going to be looking into it much greater detail over the course of the year, tracking how it is developing and how it is impacting the industry overall, especially from an advertising perspective.

Further details to come.