Smarter Video?

smartTVWill the rise of Smart TV Change Where Marketers Place their Ad Dollars?

Recently, the perfect storm of the oncoming football season and a broken TV sent me to Best Buy for a flat screen upgrade. I came home with a Vizio 60-inch “Smart TV.” I was pleasantly surprised by the great audio quality, high-definition picture, and the price (cheap, at $900). However, what really shocked me was its installed “app store.”

As a deeply committed believer in on-demand video, I immediately started enjoying my Amazon Instant Video and Netflix subscriptions—now accessed on a huge, 60-inch HD screen. YouTube videos now were available right from my remote control—as was Pandora, and other streaming music applications. All of the sudden, Verizon FIOS had a lot less to do with what I was watching in my living room.

As someone who is fairly up to date on advertising technology trends, I already realized that cable providers and broadcasters were being disintermediated by new technology—but seeing it in 60 high definition inches really convinced me that we are living in a new world, and the implications for advertisers are huge.

First of all, for those who haven’t played around with one of these new sets, let me tell you what works and doesn’t work at this early stage of the game:

What Works:

  • YouTube: It was simply amazing to watch YouTube videos on the big screen. I queued up some “Key and Peele” from Comedy Central, and some clips of comedian Louis CK and, before I knew it, an hour had gone by (a commercial-free hour, by the way). Smart TV might just take YouTube and other video-specific sites to a whole new level. Now, anyone can “broadcast themselves” right into your home.
  • Amazon Instant Video: It was great to watch all of the Prime content on my big TV, and I began immediately catching up with “Under the Dome” using Amazon’s elegantly designed UI. Amazon is one to watch in this space. They know how to do VOD.
  • Netflix: Again, video on demand was born for the Smart TV application. (I thought I might re-subscribe to binge-view House of Cards!) Watch for more streaming providers to produce more and more original content that can drive subscription sales.
  • Pandora: This one surprised me. With the right audio system, your TV may be the only thing you need to provide great sounding music with endless variety in your home.

What Doesn’t Work:

  •  Twitter: The news feed was quite limited, and at times expanding a tweet to access a link or video content did not work. Plus, do you want your individual Twitter feed broadcast to everyone in your home?
  • Facebook: Same thing as Twitter. I wonder if high-engagement applications—and specifically ones that promise an “embarrassment factor” – will succeed on the TV screen.
  • Skype: This app is convenient for users who depend on it for their primary communication, but typing on the remote (even with a full keypad) can be challenging.
  • Yahoo Fantasy Football: Great for checking stats, but hard to manage your team via the cramped interface and small remote control buttons.

I asked Tom Hespos of Underscore Marketing, who has tackled this topic before, what he thought, and he captured what I was thinking in a few sentences: “It seems pretty evident what’s going to succeed on app-enabled TV sets. Anything that’s ‘lean back’ in nature will likely do well. Things that require engagement or are subject to an embarrassment factor if projected for the whole family to see will not.”

For advertisers, Smart TV will prove challenging. Not only are subscription services like Amazon Instant Video and Netflix ad-free, but the amount of time-shifted and VOD viewing makes available eyeballs a scarce commodity. Look for CPMs for real “appointment viewing” shows such as NFL football and popular hits like Breaking Bad to rise dramatically. In my experience, I did not see any pre- or post-roll ads on YouTube, but they are coming. Recently-public companies like YuMe and Tremor are depending on an aggressive roll-out of interactive video, and their business models are 100% advertising-supported.  CPMs there will be high, considering the relatively low inventory volumes available.

So, if “lean-back” video applications make it more expensive to reach scarcer eyeballs on connected TVs, than what about the interactive social apps? Is there room for more display banner ads on Smart TV? I think the answer is probably yes—but only for so-called “native” advertising, like Twitter’s sponsored posts. Users will be more likely to “lean back” and access their social newsfeeds on connected TV, but will be less likely to post new content from their remote control. That means the tablet will still be in hand during viewing times. It’s early days, but look for more apps that exploit the trend in “double vision” viewing (as reported by Nielsen):

88 percent of tablet owners and 86 percent of smartphone owners said they used their device while watching TV at least once during a 30-day period. For 45 percent of tablet-tapping Americans, using their device while watching TV was a daily event, with 26 percent noting simultaneous TV and tablet use several times a day. U.S. smartphone owners showed similar dual usage of TV with their phones, with 41 percent saying their use their phone at least once a day while tuned in.

Those are big numbers, and it’s hard to see how they will diminish, even as more options are added to television. So, the big question remains: Where should advertisers stick their ads? If you believe that consumers will continue to “lean back” and enjoy Smart TV content just as they watch TV (but with a lot less ads), then the obvious choice for aligning brands with TV content is social media on the tablet. Twitter wins big here. If you believe that networks like YuMe and Tremor can leverage Smart TVs to make access to great HD content in your living room free, then put your money down on those stocks, and hope they find the right advertising model that makes “paying for” content with ad viewing worth it.

Either way, the maturity of connected, smart, app-enabled televisions means less ad inventory for advertisers—and the need for better channels to access fewer, but more addressable, eyeballs.

[This post originally appeared in on 9/11/13].