• by Mitch Oscar , Op-Ed Contributor, June 13, 2013

Editor's Note: Due to a systems error at MediaPost, the original email edition of this TV Board column inadvertently provided outdated biographical information for Mitch Oscar. We apologize for this error.

Smart TV or “connected TV” is a phrase used to describe the current trend of integration of Internet connectivity (Ethernet and WiFi) into high-definition television sets and devices, as well as the technological convergence between computers and HDTV’s into one unit, such as Google TV or the mythical “AppleTV HDTV set.” The terms are used interchangeably. The Smart TV offers consumers a wide variety of free, original broadband video content (YouTube/YouTube Channels, Break Media, and Vevo), and on demand, professionally scripted, streaming content from subscription services (Netflix, Apple TV, Amazon Instant Prime, and Hulu). At present, the Smart TVs carry little, if any, live broadcast or cable networks as part of their integrated offering. Consumers must subscribe to pay TV services, such as those provided by cable operators, satellite platforms and telephone companies, in order to access 24/7 live broadcast and cable network programming.

The appellation “smart” is a reference to the primitive nature of analog TV and early HD sets, which had only one function – receiving transmitted TV programming signals – and therefore, by comparison, were “dumb,” given their limited functionality. Hence, the origination of the “smart” label. Smart TV technology, utilized in a manner similar to the integration of web widgets and apps into modern smartphones and tablets, is now incorporated into a multitude of consumer electronic devices, such as TV sets, over the top set top boxes (Roku, Boxee), Blu-ray players (Sony, Samsung), game consoles (xBox, PlayStation), and mobile devices (smartphones, tablets).

These devices offer a wide selection of features that allow viewers to search and find a variety of videos, movies, music, games and other content pushed from the web (represented through apps), from cable and broadcast networks and/or from content stored on a hard drive. They also provide the means for social connectivity and photo sharing. Notable Smart TV or connected TV platforms include products from manufacturers Samsung, Sony, Panasonic, LG, Vizio, Toshiba and Sharp as well as operating software from Google, Microsoft and Yahoo. Each manufacturer offers its own app marketplace, which serves as a bazaar for consumers to browse and engage with the ever growing population of software applications. In terms of Internet connectivity, the majority of Smart TVs and connected devices can only receive streaming programming through apps hosted in the manufacturer’s app marketplace and on its home screen. However, the latest iteration of Smart TVs and connected devices have or are incorporating Web browsing and Web interactivity capabilities.

Smart TV Penetration

At this juncture, it is difficult to ascertain how many Smart TVs have been sold in the U.S. Usually figures are based upon shipments from manufacturers to retailers and not sales-specific.

A recent report issued by One Touch Intelligence and the Council for Research Excellence indicated that new TV-associated devices were at the following U.S. household penetration levels:

 

 

However, penetration is only half the story. The other half is how you use it. As previously mentioned, in order to fully exploit its potential and utilize its smartness, the Smart TV must have access to internet connectivity in the household. Research indicates that less than 50% of the Smart TVs are connected to the internet. Typically, excluding the early adopters cult, the Smart TV sets were purchased for their high definition picture quality and not for smartness – an additive perhaps as a retail sales pitch but not appreciated or utilized by the consumer. Research entity eMarketer has reported that Smart TV penetration of U.S. households was 26.8 million, and roughly half of those are not utilized for their smartness due to lack of Internet connectivity.

Implications for Consumers & Marketers

In the future, all TV sets will be “smart” – though they will vary by degrees of smarts.

Future iterations could incorporate:

--    3D viewability without the requirement of external eyeware,

--    The latest and greatest high resolution touted at the Consumer Electronics Show (CES) in January every year, such as Ultra HD or 4K+, and

--   Connectivity directly to the web supporting a two way interaction (browsing and streaming) and not limited to present day one way streaming traffic.

Consumers will experience and/or be aware of higher end Smart TVs that offer varying degrees of interactive communications with the TV, such as:

--    facial recognition,

--    motility sensitivity,

--   physical connectivity (like hand swiping across the face of the screen),

--    voice activation and

--    wearable paraphernalia.

TV remote controls that offer up/down/right/left arrow controls and/or a plethora of minuscule buttons to change channels or access subscription video on demand will be replaced by aerodynamic keyboards, which will facilitate direct web utilization. Sophisticated audio systems will emulate state of the art surround sound. And although many viewers today have experienced video chat – some via their TVs through the likes of Skype, the experience will be more robust with additives like augmented reality, multi-location conference calling, and combinations of multi-functions, such as chatting, watching videos, browsing the internet, social communications and ordering merchandise through the Smart TV manufacturer’s portal.

As an example of near future Smart TV model functionality, the description below is an illustration of the next iteration of a futuristic Panasonic Smart TV:

Panasonic has smartened up its latest iteration of Smart TVs by adding voice and face recognition, a new Home feature that allows each user in a home to personalize his home screen, the Swipe & Share 2.0 feature than turns the TV into a hub for streaming and sharing photo and video content seamlessly with other electronic devices, and a promise to add more apps from content companies.

The promise of a televisual cornucopia.

What this mean directionally for advertisers:

      Penetration & Growth

Traditionally consumers replace their TV sets every five-plus years – excluding, of course, bleeding-edge early adopters. They have been trained over time to know that the price will decrease dramatically and functionality will increase relatively quickly in future iterations.

