Vizio has long been one of the bestselling TV brands in the US — the biggest brand in the country until April of this year when TV sales began to decline overall and Samsung took the lead spot.
Searching for ways to grow Vizio’s business and find new markets falls to CTO Matt McRae, who’s always been blunt in addressing challenges for the tech industry. McRae presided over Vizio’s entrance into the Android tablet market in 2011 and a line of Windows PCs earlier this year — moves that reinforce his belief that one day we’ll all just be buying a series of screens that connect to the internet.
We spoke about the future of TVs, how smart they actually need to be, and what a next-generation media ecosystem needs to be successful.
TV’s been the same for a long time. Where do you see that going? Do you see that being disrupted?
Televisions are ready for disruption. They have fast enough processors, there’s plenty of memory. Vizio has a higher connection rate of any brand of TVs — when you look at what percentage of our TV’s are internet capable and how much of those actually connect to the internet, it’s something like 70-80 percent. We’ve crossed the barrier of being able to support an internet TV service.
"TV should be everywhere, it should be ubiquitous. A truly successful service has to be device-agnostic and run on all the devices."
I think there are two things in the way: one is obviously a great user experience that ties everything together and provides a next generation way to navigate the content, find it, use it, and tie it to my cloud persona. But the thing that’s really blocking it is licensing. Are we able to stream live content to televisions? Yes. Can we do dynamic ad insertion? Yes. All the technology bits are there, but the content isn’t there from a licensing perspective.
There’s many reasons for that, but that’s what I believe is holding up a true video service.
I hear about an over the top cable system and the first thing I think is “yeah that’s great, but I have a bandwidth cap."
Bandwidth caps are probably a temporary impediment. If a consumer was going to save $100 a month on video service but have to spend an extra $30 a month for an increased bandwidth cap — that’s a choice that many consumers would make. People love fast internet. From an economic perspective that’s a good tradeoff.
The other thing is that technology moves pretty quick — you’re going to see new compression standards coming, where the compression at a given quality level keeps getting better and better. If you look out over time it’s a temporary problem.
I don’t know if Comcast is going be happy selling higher bandwidth caps so that I can go to some independent video company.
Well, if you look at where the margins are, the fattest service is data. Video isn’t very profitable, voice isn’t as profitable. Data is their highest margin, most profitable business. If I come to them and say “I want to pay $30-50 a month for a higher tier” that’s almost pure margin for them.
From a financial standpoint it could actually be better off for them, but they don’t like it because it turns them into a bit provider — they think that the strategic value of video service is high because of the billing relationship with the end user. But from a financial perspective, having people step up their bandwidth in exchange for video is not that bad for them.
"I use their pipes to get to the services I care about."
They’re going to have to give in over time. I don’t get my social networks from my broadband provider, I don’t use their version of Skype, and I don’t use their version of gaming. I don’t use their version of YouTube. I use their pipes to get to the services I care about.
Assuming they deliver an over the top service, where do you think that lives? Does that live on a TV, is it an app, is there a new box?
The next generation video service is going to have to live everywhere. If a company comes out with a true TV replacement service and it’s only available on certain TVs, then you haven’t really provided any value.
A lot of people talk about going to a IPTV service to save money, and that’s great — everybody wants a la carte channel pricing. But I think another very valuable consequence is the ability to have TV on my iPhone, my iPad, my Android tablet, my Android phone, on my Roku, on my Vizio connected TV. TV should be everywhere, it should be ubiquitous. A truly successful service has to be device-agnostic and run on all the devices.
Having said that, the TV experience is something that requires special consideration. When you look at phones and tablets, consumers are used to going somewhere, finding a list of icons, watching an ad. On the television, I think the user experience needs to be better. You have a remote control, you’re 10 feet away from the screen. A really compelling service would actually have a tight integration with TV hardware. When I hit my guide button I should see a fully integrated guide that’s able to make recommendations for me.
The TV is a unique device in consumer’s life. It’s actually a communal device in many instances. People don’t huddle around a cellphone and watch Modern Family. People have shared experiences with a TV — there are very different UI expectation needs for that kind of communal experience.
