Technological innovations such as Artificial Intelligence, Blockchain and Smart Home are having a considerable impact on businesses of all shapes and sizes. The Smart TV industry is one that is adapting to integrate these new technologies and ensure that its products remain in step with consumer expectations.
For example, worldwide spending on Blockchain is expected to grow at a Compound Annual Growth Rate (CAGR) of 67% until 2022, according to FFalcon’s recent whitepaper on the State of the Smart TV Industry. A large part of this growth will come down to shifts in the financial industries, but for Smart TVs, Blockchain technology has the potential to influence both content delivery and service automation, providing a more personal and slick service for users.
Artificial Intelligence is expected to grow almost as rapidly as Blockchain up to 2022, at a CAGR of 51% and this technology is already gaining popularity in a consumer context thanks to Smart Speakers and Virtual Assistants. In a Smart TV context, AI will be used to anticipate media demand for content delivery, ensuring more hit shows for content producers and enabling viewers to receive better recommendations for shows.
The growth of the global smart home industry – expected to increase with a CAGR of 25% to 2022 – also offers an opportunity for the evolution of Smart TVs. As the devices occupy a central position in almost every household, Smart TVs’ connected screens are perfectly placed to become the central hub for interaction with smart home devices and services. For example, users could monitor their electricity consumption and compare their usage through graphs on their TV, or adjust the lighting or music throughout their house.
As consumer behaviour is shifting towards increasing adoption of digital media services, there is a strong potential for Smart TV manufacturers to integrate these technologies and increase their value proposition.
Despite these impressive opportunities for growth, some regional TV markets, including North America, are reaching saturation, and growth is slowing in other markets including Western Europe and Middle East/Africa. FFalcon’s whitepaper reveals that prices have seen almost no growth (+2% between 2012 and 2017). The consumer electronics market is in decline in terms of revenue and shipments and the TV sector as a whole has seen a 6% decline in CAGR between 2012 and 2017.
As the top five manufacturers – Samsung, LG, TCL, Hisense and SONY – together hold more than a 55% market share, product differentiation is becoming increasingly important. This challenge is enhanced by the fact that people now consume content across smartphones, tablets PCs and laptops, as well as TVs, so Smart TVs are competing with a large number of screens for people’s time.
Evolving business models
This is pushing established incumbents in the consumer electronics industry, such as Samsung, LG and Sony, to consider how to evolve their business models. These traditional manufacturers are planning to focus more on driving recurring customer revenues rather than device sales, as less consumers are buying TVs for the first time. They plan to expand their digital services and capture the potential of recurring revenue over time that subscription services such as Amazon and Netflix currently enjoy. OTT video service revenue is predicted to be worth $30.64bn by 2020, so making changes to enjoy a share of that is definitely worthwhile.
Chinese company Xiaomi is a leader in this space, thanks to its strategy of subsidizing its devices to attract a significant user base paying for digital services, who can then be approached for cross- and upselling of products within its ecosystem.
Roku is a streaming play and smart TV brand that delivers content from select VoD media sources, such as Netflix and Amazon Prime Video, as well as live broadcasts and AVoD services, giving customers a single interface to access all their content. It has pursued a platform-first strategy, shifting from selling devices such as streaming sticks and boxes – its main source of revenue in 2015 – to platforms.
The shift from device sales to recurring revenue has helped Roku achieve an average revenue growth rate of nearly 30% between 2015 and 2017. 2018 will mark the first year that Roku’s platform revenue has exceeded its device sales. Moving away from its hardware business, has allowed Roku to also pursue opportunities such as licensing the Roku OS and Roku TV reference design to TV manufacturers. This helped the brand to increase the number of accounts by five times in just four years.
When the Chinese TV manufacturer TCL looked to enter the US market, it faced the challenge of being relatively unknown in a marketplace, competing with a number of strong incumbent brands. TCL and Roku partnered in 2014, offering co-branded Smart TV sets in the US. By offering high quality TV sets incorporating out of the box streaming capabilities at relatively low prices, TCL could raise its market share from 8th position in 2015 to 4th in 2017 and significantly improve its market position in terms of shipments.
Increasing numbers of TV manufacturers are striving to create a complete value chain that builds on their core business to incorporate digital services, eventually achieving a high customer lifetime value thanks to the potential for cross- and upselling. Notable brands including Sony, LG and Samsung are still at the stage of incorporating digital services, and have yet to realise the complete value chain that they are aiming for.
However, the potential to integrate AI, Blockchain and Smart Home management into Smart TVs opens up vast potential for manufacturers to collaborate with experienced technology companies in order to bolster their offering in a credible way. This change should help them to move their customers from making a one off purchase every few years, to spending recurring revenue with the brand, helping Smart TV market manufacturers to upgrade their business models and stand out from the competition.
The full whitepaper can be found here.