Can Vizio make a splash licensing its TVOS? Analysts weigh in

Smart TV maker Vizio plans to jump into the TVOS game, announcing during Q3 earnings that it’s exploring OEM partnerships to license its SmartCast OS.

StreamTV Insider (STV) took a pulse of leading industry analysts on the news, and there are a few things they all agree on. One, this is a good or necessary move by Vizio that can expand its footprint and help drive advertising revenue. Still, analysts acknowledged Vizio is entering the TVOS space at a time of heavy competition - one where they think it will need to offer something unique to stand out to prospective licensees.

In the OS space Vizio is competing against Google, Amazon, Roku, and more recently TiVo and Xumo. Rival TV maker Samsung also licenses its Tizen OS as does LG with webOS.

TVREV analyst Alan Wolk categorized it as a very smart move for Vizio, telling STV “it is proof that they have developed an excellent interface” and one that other TV OEMs would be interested in buying. He said it also enables Vizio to expand its footprint, “both in the US and, quite likely, outside the US.” 

Colin Dixon, chief analyst of nScreenMedia, said it’s “absolutely” a smart move by Vizio, and one he’s been urging for at least a year. However, the analyst warned it might be too late.

Brett Sappington, founder of consulting firm Sappington Media, sees licensing TVOS as “a necessary move for Vizio.” He cited market strategies of other previously mentioned major players and newer entrant Xumo, which Sappington noted all extend across multiple avenues of hardware, software licensing, and services and advertising, and “speak to the reality of the smart TV OS marketplace.”

Expanding device footprint to drive advertising revenue

Growing its advertising business is one aim Vizio execs cited for licensing its OS and where analysts see opportunity as the TV footprint expands.

Even as Vizio’s TV shipments continue to dip, the company’s advertising business has been on an upward trajectory, marking 27% growth in Q3. That includes advertising from home screen opportunities and sponsorships on SmartCast, as well as advertising on the built-in free ad-supported streaming TV (FAST) service WatchFree+.

Circana VP and industry advisor John Buffone told STV it’s not surprising Vizio is taking the step to license its OS, as TV OEMs are recognizing strong growth in services and ad revenue, propelling them to keep focus on expanding their addressable audience.  

“Simply put, a larger household base drives growth in advertising revenues,” Buffone continued.

Similarly, Dixon said the decision to open its TVOS to other OEMs is “all about scaling the ad business.” Vizio’s growth is currently limited because it’s connected to sales of its branded TVs, the analyst noted, whereas competitor Roku, with a leading licensed OS, “grows with the broader smart TV market.”

During Q3 earnings, CFO Adam Townsend said Vizio captures around 11-12% share of the 40 million annual units in the U.S. TV market, meaning there’s a large segment to break into outside of its own market share.

Sapping also cited the potential for greater scale – bringing it back to advertising benefits.

“Scale is the name of the game for advertising. More viewers translate into more advertisers and greater revenues,” Sappington told STV. Another factor to consider is that “selling TVs and boxes is a competitive, thin-margin, single transaction business.” It’s the reason why most OEMs have turned to services and advertising as a path to sustainable, recurring revenue – derived through advertising, revenue share for subscriptions sold through the TV interface and access to related user data, he said.

Buffone, meanwhile, categorized opportunities of licensing TVOS as symbiotic: “Increased viewer engagement on a platform such as WatchFree+ drives increased sponsorship and advertising opportunities.”

And TV OEMs’ FAST services have shown strength in attracting engagement. That was seen with Vizio competitor Samsung TV Plus, which just disclosed viewership on the FAST grew 60% year over year.

Vizio’s own Townsend also said TVOS licensing would drive advertising. “The more we can expand our platform into the market, the more we can scale our advertising business, the more viewership we can take advantage of,” said Townsend in November.

In Wolk’s view, growing the ad business “is definitely key” but not the only benefit to license, as he pegged Vizio’s purpose-built smart TV OS as another factor and differentiator.