The challenge for the video device makers is how to create an integrated experience for the living room. I think it’s one of the reasons why the television is one of the last devices to connect to the internet in a big way.
So how do you figure out what the best interface is? Will we see interface competition, or will everything be integrated in apps?
Vizio connected TV’s have Hulu, Vudu, Netflix, and user generated content like Vimeo and YouTube. Our Google TV devices have the Google Play store on top of that. If you give that to the average person trying to figure out what they’re trying to watch, it’s pretty bad. It’s a very siloed experience. I go into Netflix try to find a movie — whoops, they don’t have the license for it, so I go back to Vudu try to find the movie. It’s a mess.
The first wave of interfaces are going to try meta-search, where they try to blur the differences between the silos into a big pile — it’ll give you all the instances of that movie across all the different apps that have to be installed, and maybe you’re a subscriber and maybe you’re not. Google TV is an example of that, some of the stuff that Roku is doing is like that. It’s a small step forward, but it doesn’t get to that true TV service integration that people are waiting for.
"The last thing people want to do is to type in a search query."
So we’re looking past that aspect. The last thing people want to do is to type in a search query. The question is where is the platform? Where is the OS? Where is the service? When you’re dealing with decoding video and trying to do a true interface that talks to the hardware, it would be a lot better if there was a platform standard that cuts across TVs.
Is that an industry standard, or does everybody pick their own and run in different directions?
What you see today is most people are either running on their own or are picking from a very short list. So you see Google TVs, you see still a lot of the Yahoo framework. You see a lot of people playing with HTML5.
There’s also a big discussion around whether TVs are going to get smarter and smarter and smarter, and another set of beliefs that says maybe it doesn’t have to.
If you’re in the camp that says that TV has to get smarter and smarter and smarter, the question is how much processing power is pushed into the cloud? If you look at an HTML5 implementation, I end up streaming a lot of things, and as long as I have enough power to render HTML5, then I don’t really need that much horsepower inside the TV.
The other school of thought says these apps are only going to get more and more complex, and people are going to want to do gaming, so we need to push the processors and keep adding memory so that you can download these apps. Those are the two “TV is getting smarter” sides.
There’s another camp that says TVs don’t need to get much smarter at all. My TV needs to have new features and be connected to the internet, but I’m going to drive my experience from a secondary device like a tablet. I’m using Netflix but I’m navigating on the tablet, and if I want to watch something on the TV, I click play and it asks me where I want to watch it. The television still has to have Wi-Fi and standards that enable this, but the television isn’t the primary navigation device — it’s the primary consumption device. The tablet becomes a next-gen remote control.
I don’t think one side has won out yet.
Until you can get rid of the cable company box or find a better way to control it than IR blasted macros, I don’t think that you’re going to get big uptake .
What’s interesting is that there’s been a lot of pseudo-innovation with TV interfaces: really bad implementations of gesture control, even worse versions of voice control. You see wands that kind of work. What’s funny is that when you give people these things they play with them for a while and then they’re looking for their D-pad. Up-down-left-right-OK. That’s still the pinnacle of interfaces for televisions, and it’s sad in some ways.
"Up-down-left-right-OK. That’s still the pinnacle of interfaces for televisions, and it's sad in some ways."
The secondary problem is exactly what you hit on: the remote is saddled with a lot of buttons because of this old method of getting access to video content. The remote has to be a lot more complex than it needs to be because of an external set top box that won’t let me control it in any other way than IR blasting. If that content were available directly from an IP connection, almost all of those buttons could go away. Once a majority of video content is accessible over IP, the ability to generate and create and explore new UI’s and new remote controls explodes. You’re not saddled with all of this old 60s and 70s IR blasting. It’s terrible, it hasn’t moved forward in a long time.
The ideal thing is a very large piece of glass: hang it on the wall, plug it into power, link it to a Wi-Fi router and get everything you need. I don’t need to hook up all of these boxes with their own remotes. I just want a piece of glass that connects to the cloud and gives me access to everything I care about.
