Will The 'Open' Set-Top Box Break the TV Ad Bundle?

The "opening" up of the television set-top is getting a lot of attention these days. The Federal Communications Commission has called for pay TV providers to “open” up TV set-top box standards so that consumers can buy devices directly from third-party manufacturers, and President Obama added his very public support last week.

While you never know how things play out in Washington, most observers think it’s very likely that third-party TV set-top boxes will be available to U.S. consumers in two to three years.

If this happens, there will certainly be a number of big consequences for viewers and TV companies alike.

Many TV viewers will save money. Americans pay $20 billion a year to rent their TV set-top boxes, even more than the $19+ billion they spent last year to buy new TVs. At a $200 rental fee per household per year, you can imagine a lot of people buying boxes that will have one-time costs in the range of what they pay to rent a box for a year or two, or even less.

Plus, those old boxes suck a lot of electricity. Subscription pay-TV boxes today draw approximately 5% of all electricity used in the home. Energy efficiency will certainly be a new competitive point on the boxes, since open standards will make it easier for more consumer electronic companies to create consolidated devices, with TV service integrated into gaming devices, playback devices or into the TV itself.

TV viewers will get better devices. Given the quality of devices we all get from our TV providers today, and the quality of devices we get from companies like Apple, Google, Amazon, TiVo, Samsung, Sony and LG today, this is pretty much a slam-dunk. No matter what, devices will be prettier and will keep better time.

TV viewers will gain control. It would be hard for the pay TV interface to get any worse than it is today. Third-party boxes will certainly integrate multiple different video packages and digital, social and streaming feeds into the same user interface, probably with lots of cross-service features like Roku’s meta-search and Amazon Echo’s voice control and artificial intelligence.

Might a la carte pricing be an inevitable consequence? As my good friend and Xaxis chairman Dave Moore spoke about yesterday at the ICOM-Global Summit in Seville, Spain, an open TV set-top box is almost certain to bring a la carte channel buying options for consumers. This will have asymmetrical impacts on TV networks dependent on subscriber fees for much of their revenue — if data from recent experiments with “skinny” bundles continues to hold true.

Will it break the TV ad bundle, bringing both chaos and opportunity to TV companies? Today, the TV ad business and the ways you can buy TV ads bundle are pretty simple. It’s all about shows, demos, days, day-parts, CPMs and bundles.

You can buy nationally. You can buy locally (sometimes at the local-cable ad-zone level). And now, you can even buy a smattering of addressable ads on some operator footprints.

However, once you bring in millions and millions of new, cloud-connected set-top boxes, the ad bundle of today will be broken, and simplicity will be out the window.

For sure, we will see a massive introduction of new and different ways to package and sell TV ad inventory. We will have much more measurement and many more insertion points – national programmers will now be able to sell locally, for example. Over-the-top and video-on-demand and linear and digital video will now be much easier to sell together (though nothing will be easy).

How will you do? Without question, we will see many of the digital ad models tested on TV. Some will make it. Some won’t. For sure, it won’t be simple. TV buyers and sellers who have been testing automation and data-provisioned TV ad targeting and measurement today will likely fare much better than those who haven’t. What do you think? Which will you be?