Samsung, Vizio, others try to catch up with established players as apps and devices grow 


By Sahil Patel

Late last year, Vizio Inc. formed a new business unit to start selling some of the advertisements that appear while people are streaming movies, TV shows and digital videos on its screens.

The company, one of the biggest makers of TVs in North America, wants to get a piece of the growing amount of ad dollars going to streaming video, and in doing so, build a new, recurring revenue source that isn't entirely reliant on the sale of TV sets.

This year, advertising will account for most of Vizio's platform revenue, which is on pace to double year over year, according to people familiar with the matter. The company's platform business also includes Vizio's cut of the subscription revenue generated by its platform as well as revenue from Inscape, its TV data operation.

The shift to streaming video has created new opportunities for TV makers such as Vizio and Samsung Electronics Co. Ad money has lagged behind growth in consumers' time spent on streaming services, but it is flowing nonetheless. Usage of these devices also has accelerated during the coronavirus pandemic, as homebound viewers have had more time on the couch.

But the manufacturers still have a long way to go to catch up to established streaming ad players -- specifically, streaming device makers Roku Inc. and Amazon.com Inc. ( Apple Inc., another large streaming TV player, doesn't sell its own ads on Apple TV.) The TV makers will need to prove they are committed to a business area they haven't been familiar with historically.

"They have some challenges to overcome, namely, a lot of the companies in this space are culturally removed from the advertising business," said Brian Wieser, global president of business intelligence at WPP PLC-owned GroupM. "They are manufacturers, first and foremost; they aren't media companies."

Data suggests that smart TVs that can connect to the internet on their own increasingly are the portals through which streaming TV ad spending flows. Smart TVs now account for 30% of ad spend going toward all internet-connected TVs on SpotX Inc.'s platform, which helps publishers sell video ads. Streaming boxes and sticks represent the remaining 70%, the company said. In July 2019, smart TVs accounted for 10% of internet-connected TV ad spend.

Vizio is on pace to sell roughly 7 million new TV sets this year, all of which come with its SmartCast operating system through which the company offers its own free video streaming service as well as apps from TV networks and digital media companies, said Mike O'Donnell, the head of Vizio's platform business.

More than 90% of consumers who buy Vizio TVs are activating its SmartCast operating system. "All the apps that people want are right there without needing another device," Mr. O'Donnell said.

"It's very clear this is a big part of the future of the organization," he added. "The more TVs we sell, the more we can get people to engage with us, the more money we can make."

Growth in smart TV use can be partly attributed to improvements the manufacturers have made in their operating systems.

"What you have seen change in the last 12 to 18 months is that the smart TV manufacturers have begun to raise their game," said Sean Buckley, chief operating officer of SpotX.

The improvements come as streaming continues to gain ground on traditional TV viewing. Streaming inside homes capable of accessing such services accounted for 25% of consumers' collective time spent watching TV in the second quarter of 2020, up from 19% in the fourth quarter of 2019, according to TV industry yardstick Nielsen Holdings PLC.

Streaming time, however, is still largely controlled by a handful of apps: Netflix, YouTube, Hulu, Amazon and Disney+ combined accounted for 77% of usage in the second quarter, per Nielsen.

The amount of ad spend going directly to the TV makers is still relatively small, said Tal Chalozin, chief technology officer of ad-serving technology business Innovid Inc. "They are growing from such a tiny base," he said.

Roughly 80% of the advertising dollars ad agency Horizon Media Inc. spends on streaming TV platforms -- excluding deals Horizon does directly with app publishers on those platforms -- goes to Roku and Amazon, said Dave Campanelli, chief investment officer at the agency. The rest goes to TV makers selling ads. "We're definitely starting to consider them more," he said.

Roku and Amazon's platforms have large user bases, which makes them more attractive for TV and video buyers seeking national scale and placements with high-quality programming, Mr. Campanelli added. Vizio and Samsung are attractive for digital buyers looking to use audience data from the TV makers to more precisely target individual users.

Roku reported a 46% year-over-year increase in its second-quarter platform revenue to $244.8 million. It has 43 million active accounts, up 41% year over year, the company said. The company also licenses its platform technology to 15 different TV manufacturers, and said one in three TV sets sold in the U.S. come embedded with its operating system.

Advertisers could benefit from having more platform ad sellers not only by gaining leverage when negotiating prices, but also by getting more concessions from platforms, like better visibility into where their ads are appearing, Mr. Campanelli said. "Options are always good for the buying side," he said.

Write to Sahil Patel at sahil.patel@wsj.com