TV manufacturers are increasing the ads in their smart TV experiences. The screen is becoming a billboard where the ads are difficult to spot and sometimes impossible to avoid.
It used to be that when you turned on the TV, the only ads you saw were confined to breaks on the TV channel you were watching. You also had a degree of control over the ads you saw. You could change the channel, skip over them if you watched on a DVR, or at least mute the sound. Those days are over. Ads are invading every aspect of the TV experience, making that big TV on your wall into a billboard over which you have limited or no control at all. And big TV manufacturers are leaning in to the opportunity by cranking up the ads. But before we dig into what they are doing…]
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Now, back to the podcast.
Ads are a boon to TV manufacturers (2:50)
Smart TV manufacturers have been dealing with low profit margins, particularly on cheaper sets, for a decade or more. The high-margin advertising revenue they have been earning through smart TV interfaces has been a shot in the arm for their businesses. The manufacturers earn advertising revenue in three main ways:
- Ads placed in the smart TV interface
- Ads run on channels in built-in FAST services (Vizio WatchFree+, LG Channels, etc.)
- A share of ad revenue from AVOD and FAST services running on the TV OS.
Make no mistake; the advertising opportunity has become critical for smart TV makers. For example, Vizio earned $1.86 billion in 2022, with three-quarters of its revenue from selling televisions. However, the company made $312 million in gross profit, with 95% coming from its ad revenue-driven Platform+ business.
It is the same story over at Roku, where in Q2 2023, the Platform business – mainly driven by ad sales – delivered seven-times as much revenue as the devices and business and all of the profit.
Vizio boosting ads in the SmartCast interface (6:00)
Most of the profit comes from advertising for Vizio (and other providers like Roku.) And the company is looking to boost the opportunities to advertise in its SmartCast TV OS. According to Michael O’Donnell, Vizio’s Chief Revenue and Strategic Growth Officer, there was a 53% increase in time spent with the SmartCast home screen between Q4 2022 and Q1 2023 as users spent more time hunting for something to watch. The company delivered an update to its Home Screen in Q2 2023, and Mr. O’Donnell saw the update as an opportunity to help users and boost revenue:
“And we think it’s incumbent on us to leverage our UI to make that easier and more engaging for them. So as consumers spend more time, we’re also rolling out a lot of new advertising opportunities.”
Since many of the ads Vizio runs are for media and entertainment clients, users might not be aware they are being sold to. For 
example, I have two vMVPD services activated on my Vizio TV with FS1, yet banner ads promote Fubo TV as the place to watch the Women’s World Cup.
To date, device makers have mostly stuck to using their interface ads to promote content that is available on their platform. But that may be changing. Over the last Memorial Day weekend at the end of May, Vizio ran a hero bar sponsorship banner for Ashley Furniture. The company sponsored free viewing of top titles like Mario Bros., Valor, and Next Level Chef. The company was pleased with how well the “sponsored by” banner did for it. Although the home screen ads only generated 14% of impressions, they were responsible for 57% of in-store visits.
Other smart TV manufacturers are also cranking up the ads.
LG is increasing ads on its smart TVs (11:00)
LG CEO William Cho says the TV division will spearhead the company’s effort toward becoming a smart life solutions company. As part of the shift, the company is taking the opportunity to pump up the ads on its smart TVs from each of the three business models it uses:
- There will be more ads in the experience delivered by LGs smart TV OS webOS.
- It will boost the number of channels (and possibly the ad load) in its built-in FAST service LG Channels.
- There will be more ad-supported services available through webOS.
The folks at WhatHifi are far from happy with the increase in ads:
“Considering the higher level of ads on screen was a pet peeve of ours expressed in our LG OLED G3 and OLED C3 reviews, we’re not entirely on board with this new direction.”
Telly’s second screen is a billboard (13:00)
At least with an LG TV, if you are unhappy with the ad load and experience, you can switch to a Roku or Apple TV. You can’t even do that if you are using Telly’s free TV! According to NextTV, the provider has a long list of conditions to use the TV, including:
- “You will use the product as the primary television in your household.”
- “You will keep the product connected to Wi-Fi and the internet.”
- “You will not make physical modifications to the product or attach peripheral devices to the product not expressly approved by Telly. Any attempt to open the product’s enclosure will be deemed an unauthorized modification.”
Hiding from the ads Telly servers is virtually impossible because the viewer has no control over what is displayed on the second screen below the main screen. In other words, the second screen is a billboard in your TV room that you can’t avoid seeing. But I guess that is the point. If you want a free TV, you must watch the ads.
Even more ads are coming to smart TVs (15:40)
Ads are creeping into every aspect of the TV experience, whether the TV is paid for or not.
And given the drive to boost revenue and profitability, manufacturers will likely push them as far as they can. In other words, the TV will become more like a billboard until viewers start to push back.
