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In 2013, when Jia Yueting, then CEO of LeTV, took a cover photo for the June issue of China Entrepreneur magazine, he would never have imagined that the article called "Living Room Explosion" would become a slur 10 years later.
At that time, LeTV TV brought two explosive changes to the hardware configuration of Chinese living rooms: one was a cost-effective large screen, and the other was networked content.
LeTV released the first generation of TV X60 at that time, equipped with a 60-inch large screen + quad-core processor, in the industry's same configuration of products basically more than 10,000 yuan, it sold more than 300,000 units at the offer price of 6999, opening the first year of smart TV in one fell swoop.
Although LeTV's fate has been difficult after that, smart TVs as a new hardware product have gradually entered countless Chinese homes.
Driven by the Internet TV manufacturers represented by Xiaomi and the five major domestic traditional manufacturers represented by Haier, smart TVs have become the hardware protagonists that have triggered explosive changes in most Chinese living rooms in the past decade with richer content, higher playability functions, and more attractive cost performance.
With the popularity of smart TVs, leTV's business model of "hardware does not make money, advertising content is paid" in 2013 has also triggered a big explosion of living room advertising today.
According to the "2021 China Internet Advertising Market Insight Report" released by QuestMobile, from 2019 to 2021, the proportion of OTT and smart hardware advertising channels will surpass pc advertising channels, from 1.9% in 2019 to 5.8% in 2021, and it is expected that by 2023, this figure will be close to about 10%.
The so-called OTT refers to a kind of source terminal that belongs to the common smart TV according to the concept of TV source, so the activated smart TV is also called OTT TV. According to the number of China's networking hardware devices released by iResearch in 2020, it is expected that in 2021, the country will have 1.15 billion personal computer networking devices and 340 million networked TVs.
According to this rough estimate, in 2021, a smart TV screen can generate 112 yuan of advertising revenue, a PC screen can generate 30 yuan of advertising revenue, and a smart TV screen is about equal to the advertising value of four PC screens.
Although as a large screen in the living room, the unit price of TV advertising channels is higher than that of PC advertising, there is no doubt that smart TVs bring more ads than traditional TVs.
If the proportion of smart hardware advertising channels such as OTT exceeds the proportion of PC advertising channels in 2021 as the turning point, this may mean that the living room has ushered in the first year of the advertising explosion.
So why do smart TVs have more ads than traditional TV ads?
Is passing on hardware costs to advertising the best answer?
Who is the biggest driver of smart TV advertising?
01, living room advertising explosion
Whether you look at it or not, smart TV advertising is increasing and becoming a true portrayal of the living room, the center of every Chinese family.
Taking the 2021 Tokyo Olympic Games as an example, iResearch statistics show that the proportion of 18-40-year-old viewers using mobile phones to watch games is more than 50%, and less than 40% using TV equipment to watch games; during this year's Beijing Winter Olympics, the commentary video of Wang Menghuo in the mobile app is in stark contrast to the loneliness of CCTV on tv.
Olympic events can't move young people to watch TV, and the elderly, the main crowd of TV, are also being attracted to online videos. According to the "2021 China Internet Development Statistical Survey", online video has become the second largest online application for the elderly after instant messaging. As of December 2021, the number of domestic short video users has reached 940 million, and nearly 90% of netizens are using short videos.
It is also true that no one watches TV, but as the main home improvement entertainment center in the living room, the opening rate of smart TVs is increasing year by year. According to Gouzheng data, the number of smart TV activations in the first half of 2021 increased by 5.5%, approaching 270 million households. In contrast, traditional cable TV is taking a hit, with subscriber churn continuing to occur, gradually falling from 239 million in 2015 to 130 million in 2021.
On the one hand, no one watches TV, and on the other hand, the smart TV opening rate is constantly improving. Behind the two contradictory phenomena is that the viewing experience of the big screen is still the main scene of family entertainment, but the experience is poor, and the advertising is constantly discouraging most people's interest in watching TV.
