i3 | October 16, 2017

The Wisdom of Smart TVs

Gary Arlen

This year marks a crossover for the “connected TV” business.

This year marks a crossover for the “connected TV” business. It’s the first time that “smart TV” sets with built-in internet access capabilities will outsell set-top boxes that allow viewers to watch web-delivered programs on their existing flat-panel screens. It also means that smart TV sets are a step closer to becoming the control hub for smart home services including security, energy, appliance management and even nursery monitoring.

Moreover, as TV displays become more functional — including features such as 4K Ultra High Definition and High Dynamic Range — the value of operating systems and internet access are even more integral in the next wave of television sets, according to CTA.

“Smart TV adoption has been increasing at a 13 percent CAGR [compound annual growth rate] during the past six years,” explains Glenn Hower, senior analyst at research firm Parks Associates. “Connectivity has become an important factor at purchase.” He says that 54 percent of U.S. flat-panel TV customers from broadband households ranked internet access as one of the top three purchase considerations during the first part of this year, with 18 percent putting connectivity as the number one feature.

Meanwhile, Steve Koenig, CTA’s senior director of market research, sees the boom in smart TV adoption in the context of the devices’ role as smart home hubs. “We are now at the inflection point in the growth of smart homes and the home ecosystems, which has flourished in the past few years,” Koenig says. He believes that the TV is a natural “command center” since smart TVs enable viewers to consolidate activities on a single screen. He points to the 267 percent growth of internet-enabled TV devices during the past four years as a prelude to the next wave of adoption, noting homes with smart TV sets average about 1.7 sets now.

“Consumers abhor complexity, but they embrace options,” Koenig adds. “More consumers are anchoring to smart TV platforms because they have all the major video streaming services” plus they provide access to personal internet-related features.

TV manufacturers have identified similar values and have been adapting their smart TV capabilities to meet consumer preferences. “People are interested in having the most entertainment options available on their TV, on demand,” says Evan Young, senior director, Smart TV Platform at Samsung Electronics America. “Services and channels like music (which originated on phones), or cable networks (which have on-demand apps on smart TVs) that make their offerings available on smart TV platforms do well because consumers want to access them on their TV sets.”

At Vizio, Lily Knowles, senior vice president of marketing, found that early adopters of smart TVs liked the ability to integrate a variety of features. She rattles off the “key features important for a seamless experience” that attracted early adopters of smart TV technology.

“Having Wi-Fi built into the TV instead of relying on Ethernet, having a simple onscreen setup guide and a user interface integrated with the TV watching experience with minimal or no disruption to linear programming” are the top features, Knowles says. She also cites the value of “a remote control with a built-in keyboard to reduce the burden of typing in search keywords for content and logging into various subscription services.”

Matt Durgin, director of North American Smart TV Content Partnerships at LG Electronics, also points to lessons learned about what smart TV viewers want, citing the operating system at the heart of his company’s devices. “This year LG webOS launched LG Channel Plus, which provides viewers with a simple option to channel-flip through streaming content,” Durgin explains. “More than 100 channels of streaming content from sources such as Fox Sports, PBS Digital, People, Fail Army, Time and CBS News are available without installing an application.”

The collective perceptions of set makers reflects a number of independent analyses about market growth. NPD Connected Intelligence, a market research firm, predicts that by 2020, more than 260 million media devices will be connected to the internet, with smart TVs driving 48 percent of the increase and streaming media boxes accounting for 31 percent of the growth. In its new TV-Connected Device Forecast, NPD also expects that the original equipment manufacturers (OEMs) such as Roku, Amazon and Google, “will continue to partner with TV OEMs to integrate their operating systems directly into displays.”

Attracting Users, Adding Features

The growing array of online video sources has played a major role in spurring viewers to activate the core feature of smart TVs. In the early years barely half of owners actually tuned into streaming video via the apps on the devices. “Today, the picture is vastly different, with 82 percent of smart TV owners connecting the device to the internet,” says Hower of Parks Associates. “The increased adoption and rising connectivity rates have transformed the TV’s role in the home,” he continues. “Smart TVs are now a source of entertainment independent of the set-top box and other connected streaming media devices. In 2017, smart TVs overtook both streaming media players and gaming consoles as the most commonly used devices to access streaming video on the TV set.”

Hower acknowledges that consumers spend “double the amount [of time] monthly on streaming content on gaming consoles than they do on Smart TVs.” But he cited Parks’ research showing that “59 percent of those who prefer to use a smart TV versus their other connected entertainment devices do so because the device is “easier to use” than other devices.”

