We’ve started to see some TV set manufacturers move into the advertising world, but there are still significant obstacles to be overcome as they figure out their place in the addressable TV advertising ecosystem. Here Ronan Higgins, founder and CEO of TVadSync, explores the steps TV manufacturers should be taking to best take advantage of this new opportunity.
The struggle for control over TV ads is heating up, as DAI (dynamic ad insertion) raises the profile of the TV original equipment manufacturers (OEMs), who are suddenly a player in the advertising market, which was historically controlled by broadcasters and MVPDs (multichannel video programming distributors). The OEMs have valuable data that the other major parties would benefit from, but more fundamentally, they hold the final link to the customer – the TV screen in the living room.
Companies like Samsung, LG and Vizio have very different business models than broadcasters, cable companies and satellite companies. They make their money from hardware, and they market to consumers, not to advertisers. Since the advancement of smart TVs, that’s changed. TV OEMs can actually make money in two new ways, both from the TV viewing data they have access to and the inventory they can control at a technical level in the form of dynamic ad insertion (DAI).
However, it’s not a given that the OEMs will create a winning formula for themselves, as they are not veteran negotiators in this market. Already, negotiations are showing that they might not take advantage of their new position.
You Don’t Know What You’ve Got ‘Till It’s Gone
Currently, TV OEMs are dealing with a wide variety of different standards and agreements with advertising players in markets around the world. Technically, OEMs could insert ads without the participation of broadcasters and other content providers, but this would surely incite legal action in each region. Instead, companies are trying to work together to adhere to legacy agreements and standards while adding new capabilities on top. That means that the OEMs enable the other parties to determine which viewers see which ads.
For broadcasters to manage ad insertion, they need software embedded into the smart TVs themselves. In Europe, “hybrid broadcast-broadband TV – Targeted Advertising” or HbbTV-TA is the name of one initiative that seeks to bridge the gap between linear and addressable TV and to encourage targeted advertising. HbbTV is a common standard that should work for the whole of Europe. Through negotiations, the OEMs were convinced to add HbbTV friendly protocols into their TVs, empowering broadcasters in Europe to insert targeted ads into their programming. While not every country is embracing HbbTV, it represents an entry point for the OEMs.
Surprisingly, the OEMs have not yet negotiated for a share of resulting ad revenue when upgrading their TVs to be able to deliver on DAI using HbbTV-TA. They could have asked for a couple of minutes of ad time per broadcast, or a percentage of ad sales from their partners. Rather, they’ve agreed to simply take the revenue from TV set sales that include the additional technology. DAI requires the television to have increased memory and processing power, to ensure frame-accurate insertion. Content owners won’t tolerate an addressable advertising system that impacts viewer experience. It’s unlikely that any uptick in HbbTV enabled TVs will offset lost potential ad revenues. The OEMs must participate in the ad revenue stream.
New Horizons of Opportunity Squandered?
In the US, OEMs are still in the middle of a variety of negotiations. While the North American broadcast television industry has pushed for ATSC 3.0 protocol, which includes a new addressable advertising layer, other players in the market are working to develop their own standards. Vizio bought an ACR (automatic content recognition) technology of their own and is coordinating with ad tech companies and broadcasters to develop an open source standard for DAI called Project OAR. Similarly, Nielsen acquired Sorensen Media and is working to incorporate these standards, with active trials on MediaTek smart television hardware.
If the OEMs want to, they could negotiate separately with different parties and also adopt ATSC 3.0. This is the likeliest way to new revenue streams, but will create complexity for broadcasters, MVPDs and brands. The entire smart TV tech ecosystem in the US could soon look as messy as the digital ecosystem, which has few standards.
The whole smart TV-powered DAI space could also be complicated by addressable collision. Picture a scenario where an MVPD has dynamically swapped out a TV spot at the set top box, and then the smart TV swaps it out again.
It would be better for the OEMs to try to help solve the complexity rather than negotiate separately with different businesses, coordinating into a unified standard. If nothing else, this will create simplicity, and stop individual companies from developing competing protocols. If they don’t, they will find that they end up having to build to several standards at once.
Data, Another Fractured Frontier
Smart TV companies are also in disagreement when it comes to viewing data. While several license TV viewing data, Samsung is working to create their own walled garden. These different initiatives compete with one another, but they represent distinct household populations. Traditional data companies can create their own models, and other companies with access to consumer data, such as purchase data, can sweep in and deliver immediate value.
If the OEMs were to form a consortium, their bargaining power would be immense, as they would represent the final word on actual TV viewing in nearly every high-value household in the US. Again, the OEMs don’t seem to want to take advantage of this window in time. As a result, it’s likely the evolving TV industry will be stuck with the complexity that held back the MVPD addressable TV business for years.
The TV OEMs must participate in the addressable TV advertising revenue stream. They hold significant bargaining power in being the last touch point. Let the negotiations begin.