Earlier this year, the BBC fired a major shot at the world’s third largest company asking the U.K.’s Competition and Markets’ Authority to expand its investigation into anticompetitive mobile OS practices to include TV operating systems — specifically Google’s Android TV. According to the BBC’s projections, 60 to 80% of new TV sets sold by 2023 may have an operating system owned by one of four companies: Google, Apple, Meta or Amazon. And the broadcaster fears that Android (and other dominant players) may be able to prioritize services that they own and monetize.
Personally, I think the BBC is wrong. Here’s why: Over the course of the last decade, just two companies have taken control of 98% of all smartphones on Earth. In the U.S., Apple controls approximately 60% of all smartphone OS, while Google/Android controls around 40%. Worldwide, Google controls roughly 70% of OS and Apple about 30%.
What’s that got do with the price of Connected TVs (CTVs) in England? I’m glad you asked.
In 2021, users will spend $133 billion on mobile applications. Apple and Google – the largest and third largest corporations in the history of the planet – take between 15% and 30% of every sale made. That’s $30 billion in tolls and taxes paid to the only two members of the smartphone duopoly. (This is why Epic is currently suing Apple for uncompetitive practices.) We are now on the precipice of the same exact phenomenon happening to CTVs around the globe. Before I explain why, peep this map:
There is a perception of Samsung as a Goliath in CTVs. True, the company is by far the market leader. But Samsung’s market share is around 15%. Conventional wisdom also holds that Roku is also a CTV giant. While that is most definitely true in the U.S., where Roku holds a commanding 34% share of all CTVs, its presence outside the U.S. is much less significant; Roku currently holds only about 6% of all CTVs globally.
In fact, if you look at the map above, you’ll see the largest block of TVs sold each year (42% of all TVs shipped, or 105 million sets) are not from the big brands you know and love. Rather, they are manufactured by regional or local brands, often protected by trade laws in individual countries. These regional/local brands buy the innards of the TV from China and license their CTV operating systems from various players.
If you truly want to understand the CTV ecosystem, you need to look beyond the shores of America and toward the globe at large. To do that, here’s another map:
In most markets, nearly everywhere on Earth, the No. 1 and No. 2 TV brands are Samsung and LG. But often, the brands ranking 3-5 are among 600 regional CTV brands who represent that 42%, or 105 million CTV sets per year. And this is where the tech giants come into play.
TV manufacturing and sales are a very low margin business. Therefore, everyone from Roku to Samsung to Vizio is launching its own operating systems, programming channels and advertising platforms – the very same reason Google went all-in on smartphone OS. Increasingly, CTVs are a commodity business – the lowest price wins. So, if a regional brand can find a way to save money, or make money somewhere else, it will jump at it.
Right now, Google is paying local brands and Chinese chip-makers as much $10 per set to install its Android TV OS on their CTVs. That may not seem like a lot, but if your margin on a $300 CTV is just $30, then 10 new dollars is a 30% margin increase per set. Moreover, local TV makers are finding the Android brand on the box helps move units. Remember, Android has a 70% hold on phones around the world. It is the McDonald’s of OS. Additionally, Android is a very nimble and powerful operating system. Having Netflix, Disney and Amazon Prime on a CTV homepage are now table stakes. One is hard-pressed to sell a TV that does not have those apps pre-installed. But, outside the U.S., the local streamers are just as “must-have.” Android, after more than decade in the global smartphone business, has the tech and bandwidth to include many more local programming apps than any other OS, outside of LG and Samsung.
There are not many companies in the TV biz who can afford that kind of bribe “investment.” That is one weapon that Google parent Alphabet brings to the battle for screenpremacy, if you will. But it’s not really its most powerful lever. Google controls 94% of all search in the solar system. I am not saying that Google would “game” search to give an advantage to TVs that have their Android OS. But I am saying that Alphabet is currently being sued by 15 U.S. states for allegedly colluding with the tech oligarch formerly known as Facebook to rig programmatic advertising in their collective favor. (Google “Jedi Blue” and enjoy the read.)
Elsewhere in the tech oligopoly, Amazon, whose Fire TV dongle device is the fastest growing CTV platform in the U.S., just released Fire CTV consoles. Oh, and in case you missed it, Amazon also owns the world’s largest ecommerce retail platform. But there’s no way it would use that lever of power to position itself over direct competitors in the CTV space… right? In October 2020, the Democrats on the House Judiciary Subcommittee on Antitrust released a 450-page report that found the company uses sales and product data to identify and replicate profitable products featured by third-party sellers on its platform — sometimes contacting the manufacturer directly “to free ride off the seller’s efforts, and then cut that seller out of the equation.”
All this said, Alphabet/Google/Android and Amazon/Fire TV/dongle still only control a combined 12% of the global CTV OS market. However, as the BBC has said, this is changing super-fast. I recently had the chance to interview CTV makers in numerous markets in Europe, South America, Asia and the Middle East. These are members of the 600 local and region CTV brands who buy chips and license OS from other players – most often pre-installed on chips they buy in China – aka System on a Chip (SoC). The interviews were intended to get a sense of the direction of the global CTV market.
In each case, unsolicited, these various TV brands, from different continents, told the same exact story. “Android has gone from 10% to 70% of OS sold in the last two years,” a South American regional OEM said, while a Middle Eastern regional OEM reported that Android had gone “from zero to 80% of units sold in one year.” A regional European OEM said the growth was from “less than 10% to more than 50% of units sold in less than a year.”
The OEMs asked not to be named. The reason? Refer to that “94% of all search” thing.
In America, Google’s Chromecast has lost share to Fire, TCL and Hisense over the last few years. But with Roku dominating the U.S., and regulators breathing down their necks, Alphabet has clearly made a strategic decision to focus on the rest of the world (for now), that 42% and the 600 local brands. Why? Regulators in many other countries have not yet sharpened their pencils and aimed them at Android. Thus, Google sees opportunity in making huge inroads in many regions – especially South America, Eastern Europe, and Asia – where Android now controls 50% of all CTV OS.
However, in the U.K., it’s another story. The country’s Competition and Markets’ Authority is already investigating the smartphone duopoly of Apple and Google for anticompetitive practices. So, the BBC’s request is not a new investigation, but rather an expansion of one that is already got a head of steam. The fear in England is that, if allowed to yield their existing power unfettered, Alphabet and Amazon will scoop up 60-80% of new CTVs shipped in the next 10 years. The operating systems of those CTVs will be gatekeepers for hundreds of billions, if not trillions, of dollars in advertising, subscription and ecommerce revenues. The BBC fears that Google and Amazon will then repeat the uncompetitive practices they have used in other markets to disadvantage programmers who lack that leverage.
So, I believe the BBC is wrong. If smartphones and search and digital advertising and ecommerce are indications, a decade from now, if nothing changes, the new terrible TV twosome might control at least 80% of CTVs. The Beeb just fired a shot that should be heard ‘round the world. As of writing this, it remains to be seen if other publishers and programmers will join the fight.