“Smart TV makers should put a greater emphasis on OTT subscriptions,” Hower adds. “They also could benefit from communicating compelling reasons why a smart TV should be the streaming device of choice with a premium user experience, given the relatively longer replacement cycle for TVs.”

As smart TVs establish their stalwart role in the digital ecosystem, their capabilities are becoming integrated with other evolving TV attributes. For example, Parks Associates calculates that 94 percent of 4K/UHD sets are equipped with smart TV features and the owners know it. The latest CTA biannual U.S. Consumer Technology Sales and Forecasts breaks out popular features of digital TV receivers. “Smart TV” shows consistent popularity, lagging only slightly behind UHD. (HDR is expected to be the majortechnology attribute in upcoming sales, according to the forecast).

The same CTA study acknowledges that “the ability to stream video is becoming an ubiquitous feature across” devices — again citing the compatible but competing role of set-top boxes vis-à-vis smart TV receivers. CTA’s Koenig points out that “almost all TVs larger than 40-inches are smart now,” and he expects the feature to remain popular as more top-notch streaming content becomes accessible.

Looking Ahead

Indeed, the popularity of UHD and HDR figure into the thinking of manufacturers and analysts. LG’s Durgin cites plans to integrate smart TV technology with “4K, live streaming with SlingTV and HDR with partners including Netflix, Amazon, VUDU and more to follow.”

Samsung’s Young agrees that, “Consumers have come to expect the highest video quality when they stream movies and TV shows. As the market develops, streaming is at the forefront of high quality 4K HDR content,” Young adds. “Our streaming partners are moving aggressively to put their original programming into 4K HDR, and we work closely with them to ensure our customers receive the highest quality experience both in terms of picture quality through our QLED sets and Samsung’s SmartTV platform.”

Young also emphasizes the growing appeal of multimedia, cross-platform features that involve smart TVs. For example, Samsung’s SmartView allows users to control their TV sets, search and discover content, as well as cast personal photos, music, and video to their TVs.

“Our TVs can also connect to our line of Family Hub refrigerators to mirror content on the fridge’s 21-inch screen,” Young says.

At Vizio, Knowles focused on the role of SmartCast, which she says “advances the smart TV experience and integrates the second screen into the overall user experience. SmartCast lets consumers easily create a whole home entertainment experience,” she adds. “SmartCast is an ecosystem that includes displays, soundbars and speakers that users can pair together and control with the SmartCast app from any room in the home.”

Parks Associates points out that online content providers such as Netflix, Hulu and Amazon offer UHD and some HDR videos, “especially if it’s a new product.” But he adds that traditional broadcast and cable TV channels don’t promote “high quality video content as often as OTT services do.” To some, that opens the door for more enhanced video from streaming sources as connected TV displays become the de facto receiver in American households.

Indeed, a recent analysis of the smart TV market carried the headline, “Connected TV is just a normal part of the U.S. home.” New Nielsen data shows that in homes with smart TVs, viewing of OTT content is even higher than in homes using a connected set-top box.

Brad Russell, another Parks Associates research analyst, summarized the evolving role of TV sets in the home. “They are becoming an interface for smart home devices and a viewing platform for video streams,” Russell says, characterizing the process as “a premium user experience in the smart home.”

Early Insights about Consumer Interests

Rolling out smart TVs has inspired TV manufacturers to update their connected TV features, focusing on what consumers want to see. Here are a few examples:

Matt Durgin, Director, North American Smart TV Content Partnerships, LG

“Multiple different business models have been working. Subscription, video on-demand, advertising-based or even hybrid consumer models have all been successful in reaching large consumer bases. Consumers have a tremendous need for customizing and controlling their content choices.”

Lily Knowles Senior Vice President, Marketing, Vizio

“Our broad installed base allowed us to gather feedback quickly from users to further refine our user experience and UI design, and identify the best content services to add to the platform. As more viewers moved to dual-screen usage while watching TV, Vizio felt it was important to advance the smart TV experience and integrate the second screen into the overall user experience.”

Evan Young Senior Director, Smart TV Platform, Samsung Electronics America

“Consumers generally prefer an integrated, consistent user experience and also prefer not to have a plethora of wires to and from STBs hanging down from the TV. Our SmartTV platform integrates the desired apps on board with a single signature user interface that is consistent not only on the TV, but across platforms like our mobile devices, Blu-ray players and other products.”

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