In Zhihu a "data shows that nearly 50% of the elderly can not find the TV program they want to watch, why is the operation of the smart TV designed so complicated? Under the Q&A, Gao Like, who received 19,000 likes, replied: "Because every additional step of operation, there is one more page to display ads." On the mainland, smart = more efficient ad serving, not a better user experience. ”
Pengbi news has counted 12 major smart TV brands on sale in the market, of which all models of smart TVs of 7 brands such as Skyworth, Hisense, Konka, TCL, Changhong, Sharp, and Haier are equipped with boot ads as standard. In addition, only one Xiaomi TV, which was priced at 4999 yuan at the time, did not have a boot advertisement, and the rest of the smart TVs had 15-30 seconds of boot advertising.
Most ads cannot be set to cancel or one-click skip function, and consumers can only take the next step after watching the ad for 15-30 seconds.
Some home appliance practitioners said that unlike the traditional cable TV advertising rectification, because there are few participants, no networking, the industrial chain is simple, often from the source of content on demand can be rectified the number of advertisements. Most of the advertising rectification of smart TVs is mainly constrained by interviewing relevant hardware brand manufacturers.
Regarding the issue of boot advertising, in November 2019, the Consumer Protection Commission of Jiangsu Province interviewed 7 first-line TV companies such as Xiaomi, Hisense, Skyworth, Sharp, Changhong, Haier, leTV, etc. in accordance with the law, and the 7 companies participating in the interview submitted rectification replies, promising to rectify in an orderly manner according to the requirements.
However, after three years of rectification, according to the "2021 Smart TV Switch-on Advertising Survey Report" released by the People's Network Financial research institute in November 2021, more than 90% of the respondents said that their smart TVs contain "on-off advertisements", and only 10% of them do not have on-off advertisements.
Not only that, according to the rectification content, the boot advertisement needs to give consumers the right to know, the right to choose, and the right to fair trade. However, according to the report, 86% of manufacturers did not set the "one-click cancel/close button" of the on-off advertisement, 85% of the respondents only found that there was a on-off advertisement when using it, and the proportion of respondents who knew before purchasing was only 10%.
It is not only smart TVs that need to be rectified, but even smart devices with screens in the living room almost have the potential to contribute to the big bang of living room advertising at any time. For example, in September 2021, the Xiaomi ecological chain brand Yunmi smart refrigerator was once hotly discussed by netizens because of the advertisement pushed on the smart screen of the refrigerator.
Although the manufacturer apologized later, it is a certain fact that thanks to the intelligence brought by the Internet, every screen in the living room is a potential advertising screen device of the hardware manufacturer.
02, hardware manufacturers really want to make friends with you?
A common explanation for the big bang phenomenon of living room advertising is that hardware does not make money, and services make some money. This "hardware + software" two-wheel drive model created by Xiaomi in the era of smart phones was later used by LeTV in the field of smart TV hardware, and gradually entered every family living room.
Therefore, behind the cost performance of China's smart hardware, it is often accompanied by more and more advertising, and the logical rationality of this business model makes many consumers even "PUA" themselves - so cheap what bicycle? But is this really the case?
According to data from Shengang Securities, taking Hisense TV as an example, during the price war driven by the entry of Internet TV, although its gross profit margin has fallen to between 20% and 16%. However, according to the average gross profit margin of the home appliance TV business, the average gross profit margin of the head brands of traditional domestic TV, such as TCL and Hisense, is around 15%.
It can be seen that although the entry of Internet TV brands known for their cost performance has put pressure on traditional TV head brand manufacturers, the fluctuation of gross profit margin is still a normal market competition fluctuation.
On the contrary, as the bottom of the smile curve of the manufacturing industry, for TV manufacturers, the fluctuations brought about by the price increase of the upstream panel are the most fatal. Taking Hisense as an example, according to the home appliance industry data released by Ping An Securities in 2018, the gross profit margin of home appliance company brands often shows direct negative correlation feedback with upstream panel prices.
Therefore, when Internet TV brands open the smart TV market at a cost-effective price and enable the two-wheel drive model of "hardware + software", an obvious problem is that the gross profit margin of the home appliance hardware industry is not high. The so-called two-wheel drive is nothing more than the entry of Internet brands, so that the home appliance hardware business, which is not profitable, has become a business with the imagination space to make money.
Therefore, the essence of "hardware friends" is that no manufacturer really wants to make friends with consumers, but it is a hardware manufacturer located at the bottom of the smile curve of the manufacturing industry, which is difficult to form a brand premium and cannot make money. Eventually, the concept of smart TV was introduced, the concept of the Internet business model was learned, and the money of the software was earned.
