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Your Next TV May Be Free. (Viewing Time Covers the Cost.)

01.11.2023 | Matt Smith
 

The 2023 Consumer Electronics Show (CES) has delivered on its annual promise to impress us with all the breaking news, gadgets, and technology that will have a lasting impact on our lives. For anyone inside the media and entertainment business, smart TVs top that list. Consider it the latest battlefront in the ever-escalating streaming wars.

 

Roku’s smart TV crossover

New Roku TVA key development at CES this year was Roku’s announcement to bring its own branded televisions to market. This surprises no one, as 1 in 3 televisions sold today have Roku software installed while competitors like Amazon (which has been selling its own branded smart TVs since 2021) lapped ahead on hardware.

Roku’s OEM play has the potential to deliver simplified viewing experiences, better quality, and more interactive channels. Details on feature differentiation are still limited. At a minimum, shipping its own lines of televisions could enable Roku to eliminate any revenue and ad share they may have to offer to other television manufacturers for carriage today, while bringing them even closer to the end user. Whether this new strategy will change how Roku and its content partners interoperate remains to be seen.

 

The smartphone precedent

As you read this, there is almost certainly a smartphone within feet of you, possibly in your hands. In its infancy, consumers paid full price for access to this revolutionary technology that could do things formerly impossible without a personal computer.

As time passed, device manufacturers and wireless carriers worked together to subsidize costs and develop pricing models that accelerated adoption: customers could pay off the price of their devices over the duration of a service contract and receive steep discount incentives for committing to a service. In Oprah fashion, “You get a phone, and you get a phone…”

As a result, phone sales soared. What’s not to like about this model? Amortizing costs over a few years’ time has proven irresistible to consumers and enables device manufacturers to sell more of their hardware. Billions of smartphones in hands all over the world later, the model has stuck.

 

Subsidized TVs: coming soon?

Picture a shopper in the market for a new television. The local big box store and several retargeting ads are promoting a brand-new, 50-inch model that is completely free to anyone agreeing to enable a few direct-to-consumer (DTC) streaming services from the likes of Peacock, Netflix and Disney+. No monthly subscription fee required, just register and sign into the services on that bright and shiny new device.

The consumer’s end of the bargain? Simple. Just watch the ads placed within your favorite shows. Your viewing time pays the cost of your new television. (Whether or not the smart TV would give viewers access to other services in this hypothetical scenario is still up in the air.)

A free, or even cheap, 50-inch television in exchange for watching several hundred ads over a few years is more than worth it, right? Those with the wherewithal to pay for more control over their viewing experience, privacy concerns, or different preferences may opt out. If smart TVs go the way of smartphones, however, the answer for many consumers is an enthusiastic yes.

A streaming-subsidized smart TV offering may or may not make sense for today’s changing audience. In ad-supported models, the aggregate viewing audience breaks into groups that advertisers covet and cater to, based largely on demographics and discretionary spend. Advertisers buy inventory in the time slots and on the channels and services ideally suited to get their messages in front of target segments. Control over both content and the device it’s viewed on could give greater access to what they truly monetize: audiences. But only if the audience is willing.

What about a new class of viewer? Those who are being called the TikTok generation challenge traditional viewing in many ways, engaging less with long-form content currently featured on most streaming catalogues. For companies looking to engage this demographic, an amortized pricing model isn’t the first hurdle to clear. Features that appeal to their preferences, such as a camera that lends itself to rendering derivative “interactions” between the viewer and a show’s star, could be an alternative winning strategy.

 

Devices unlock consumers

Flash back to CES 2009, when Palm’s webOS mobile operating system debuted as the force behind its Palm Pre smartphone. PC World’s review stated that “the new webOS is one of the silkiest and best-designed smart phone platforms we’ve seen in a while. Clearly, this phone operating system will give iPhone and Google Android some competition.” The technology was considered a driving factor in HP’s 2010 acquisition of Palm.

By 2013, however, Google’s Android and Apple’s iOS had collectively surpassed 50% of mobile market share and HP sold webOS to LG Electronics. (Incidentally, a resurrected version of webOS now powers smart TVs.) Google and Apple now exclusively dominate almost 100% of the mobile OS market, but smart TV share is still up for grabs.

A device strategy makes sense for any company competing to unlock the massive data ecosystem on the other side of the screen. No matter how much devices change, the challenge of accessing, measuring, and understanding the data is essential to optimizing the success of any new technology.

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