Vizio explores licensing OS to other smart TV OEMs

Vizio is looking to expand in the TVOS space, disclosing plans Thursday to explore partnerships with third-party TV OEMs to license its smart TV software.

“Over the past few years, we have been continuously retooling and enhancing our operating system to unlock further growth opportunities,” said William Wang, CEO of Vizio, in a statement coinciding with the release of third quarter earnings. That work not only drove platform revenue gains and record ARPU for the smart TV maker in Q3 but has opened up new strategic options, he added.

“Today, we are excited to announce that we are beginning to explore partnerships with other TV OEMs looking for alternatives within the CTV market,” Wang continued. “Our deep expertise with integrated hardware and software provides a distinct potential for mutually beneficial outcomes for VIZIO and future partners.”

On the earnings call Thursday, Wang said it would be seeking partnerships with TV OEMs that want alternative operating systems in the U.S. market, while noting it’s in early discussions and would take time to work through partnerships.

Still, Vizio is “very optimistic of the potential this can bring to leverage the investments we have already made to expand our platform penetration and further scale our advertising business,” Wang commented.

Investment analysts on the call noted that Vizio has long touted the beneficial pairing of both its hardware and operating system, where licensing would represent a shift in that strategy.

Wang said he continues “to be a firm believer in the integrated experience” where Vizio’s software is especially designed directly with the hardware to make the device work better and give the best-possible user experience.

It’s targeting TV OEMs that want a deeper partnership, with one “that has resources and the know-how” and who can “help them build better products,” he added. Wang said Vizio believes it can create mutually beneficial partnerships that it doesn’t think currently exist in the market.

Vizio would be competing in the TVOS space with the likes of Google, Roku, and more recently Xumo, but CFO Adam Townsend said based on feedback it’s heard in early conversations, "there’s a real demand for something different in the market.”

He also views OS licensing as an opportunity to expand Vizio’s total addressable market (TAM). Vizio captures around 11-12% market share of the 40 million annual units in the U.S. TV market, so there’s a large market outside of its own product share where Vizio can break into, according to Townsend.

“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,” he explained. And as that happens, it makes Vizio a more important partner for advertiser and content partners, Townsend said, citing “across the board benefits.”

The move to expand its operating system beyond the Vizio hardware environment follows several quarters of revenue growth for Vizio’s Platform+ business despite continued declines in device revenue and smart TV shipments.

That trend continued in Q3, where Vizio reported 22% year over year growth for Platform+ revenue, which reached $156 million in the period on the back of advertising gains. Wang said advertising revenue grew 27% in Q3. Device revenue, meanwhile, dropped 12% year over year to $270 million. Total revenue was down 2% to $426 million but net income rose year over year to $13.8 million. Adjusted EBITDA of $27 million was up 61%.  

Platform+ net revenue, gross profit and Adjusted EBITDA in Q3 all exceeded Vizio’s guidance for the quarter.

Vizio’s platform business includes revenue from its WatchFree+ free ad-supported streaming TV (FAST) service, sponsorships and other advertising, including on the homescreen, and distribution. Non advertising revenue within Platform+ grew 8% to $33 million.

It’s FAST service and different types of advertising partnerships including retail media, sponsored content efforts, home screen placements and other avenues helped bolster Vizio’s growing ad business. In Q3 Vizio reported expanding direct ad relationships by 20% versus a year prior, adding 66 net new advertisers in the period with returning advertisers increasing spend by 29% compared to the prior year period.

Engagement was also up as SmartCast active accounts and hours streamed both grew in the period, despite smart TV shipments declining 8% to 1.1 million.

Vizio grew SmartCast active accounts by 1.3 million compared to the year prior to reach 17.9 million, while hours streamed increased 21% to 5.15 billion. Average SmartCast hours streamed per active account grew to 97 per month, up 12% year over year.

Townsend pointed to increased viewing through Vizio’s SmartCast platform, which the company has the ability to monetize.

“Our users are spending more time streaming through our SmartCast operating system than watching content on cable TV, broadcast, game consoles and attached media players combined,” he said.

The platform’s average revenue per user (ARPU) grew 14% year over year to $31.55.

WatchFree+, meanwhile, just disclosed content on the platform doubled over the past year, including new channels added in the period such as Golf Nation, Celebrating Hispanic Heritage, Cheaters and getTV. WatchFree+ now counts 290 linear FAST channels. The smart TV platform also launched nine new apps, including ESPN, Pet Collective, Black Voices+, and Local BTV, bringing its total number of native apps to nearly 200.