Telly plans to give away high-performance TVs to US viewers and make money from advertising, data, and partner sales. It avoids becoming mired in the TV OS wars by using a smart second screen. But recouping the TV cost and turning a profit will be tough.
Telly’s free TV is not cheap
Last week, Telly came out of stealth mode with a radical new approach to the connected TV business. The company plans to give a free TV to its customers. And according to Dallas Lawrence, Chief Strategy Officer of Telly, the TV is not a cheap device. The 55” set includes 4K HDR, an integrated soundbar with a voice assistant, and a smart secondary screen. It also comes with an ATSC 1.0 tuner for over-the-air TV (NextGen TV is on the roadmap) and a free streaming Android TV dongle with all a viewer’s favorite services. Mr. Lawrence says the TV is not a run-of-the-mill device:
“This is the most powerful television ever built. If we sold it on the market today, it would be over $1,000 — it has more power, more technology, more memory, more processing capability than any TV ever delivered.”
The offer has struck a chord with the public. The company says over 100,000 people signed up to receive one of the TVs within 36 hours of the launch.
The smart second screen
The lynchpin of Telly’s business model is the smart second screen. The company plans to show advertising, allow partners to run apps for betting, shopping, and more, and include informational services like weather, news, and sports scores. The smart screen sounds more akin to an Amazon Echo Show or Google Nest Hub than a TV. However, users don’t need to worry about the smart screen disrupting their most intense viewing experiences. At those times, the screen dims to not distract from the action.
And if users think they can somehow defeat the second screen, they will need to think again. Essential TV functionality, like volume and channel change information, will be seen on the smart screen. Mr. Lawrence also says interfering with its operation could break other essential TV functionality.
How can Telly afford to give away a $1000 TV?
TV manufacturers first sell a TV to customers and then continue to monetize them by showing them ads and, with their permission, collecting and selling their viewing data. So how can Telly afford to give the TV away and continue to make money? Mr. Lawrence says Telly is upfront with consumers about what they trade for the free TV, meaning all users agree to have their data gathered. This data gives extra power to the three ways the company will make money:
- Ads
- Viewer data
- Partner revenue
As part of the Telly agreement, users must provide detailed demographic information, including age, gender, and income. They must also share purchasing and viewing information and agree to be served targeted ads. Ads will appear on the smart screen, on the home screen of the TV, and in other places in the user interface. The company will also earn money from the partners that leverage the smart screen.
However, perhaps the most important component of the Telly business model is that the smart screen opens up ad opportunities not available to traditional smart TV sellers. According to Mr. Lawrence, Telly can compete in the broader digital advertising market rather than the smaller connected TV component. eMarketer says the US digital advertising market was worth almost $250 billion in 2022, with CTV accounting for just 8.5%.
Getting to profitability will be tough
The company will need to tap into the much bigger digital ad market if it is to make money. In Q1 2023, Vizio earned $231 million from sales of 0.9 million TVs, which the company sold effectively at cost. Its Platform+ business – which includes ad and data sales – earned $125 million from its 17.5 million active SmartCast users at a healthy 60% gross profit margin. This data shows that Vizio would be deeply unprofitable were it to give away its televisions.
Telly plans to deliver 500,000 free TVs starting June 2nd. Assuming a build cost for the TV, soundbar, and smart screen of $800, the company will incur costs of $400 million. Vizio active users generate $29.20 in ad revenue per year. At that rate, paying for each Telly TV would take at least 27 years. If it wants to cover the TV cost within 24 months, it must achieve an ARPU of $42 a month, 17 times more than Vizio’s ARPU.
That said, Mr. Lawrence is confident that the plentiful memory and performant processor will allow the TVs to remain active in a user’s home for seven years of the average TV’s life.
The genius of the smart second screen
Telly’s second screen allows the company to earn revenue outside the connected TV ecosystem. TV OS providers like Roku and Amazon expect Internet TV providers to share their ad and subscription revenue with them. But Telly’s revenue comes from the smart screen and TV home screen, both of which it owns. That is why the proprietary Android variant used to run the TV and smart screen does not need an app store and why customers are expected to use a streaming stick to watch internet TV.
The smart screen allows Telly to enfold the connected TV experience without disrupting it. It allows the company to build a business unlike any other participant in the market. Whether the business is profitable or not has yet to be seen.
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