The Black Friday shopping spectacle has always been a key bargain destination for smart TVs and other CTV devices. But this year, across a holiday weekend that also included “Cyber Monday,” prices dipped to levels — below $100 for 43-inch LED TV sets, for instance — where it’s hard to understand how the manufacturer is making a profit.
Turns out, they’re not.
“The business model is shifting away from making money on TV sets and instead to making money on ads and data that is delivered by those sets, said Omdia analyst Paul Gray, speaking last week in London at the HbbTV Symposium. (Hat tip to Broadband TV News, which was on hand at the event.)
“People are happy to sell TVs below cost,” added Gray, who specifically noted that Roku and Vizio are selling TVs at -3% - -7% margins.
Roku, which has been licensing its operating platform to smart TV original equipment manufacturers (OEMs) for the past decade and now makes its own sets, as well, saw a 23% yoy lift in quarterly net device revenue that totaled $154 million in the third quarter. However, it lost $53.5 million in gross profit (loss) on selling TVs and other CTV gadgets for the 12-month period ending Sept. 30. But its user base expanded by 13% to 85.5 million households over that same span.
While Roku posted a negative gross margin of -7.6% on hardware in the third quarter, its gross margin on “platform” — which includes CTV advertising — expanded six percentage points yoy to 54.2% in the third quarter. (You can see Roku’s Q3 financials here.)
Vizio, which is now officially owned by Walmart upon Tuesday’s closure of the acquisition, has seen a similar narrative develop, with platform net revenue up 26% to $197 million in the third quarter, and platform gross profit increasing 16% to $115.8 million. While device still represent the largest contributor of net revenue, Vizio’s gross loss on devices, mainly smart TVs, more than doubled YoY in Q3 to $6.7 million. As Walmart noted in its acquisition announcement, all Vizio’s gross profit is now derived from its Platform+ business, which primarily consists of advertising. (Vizio’s Q3 earnings release can be seen here.)
“If you have control of the operating system, you control more of the [customer] relationship,” said Justin Fromm, head of insights and thought leadership for Samsung Ads, speaking at the TV of Tomorrow event in New York last month.
Downward price pressure on smart TVs is being further exerted by relatively new entries in the “TVOS” market. Xumo, the joint platform venture being hoisted by cable companies Comcast and Charter Communications, is now making a serious holiday-shopping-season push, with bargain-priced TVs made by Pioneer, Element and Hisense, and powered by the “Comcast Entertainment OS,” prominently displayed at Best Buy, BJs, Meijer, Target and Walmart.
Xperi, which launched its TiVo-branded TVOS in Europe last year, is currently debuting its platform in the U.S. alongside various smart TV OEM partners. And ad tech company The Trade Desk just announced that it too will soon be working with smart TV OEM partners on a new TVOS product it plans to debut in 2025.
Then there’s Telly, the startup that launched last year that offers select users free smart TVs on the condition that they commit to consuming a certain amount of CTV advertising.
“If you are in the business of selling TVs today, your margins have been eviscerated,” said Telly chief strategy officer Dallas Lawrence to AdExchanger. “You don’t make any money on selling televisions, so you have to have a new revenue stream.”