Behind all the hoopla over smart TVs at CES lies a much less talked about, but potentially very important subject for the TV and consumer electronics industry: the deal-making involved in getting apps and content onto those TVs.
The issue has been around for a while, but is increasingly important because a number of new smart TV models launched at this year's CES offer unified interfaces (UI) for a wide variety of content. These UIs combine traditional TV content from multichannel providers and broadcasters onto the same screen with over-the-top content coming from subscription services like Netflix, Hulu Plus or Amazon. They also allow users to search through all this content, making it much easier for viewers to find content alternatives to established TV brands.
On one side of the smart TV content equation, that makes it important for programmers and operators to have their brands prominently placed on the user interface.
On the other side, CE manufacturers face new costs in delivering this content. They also operate in a very low margin business where they would welcome addition revenue from apps, advertising or even subscriptions.
Currently the models for cutting those deals remain very much in flux, said panelists at the "Smart TV Content: Three Things You Need to Know to Make a Deal" session at CES.
Jeffrey Liebenson, founder of Liebenson Law, who has been involved in a number of deals for content on the smart TV platform, said that the deals vary widely. For paid downloads, there is typically a 70/30 split, much like iTunes, with the smart TV manufacturer getting 30%.
But for other apps, things can get more complicated, he said. A developer may have a 30/70 revenue share with a content owner. "When it comes to putting the app on TV, the developer has only 30% and he can't share all of that," Liebenson said. "So there has to be a discussion," where a number of factors are weighed, including the value of the content to the smart TV platform.
Another area of negotiation is the data being generated by usage of the content. This can be particularly valuable to the smart TV platform because that data would help it make recommendations for other types of content or potentially deliver targeted ads based on the viewer's habits.
But in many cases, the content owner wants control of the data. "This is an area where the deal-making is very much in flux," he said.
Deals between smart TV platforms and multichannel operators and programmers are another important area.
Cable, satellite and telco multichannel providers have increasingly been working with CE manufacturers to make their content available on a smart TV or a streaming media device.
Comcast, Time Warner Cable and other operators have announced plans allow its subscribers to access content on smart TVs via their TV everywhere apps over the last year.
Matthew Durgin, director of smart TV content, LG Electronics, noted during the panel that they have done a deal with Verizon FiOS to make 75 channels available to the telco's multichannel providers.
The migration of TV everywhere or authenticated apps to the smart TV platform "is a very important development," said Ashwin Navin, cofounder and CEO of Flingo, which has developed over 75 smart TV apps for major TV companies.
One recent example of this trend occurred earlier in CES, he said, when Roku announced that a deal with Time Warner Cable that would allow authenticated subscribers to access content via the Roku streaming devices.
Smart TV manufacturers on the panel declined to be specific about how those deals were being put together when asked if these deal might involve cash payments for the apps placement or if multichannel operators might agree to a revenue share or fee for new subscribers.
Some over-the-top subscription services like Netflix already pay smart TV manufacturers either a fee or a revenue share for new subscribers in exchange for getting their app on the platform.
Speaking more generally about the deals, LG's Durgin said that "in every negotiation, there is a way to find value for both sides" and that "cable has a lot of gain" in those deals because it "is very expensive for them" to roll trucks and put set-top boxes into a home or a new room of the home.
Another important area in smart TV deal-making is rights for cable programming.
Smart TV platforms could focus on TV everywhere apps and become "an authenticated platform, which is what the cable system like you to be," Liebenson said. "But that cuts against being source of all programming."
Getting cable programming can, however, be difficult because of the long-term deals operators have cut with programmers. "There is a big tug of war in recent years between the operators and the companies that want to go over-the-top and make their content available outside the cable network," said Liebenson. "Cable wants to preserve their position so if they are negotiating with a major programmer like ESPN and Turner, they will want to say `You can only do your deals with us and not license to over-the-top.' But if you're a programmer, you want as wide a distribution as possible."
He expects more content will move to over-the-top platforms but notes that "right now, everyone is feeling their way."