We’ve been talking as if TV as it exists right now is not part of the equation. To me that’s the elephant in the room. We’re assuming that content providers will eventually enable over the top delivery, but how do you see actual television factoring into the mix? What lets you get rid of the box?
I don’t think it’ll be binary. Each user’s threshold to switch off a traditional video service will be at a different level. Cord cutters today have already reached the threshold. The top 20 channels are another threshold. There are going to be people who need 500 channels and a distributed DVR. It’s not going to be a binary thing.
But accelerating this transition requires content over IP — that’s what’s going to trigger it. I think the content companies know that, and in some cases they want to go over the top but they don’t have the rights. A lot of the content companies don’t produce their own shows — they actually license them from production companies, and sometimes when they negotiate the rights they don’t negotiate the internet rights. So they have to go back and negotiate all of that. Another example are old TV show that they want to play online but there’s some background music that they didn’t get the license for and the band no longer exists. So it’s a mess they need to get through to get their content ready.
"How is a 55-inch TV different from a 55-inch tablet besides a touch screen?"
The questions aren’t if it’s going to happen or if it’s possible. They know it’s possible. The question is who’s going to do it and how fast — it’s a question of when. In two to three years your experience is going to be completely different. A lot of device categories are going to blur. That’s why you see Vizio moving into other screens — what’s the difference between a tablet and a portable TV three years from now? How is a 55-inch TV different from a 55-inch tablet besides a touch screen? They’re using the same chips, the same memory. It’s just screen size and a little bit on the interface and other optimizations. If you look at Microsoft Surface that’s a blur between tablet and PC. The Galaxy Note, the Galaxy Note is a 5-inch… what? Is it a phone or a tablet? What is that?
At some point as consumers we’re going to be buying a series of screens that connect to the internet, get your content, get your social sphere, get your pictures, get your games, lets you do Skype calls. If it’s below a certain size it’ll be battery powered and if it’s above a certain size you’ll plug it into the wall, but it’ll be a series of screens.
So if all of this requires content moving to the cloud, how do you see the battle between Apple, Microsoft, Google, Amazon and other shaking out? Who wins?
"If you’re a content distributor only like Netflix, you’re going to be at a disadvantage."
That’s the most interesting question. I think Apple and now Microsoft and a little bit Amazon have shown that hardware coupled with software and services is really the new ecosystem. If you’re an OS only, you’re at a disadvantage. If you’re a content distributor only like Netflix, you’re going to be at a disadvantage. That’s been an advantage for them up until now — Netflix has been one of the most successful in actually making sure their icon is on every screen. But if you believe that the interfaces are going to get more integrated and the ecosystem is actually a combination of operating system with hardware and services, then you’re going to see some moves.
Obviously one of the companies that has done it the best is Apple. You don’t feel like there’s hardware with an OS bolted on. It feels like it was designed in a single room by a single person. Like it was designed together. That’s set an expectation with consumers that we should all strive for.
That’s the reason why we’re seeing Microsoft moving into hardware. It’s the reason you see Amazon getting into tablets. Hardware is sexy again — it’s the physical instantiation of services and applications. You can’t control the experience unless you control the hardware perfectly.
Companies like Google, Netflix, and Hulu all have to think about how they’re going to compete with these ecosystems. I don’t know what happens from here, but I know that hardware, software, and services are the components for a successful ecosystem, and anyone lacking any one of them is going to either build hardware or acquire services over the next few years.
This week we're taking a close look at the future of TV and the living room — the great unclaimed space of the technology world. Check back each day for a close look at all the major players, along with a full range of interviews with industry players and reports on everything from the state of remote controls to the future of gaming. Tune in all week for the rest. Here’s a sampling:
Tuesday: Google, Microsoft, Aereo, Boxee CEO Avner Ronen
Wednesday: Amazon, Sony, live sports, TV apps, Condé Nast’s Dawn Ostroff, NBC's Vivian Schiller
Thursday: Apple, the state of remotes, Vizio CTO Matt McRae
Friday: Independents, New Yorker's Emily Nussbaum, Valve