Key strategies for the future of smart TVs

Just a year or two ago, the world of TV manufacturers was focused on transitioning from the tired horse of HD to the fresh legs of 3D. Then TV OEMs realized they weren’t on the cusp of a huge upgrade cycle, and the allure of 3D faded. At the same time, an entirely new business model — one with potentially recurring revenues — became available: the smart-TV market.

But while many consumers today are buying new smart TVs, many aren’t connecting them. Much like with past technologies, the smart-TV market has some significant challenges if it is to reach the promise that many believe it holds.

Missed connections

One of the biggest problems with new connected-device categories is that they require too much knowledge on the part of the end user when it comes to actually connecting the device. Media Center PCs and digital media adapters are just two examples of connected devices that largely failed because setup experiences were too difficult and ultimately didn’t provide the perceived value to consumers.

To avoid this pitfall, TV OEMs need to make connecting the box to the network both easy and a necessity. That means making setup very simple and also rewarding the consumer. OEMs could accomplish the latter by offering free rentals, pre-installing popular apps like Netflix or Hulu and giving actual rewards.

Price subsidies also incentivize a connection. For example, offer a 5 percent or 10 percent discount on the price of the smart TV if the consumer connects and registers it online. While this may seem like a steep cost, TV OEMs need to realize that the return horizon on these devices is years; ensuring that consumers get connected dramatically raises the likelihood of monetizing them through connected services.

Two screens are better than one

Just having a TV on the network isn’t enough, particularly since tablets and other mobile devices are becoming central controllers for the connected lifestyle. TV OEMs must work on developing well-executed controller apps for their devices that leverage all the popular tablets, either by promoting Google TV or other “platform” apps or creating their own remote-controller apps that drive engagement through interaction with TV shows and TV apps.

However, simply relying on Google or others to develop a second-screen app isn’t enough. TV OEMs need to provide their own second-screen apps that offer unique ways to leverage the built-in functionality of their smart-TV device. Samsung has started to do this with its Smart View app, allowing users to stream TV content to a phone or tablet and browse apps and show info.

Continuous upgrades, continuous experience

One of the biggest failures of connected devices is atrophy of the device, where new functionality and continuous enhancements are not offered on a regular basis. Most TV OEMs rely on third parties for software like Google TV; the world of interactive software is not their “home turf.” With connected devices, continuous upgrades to the user experience are a requirement for success.

Smart-TV OEMs must view their devices as continuous investments rather than one-year product SKUs. This is a completely different mindset, one more aligned with products like game consoles and smartphones than TVs. But it is necessary if they expect to transition to a model that derives significant revenue streams for the life of the device (the goal, in many ways, of moving to smart TVs).

This means investing more heavily in software development than in the past. It also means pushing new “generations” of the software with regularity, whether through the underlying platform (be it Google TV or another platform) or the TV OEM’s native software.

All these suggestions clearly drive home one point: If TV OEMs are going to embrace smart TVs, they need a business model that fits this new paradigm. Up-front, one-burst revenue models are being replaced by longer-term, services-oriented relationships. The key to success in this new world is ensuring that new smart-TV owners are connected and engaged, and that they stay engaged for the life of the device.

Question of the week

Will smart-TV OEMs adjust their business models to fit the longer-term return cycle of new connected devices?
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Wolf

Michael Wolf

Chief Analyst NextMarket Insights

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