Presently, there are 75 million U.S. households that own one or more high definition TV sets and roughly one–third of those are high definition Smart TVs. As previously mentioned, half of those Smart TV sets are not utilized for their smartness. Therefore, although the future eventually will be beholden to Smart TVs for connectivity to content, information, commerce and communications, it will take quite a few years for people to be willing to fork over incremental, recreational allocated dollars to replace and upgrade their perfectly fine 50-inch high definition TV sets in their living rooms, bedrooms and basements.

Also, Ethernet/Wi-Fi penetration needs to be more ubiquitous in order to access smartness. So far, for whatever reason, consumers are not motivated to do so, whether it is a cost issue in a tough economy or simply an educational impediment touting the wonders of smartness.

      Content

As mentioned earlier, the majority of Smart TV manufacturers includeembedded app platforms on their “home screen” that represent similar, if not the same, major streaming services, such as Netflix, Amazon Prime, Hulu, and Apple TV. Content differentiation occurs in the unique app marketplace/store offerings of each manufacturer. Presently, the majority of their offerings consist of independently produced channels and games that most consumers would not consider top quality, and therefore not compelling enough to provide an advantage in the Smart TV selection process. The primary decisions are based upon size and price, and not how one uses it.

In order to address their content limitations, each manufacturer is in the throes of signing licensing deals with established media companies and personalities to gain a meaningful edge against rivals. Eventually, these deals will include broadcast networks, cable networks and locally produced television content. In fact, rumors are circulating that some manufacturers and Intel are trying to create their own pay TV platform to compete with multichannel video program distributors (cable, satellite, telcos), over-the-top devices (OTT) and gaming consoles. For them to succeed, access to live TV programs across all of the major news, sports and entertainment channels are a prerequisite.

Also, the deployment of t-commerce capabilities, in the guise of electronic wallets, will be experienced as game show or reality based content. For example, what better way for some than fishing for products and satiating impulsive, spontaneous consumption that would fit well within the sports genre. And who better than Smart TV manufacturers, the gate keepers, to own the pipes and get a piece of the transaction that allows consumers instant purchasing gratification.  

      Measurement

Prior to the introduction of Smart TVs, streaming video service subscribers had to connect their devices (PCs, gaming consoles, over-the-top set top boxes) via HMDI cables to their high definition TV monitors to view programs on a large screen. Smart TVs have converged the two, allowing viewers easy access to their subscription video services. We understand that currently Smart TV manufacturers have not been able to figure out – and if they have, not publicly admitted – how to measure and report linear viewing (live and time-shifted). It would be a boon to the media community if this information was readily available for scrutiny. After all, the ad-ssupported TV market is a $65+ billion business that most in the media food chain believe needs protecting.

Some of the questions that the advertising community is hoping to answer from analysis of Smart TV viewership are:

¨    Does the availability of streaming video services and apps affect linear TV viewing?

¨    Do many more choices of quality scripted programming (TV and theatrical) on demand diminish ad supported local and network TV viewing?

To date, we have found that the average person consumes more TV programming (5+ hours of live and DVR’d) than ever before. So based upon Nielsen and Rentrak supplied data, the answer is no. Viewing is up. But for how long? What is the effect, if any?

However, once this viewership data does become available – the sooner, the better – the challenge will be how a marketer evaluates the viewer’s experience: interactive attribution and engagement as well as establishing metrics that can become standardized for the industry so that the rewards from enhanced viewer engagement on these platforms can easily flow into media plans.

With the launch of new non-traditional interactive platforms, development of new advertising propositions as well as the measurement challenges and opportunities gleaned from consumer interaction with these platforms, the media community needs to accept that change will be constant, and therefore we must maintain our curiosity, understand as best we can the value proposition for consumers and marketers alike, and try as best we can to anticipate the consequences, both positive and negative, of these platforms. 

As previously mentioned, there are some limitations to the immediate growth and exploitation of the Smart TV ad platform:

--   Smart TV household penetration and utility will take time.

--   Advertisers will be slow to spend meaningful budgets until greater scale is reached.

--   Rival manufacturers need to differentiate their products through content that is enticing, unique and t-commerciable.

With that said, the advertising opportunities presented at its incipient stage are promising:

--    The Smart TV interactive advertising propositions are compelling and similar in structure to others across commonly utilized digital platforms, and therefore will add to the wealth of accumulated experiential media knowledge that leads to successful marketing executions.

--    As marketers continue to engage within the realm of digital interactivity and addressability, they will be able to amortize their creative costs amongst many user experienced advertising formats and cull valuable knowledge of consumer engagement through tracking product acquisition and behavioral data.

--    The Smart TV advertising value proposition, though evolving, transpires on a large screen that garners over 5 hours of in-home viewing a day. Although the media community is grappling with the question of what the first screen is in a consumer’s existence, the large monitor does take video consumption precedence over all other screens so one should theoretically fish where the fish are and the Smart TV is currently the largest pond in the home entertainment realm.

--   Although Internet-connected Smart TV penetration is presently at only 13+ million households, the advertising propositions present an opportunity to test and learn concepts at a far lower cost of entry and price of error than when scale is achieved and the cost of participation is substantially higher as is the cost of testing and learning.

--   As previously mentioned, the advertising community is in the throes of investigating how viewership of on demand programming (streaming video, apps, video on demand channels) will impact the linear TV universe and its ad models. Scrutinizing the dialogue between viewer interaction and content selection on the large home entertainment screen can only enhance its communal comprehension. The Smart TV platform will help facilitate the formulation of this critical knowledge.