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19 May 2022

Vizio’s Q1 masterclass in monetizing audiences – too good to last?

Although facing declining hardware sales, connected TV heavyweight Vizio has delivered a Q1 2022 results sheet that matches the grand promises of its ad tech capabilities. Revenues from in-platform advertising and licensing audience data are increasing sharply, drumming home the importance of monetizing captive audiences.

First, the good news – Vizio’s Platform+ segment is up 97% YoY to $102.6 million for the first quarter of this year. This would give the segment a minimum annual run rate of $410.4 million, marking a 33% increase on Platform+’s 2021 earnings.

Within Platform+, advertising revenue is up 116% to $75.9 million. This figure accounts for Vizio’s advertising capabilities across its WatchFree+ FAST (free ad-supported streaming TV) service and select AVoD partners, as well as home screen ads and in-store retail advertising.

This gives Vizio an advertising ARPU of around $20, an impressive feat for an AVoD-style business that is lacking premier content of its own.

For context, this puts Vizio in the top tier of ad-supported video earners. Faultline’s sister research service, Rethink TV, estimates that YouTube’s ARPU is currently around the $15 mark, and set to grow to $24 by 2027. When it comes to ad-supported ARPU, YouTube is by far the market leader, with Fox’s Tubi next in line around the $11 mark.

Of course, this is not an apples for apples comparison. YouTube, Tubi and other AVoD services are just one platform, while Vizio provides an entire OS that offers far more nooks and crannies to advertise in aside from its WatchFree+ FAST service. Nonetheless, the dramatically high ARPU suggests that Vizio walks the walk when it comes to granular audience data and sends home the importance of collecting as much user data as possible.

Non-advertising Platform+ revenue is up 57% to $26.7 million. Vizio attributes this increase directly to higher revenues from licensing audience data via its Inscape arm, suggesting that at least for now, advertisers are not deterred by the walled garden approach.

This has likely been a major boost for Vizio’s total ARPU of $23.68, up 64% YoY – as it gets sharper in monetizing a user’s entire lifetime spent within its ecosystem.

However, a look at Vizio’s slowing device sales suggests that this premium ad tech offering may be too good to last. Device sales were down 16% to $382.9 million, extending the 4% decline that was seen over 2021. This can be directly linked to an 11% decline in smart TV shipments, down to 1.4 million for the quarter, as well as a reported 8% drop in average unit price.

This is easily the primary cause of the 4% slump in net revenue, down 4% YoY to $485.5 million.

It would be melodramatic to say that Vizio’s hardware losses pose a grave future. Just look at one of its most successful competitors Roku, which sees consistent profits despite the downward spiral of its Player segment. Like most verticals in our industry, hardware is no longer the money maker in the CTV landscape.

However, this slump in growth is worrying for a company like Vizio, which has chosen to build a walled garden for its ad tech arm. OEMs like Vizio are adamant that they have the upper hand when it comes to targeted OTT advertising, as they can track a user’s watching habits using automatic content recognition (ACR) technology, permitting users allow it, and tie this to any other account data they have.

However, at present Vizio only sell this data to a select range of advertising partners, rather than opening it up to the wider market. For the moment, this increases the value of Platform+’s offering, but as the growth of Vizio’s device footprint continues to stall in the coming years, we cannot help but wonder how Vizio will continue to satiate advertisers demands for more diverse data pools?

The walled garden approach to ACR data brings its fair share of critics, especially from those who are trying to streamline CTV advertising. Just last week we were talking to Joel Cox, SVP of Strategy and Innovation at CTV ad planner Strategus, who feels that the pendulum is set to swing back to an open data ecosystem once advertisers start to demand broader data pools.

Vizio saw an increase in user activity on the platform in Q1. SmartCast Active Accounts are up 16% to 15.6 million YoY, while total hours watched on SmartCast are up 14% to 4.1 billion, a decline in watch hours on a per-user basis.

The SmartCast OS contributes half of Vizio’s watch hours, with total hours watched across the company’s footprint up 18% to 8.2 billion.