The future of smart TVs and home entertainment has been weighing on my mind over the past year or so, and it really took until this year’s CES to compel me enough to where I might sit down and write out my thoughts on it. As data has become the new oil in society, and recurring revenue has become the a highly sought after business model, advertising has become king, and smart TVs are now playing host to what could potentially be the next boom for manufacturers.

As Elizabeth Parks, President and CMO of Parks Associates, details on a LinkedIn post mulling over the recent buyout of Vizio by Walmart:

“For TV manufacturers and smart TV platform owners alike, the smart TV business lifecycle is no longer just about per-unit revenues at time of retail sale and shares of subscription and transactional video revenues. The value of leveraging an installed base for targeted advertising and measurement data provides an additional recurring revenue stream that grows in value as the platform’s installed base grows.”

Vizio made a name for itself as being a cheap, affordable smart TV in comparison to many of its competitors. However, the company had a secret that the Walmart buyout put front and center. Rather than taking a hit for selling smart TVs so cheaply, Vizio had an incredibly lucrative advertising business that more than made up for the lower cost average of their TVs.

It was this success in creating and leveraging a smart TV platform geared towards advertising that caught the attention of Walmart. With retail still struggling following the pandemic, Walmart’s main success has been growing out its in-store advertising, and, according to the company, Vizio’s platform fits very neatly into Walmart’s model.

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“The rumored [now confirmed] sale to Walmart would place it more in competition with Amazon, providing valuable data that can be leveraged for higher ad viewership and synergy for retail purchases that will together boost revenue,” notes parks later in the post.

Moving beyond that comparison, however, the notion of leveraging data for advertising revenue is not just restricted to Amazon. In fact, many of the top-rated companies in the U.S., such as Meta and Google, make their fortunes off the collection and sale of data for advertising (which has simultaneously poised these giants to be the top AI companies as well).

In other words: it’s a massive business that everyone is trying to crack into, and those cracks may finally be starting to appear so that the data streams can flow.

Advertising and Smart TVs Go Hand in Hand

When you sit down and think about it, though, it’s incredible it took so long to get to this point. Advertising and television? Hell. Advertising and any form of entertainment? It goes hand-in-hand.

The problem has long been that TVs up until this point have been rather “dumb,” at least in comparison to a lot of other pieces of technology. So, what’s changed? Well, the fact that they’re being called “Smart TVs” now.

Nowadays, the average TV functions more like a computer than anything else. The platforms that they run on are fully-fledged operating systems and with that advancement in technology, smart TVs can last longer through firmware updates, gather more information from users and better utilize that data to deploy targeted advertisements.

In short: smart TVs now open a plethora of data streams for manufacturers, who, in turn, have come to realize the raw revenue potential this data holds for advertising. As I mentioned in the beginning, recurring revenue models are king in the business world, and what sustains those models better than data and advertising?

Vizio is a high-profile example of this practice in action, but it is by no means the only company pursuing this.

Subscription-Based Hardware? On-Platform Shopping? What’s Next?

About a year ago, LG made an announcement stating that the company intended to move over to subscription and ad-based models for its appliance and TV hardware. While the specifics on those models have been kept under wraps since the announcement, it got me thinking: could TV manufacturers potentially be looking to emulate the business models of streaming services?

It sounds insane to pay a monthly subscription for TV hardware—more likely consumers will be paying a subscription for the webOS platform, but that’s semantics if the hardware requires webOS to run. What might sound less insane, however, is if the consumers get a free TV out of the deal, barring their willingness to put up with targeted ads on the TV.

One such manufacturer is already doing that. Telly is a completely free, ad-supported smart TV that is available now to anyone looking to sign up, and in its marketing, the company is very open about how it will be using consumer data. Advertising. As per Telly’s own words: “All TVs come with ads. It’s time you got cut in.” Vizio made its money selling affordable TVs it could then turn around and use to sell advertisements and there are few things more affordable than free.

The strength of this model, however, lies in the OS, and while Telly’s platform leaves much to be desired compared to the competition, Samsung, LG, Roku, Amazon and Hisense all have smart TVs with their own robust platforms. Considering two of those five are either planning on or actively leveraging their platforms for advertising, it might not be long before the other three follow suit.

Is the Future of Smart TVs Ad-Supported?

It is yet to be determined how economically viable it is to hand out free TVs in exchange for ad real estate. First off, consumers need to be willing to give away their information like that which, historically, consumers aren’t. Who knows, though? Maybe that free TV will be enough to sweeten the pot for people. Second, Vizio has been doing this for years and in all that time, they never saw it fit to give away free TVs to boost sales, though, once competition heats up, the concept of a race to the bottom in terms of pricing may take hold.

In that case, we might just see TV hardware sales start to adopt the model of the streaming industry, less in terms of the actual subscriptions and more in terms of how the affordable options are all ad-supported while the premium options forgo the ads. In this way, integrators working in the luxury market and dealing with higher quality, higher value products may be insulated from changes occurring within the lower tiers of the market.

I say that because as these advertising models evolve on smart TVs, there is a potential that the ways in which smart TVs are bought and sold will change as well.

How that will change is anyone’s guess, though it’s likely to be less of a institutional change within the industry and more a behavioral change among consumers. After all, there is a non-insignificant number of people right now that consume most of their media through the internet as opposed to a television, and mobile devices still rank higher for use in streaming over large format TVs.

A push to subscription-based or ad-based smart TVs could just flat out drive consumers away from television, though, this is purely speculation. In fact, the push towards these higher recurring revenues could be a direct result of lagging unit sales, with manufacturers looking to maximize the value of the fewer TV units being sold.

If that’s the case, then the push for these ad-based TV services potentially signals a weakening market for TVs, and for integrators far and wide, that’s potentially huge. After all, the channel got its start in the installation of hi-fi and home theater systems with many integrators to this day still dealing in these types of installations.

I’m not here to say that this is the death knell of the market, however. Far from it. While TV sales have been lagging over the years and home entertainment has indeed taken a hit since the pandemic, the channel is by no means on the verge of a collapse.

Integrators have also evolved far beyond their origins, diversifying their services by branching out into new and evolving channels. Just look at the recent Lightapalooza to see how well lighting has been doing as a category. The point is, even if this is a sign of a declining market, integrators are more than equipped to weather it, should it even come remotely close to those extremes.

For those reasons listed above, however, it’s definitely worth paying attention to because, make no mistake, Vizio’s story–the advertising business, not the buyout–is going to become an industry standard. There is far too much money to be made for manufacturers to leave this potential model alone. The only question is: how is this model going to evolve, and how will competition and market pressures direct that evolution?

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