However, the money of software services is not easy to earn, as a brand-name smart TV foundry, almost most of China's smart e-commerce hardware manufacturers, do not have the ability to earn software money. The content in the smart TV hardware is Youaiteng, the system is Google's Android, and the only space where you can play your imagination is advertising.
The two-wheel drive of the smart TV, like the two-wheel of the Xiaomi smartphone, came to the end and found that the software's money could not be earned, and could only sacrifice the consumer experience and earn money for traffic advertising. Xiaomi, which takes smart hardware as its main business, according to financial report statistics, increased its advertising revenue by 42% year-on-year to 4.9 billion yuan, becoming the 8th place in the annual advertising revenue ranking of Internet companies.
The same is true on the industry side. Taking the OTT system emphasized by smart TV manufacturers as an example, the so-called OTT system refers to the value-added services of smart TVs, and the revenue mainly comes from advertising, content payment and traffic distribution, e-commerce and other revenue structures, but according to Gouzheng data, advertising business accounts for more than 63% of the revenue structure in 2020-2021.
Thanks to the "hardware to make friends", TV hardware that was once unprofitable has also begun to make money. In 2019, the revenue of its TV business in China fell by 15.8%, and its sales volume increased by only 2.6%, while the revenue of its software business Kukai System increased by 50.2% and its revenue was 830 million yuan.
03. Who are the main promoters?
Obviously, no hardware manufacturer really wants to make friends with you, but just to make more money. So how many places can a smart TV screen make money?
Some advertising practitioners said that there are usually 15 advertising slots common to a smart TV. Mainly including: boot, video pre-post, shutdown, application startup, intelligent recognition, AI voice interaction, screensaver, screensaver, global bullet screen, channel entrance, special topic, recommended bit, activities, mall, game scenes.
According to the "2021 OTT Business White Paper", taking Xiaomi OTT marketing as an example, it is divided into four in-depth advertising spaces: boot layer, system layer, content layer, and arbitrary layer. Through these advertising slots, it can bring accurate brand marketing to the delivery brand, or form a full-link, integrated advertising bombardment effect.
In addition to the boot page advertising space, more than ten other content advertising spaces are mainly divided by hardware manufacturers, license parties (broadcast control platforms), and copyright parties (video websites). For example, according to Tencent Technology's 2014 report, TCL and iQiyi adopt a cooperation model in which hardware profits are attributed to TCL and content revenue is shared, and the latter is only on paid content such as on-demand.
Smart TV companies monitor data through the background and settle accounts with each video website separately. This model has become a common model for smart e-commerce manufacturers.
In 2013, Jia Yueting believed that television sets could bring huge benefits to them, and he once said to the outside world: "When the Number of Internet TV users exceeds 5 million, its advertising scale will reach the level of a satellite TV, and when the number of users exceeds 10 million, its advertising revenue will reach the level of CCTV channels." ”
According to the data, in 2017, LeTV's TV start-up advertisement sold to 1.8 million yuan / day. At that time, the 20-second advertisement placed by Guizhou Moutai in front of the "News Network" was 500 million yuan a year, with an average of only 1.3698 million yuan a day.
As vested beneficiaries, hardware manufacturers obtain user scale through cost-effective hardware, and video content producers obtain on-demand through more traffic content, and the two work together to promote the development of smart TV business.
However, unlike foreign countries that form paid services with high-quality content and obtain software revenue, domestic video content producers mainly use patch advertising to obtain revenue, which means that the phenomenon of living room advertising explosion in a short period of time is still difficult to improve.
Not only that, according to the Gouzheng data, compared with the advertising acceptance of traditional TVs, smart TVs have more advertising slots, which also means that it will be more difficult to get a good entertainment experience when watching TV.
How to pull more users back to the smart TV? Apple, which won the historic Academy Award for Best Picture with "CODA", became the first streaming operator to win an Oscar, may have given a new answer.
That is, by increasing investment in the production of quality content. Overseas third-party data show that by the end of February 2022, Apple TV+ has a global streaming market share of 5.6%, which has been approaching the streaming platform HBO Max built by Warner in 2 years. This also allows Apple TV to achieve true "hardware + software (content)" two-wheel drive.
However, at present, in the domestic smart TV brands that are addicted to advertising business, they cannot see the shadow of Apple TV.