“So is establishing themselves as a key player in the ‘OS Wars’ with an OS that was actually built to be the OS for a television set rather than a dongle,” Wolk said.

Is it too late?

When it comes to the streaming market, major players already have a presence with dongles and licensed smart TVOS, as well as more recent forays into branded smart TVs. Vizio is looking to stray from its long-held strategy and decouple TV software from hardware, but in a crowded space, is the move too late?

To Buffone, competition is one of the biggest hurdles for Vizio.

“The greatest challenge that newer entrants to the TVO-OS licensing space face is the magnitude of competition and viewer’s loyalty to their current TV user experience,” he said. With more than a handful of players already vying for share, it’s “a hyper competitive landscape,” Buffone noted.

Dixon said Vizio is “way late” to the game and will “need to do something special” to succeed. Still, the analyst noted the SmartCast OS and WatchFree+ FAST service are good solutions, “market-tested, and proven to perform well,” which he thinks will help. More in his blog here.

Wolk, meanwhile, doesn’t think it’s too late and that there are OEMs looking for alternatives.

“The market is still very much in flux, especially outside the US and there are many companies that don’t want to deal with big players like Google and Amazon, who would rather have something different that sets them apart,” Wolk commented.

While acknowledging it does seem late in the game for Vizio, Sappington said he finds it interesting the TV OEM is entering shortly after Xumo joined the market.  Earlier this fall Xumo, a Comcast and Charter JV, debuted the Xumo Stream Box and also sells Xumo-branded smart TVs .

“Both companies see opportunity to be had, but they will have to play catch up with multiple competitors,” Sappington said, adding he suspects Vizio already put out feelers and potentially discussions before announcing the move.

Consumer behavior challenges

Buffone sees another challenge in that Vizio’s not only competing against other players, but established viewer habits that keep consumers within a specific OS.

Circana’s Device Ownership Trends & Profile Report finds 47% of installed internet-capable TVs run a streaming media player (or dongle) attached.

“That is to say, nearly half of viewers are opting to essentially install an alternate OS, one that they are familiar with,” he explained.  

Per Circana, the average Roku household has 1.9 Roku dongles or TVs.

“The average household has 2.6 TVs which suggests Roku has penetrated nearly three-quarters of TV in households that use their OS – this shows the head start that newer market entrants are working to overcome,” Buffone said. 

International opportunity

Vizio’s currently present in the U.S., but international markets is where Wolk sees “a real opportunity” for its TVOS ambitions.

Vizio would be a new entrant overseas, but the analyst said if “they can build buzz around their ‘American’ interface,” and the fact that it’s purpose-designed for smart TVs, “then that will give them a real advantage.”

“The key will be to understand what is important in each market and provide it,” Wolk commented.   

Dixon also believes looking outside the U.S. is probably a good idea for Vizio, but noted the international market is crowded too. He cited TiVo as an example, which just started shipping TVs in the Czech Republic with OEM partner Vestel. More European and U.S. launches are anticipated, and during Q3 earnings TiVo-parent Xperi disclosed winning a fourth, unnamed, TVOS OEM customer. Comcast also has a smart TV presence in Europe through its Sky brand.

Offering better OEM deals to differentiate

To woo over OEMs in a competitive market, analysts in general seem to agree Vizio will need to offer better terms or models.

“New entrants to this market will likely need to differentiate by delivering cost benefits to OEMs that already license a competing operating system,” Buffone said.

Dixon also thinks Vizio can stand out by offering OEMs a better deal.

“In other words, split the revenue earned by SmartCast and WatchFree+ with them,” he said. “That means earning less than their competitors per TV activation. However, that is better than the alternative.”

Sappington too said a “heavily competitive market is certainly a challenge” for Vizio. And while TV features are important, to capture meaningful share and give OEMs a reason to pick its OS over others, the analyst thinks Vizio may need to do something unique, such as offer more favorable terms in revenue or data sharing.

“To be able to make a material splash, Vizio will need to do more than simply be one option among many,” Sappington said.