As the ad-supported side of the video business looks to supplement panels with much larger data sets, two alternatives have come to the fore: set-top box data and automatic content recognition (ACR) data from smart TVs.

While each data set has its pros and cons, the fact remains that the overall number of set-top boxes is shrinking at a steady clip, while the number of smart TVs is growing at a similarly steady rate, and this is likely to make measurement much trickier to calculate in the years to come.

Let’s start by looking at the value each data set adds.

ACR data from smart TVs provides a second-by-second look at anything that is “on the glass” regardless of input. That makes it an ideal measurement tool for right now in that it can measure both streaming and linear viewing, not to mention over the air. This is key because most viewers are going to be watching both linear and streaming for many years to come.

As per a recent study from Leichtman Research, 71% of U.S. households still have a pay TV subscription of some sort. (That number includes vMVPD subscriptions.)  So while cord-cutting is indeed increasing, it’s still only at a single-digit pace and there’s likely to be a floor too—at TVREV, we’re thinking that somewhere between 30% and 40% of households are never going to willingly give up traditional pay TV.

This means that the video industry will need to measure both linear and streaming for the foreseeable future, at least the next five to 10 years, and ACR data is uniquely positioned to provide that sort of measurement.

On the flip side, ACR data comes from a single TV, not from every TV in the household, which is where set-top box data comes in. Since all of the set-top boxes in a household are connected and track to a single account, it’s easy to measure what that household is viewing.

The downside to set-top box data is that it often reports viewing that happened after the user has shut off the TV and gone to sleep as the user has only shut off the TV set and not the set-top box.

There’s also the issue that if the user has a smart TV, the set-top box and the smart TV are both collecting data on the same viewer. This is why the combined data sets must be cleaned up (de-duplicated) and why one can be used to confirm the other.

Set-tops Boxes Down, Smart TVs Up

The aforementioned Leichtman report also found that just 37% of all TV sets in use today have a traditional pay-TV providers’ set-top box attached– a massive decline from the 58% figure Leichtman recorded in 2016,

Compare that stat to an April 2021 study from Hub Research that found that seven out of 10 U.S. households own at least one smart TV and that 52% of TVs are smart TVs, an increase of 7% from 2020.

Those numbers will only be decreasing (set top boxes) and increasing (smart TVs) in the years to come.

Set-top box numbers are shrinking because the various MVPDs are slowly but surely moving away from them. Set top boxes are notoriously expensive, difficult to upgrade, and the cause of much consumer unhappiness due to missed or delayed tech appointments.

Instead, MVPDs are turning to apps, which can easily be installed on smart TVs and connected devices, including connected devices they themselves provide to their customers in lieu of set top boxes.

Even Comcast, which has been justifiably proud of its X1 set-top box interface, has been slowly shifting away from set top boxes. They’ve made the X1 the basis of their new Xfinity Flex streaming device and they are going to be rolling out their own Comcast branded smart TVs whose user interface will be based on X1.

All of which means that the future of set-top boxes is looking increasingly murky and would seem to be heading further in a direction that is the basis of another common slam, which is that set top box data measures an audience that is increasingly older and less affluent than the general TV viewing population and is thus increasingly less relevant.

Smart TVs, on the other hand, are on the upswing.

Amazon has also rolled out its own line of smart TV sets and Google is pushing Android-branded sets as well.

More than that, it’s all but impossible to buy a new TV set these days that is not a smart TV. So as consumers are replacing their older unconnected TVs, they’re replacing them with smart TVs. That means major ACR providers like LG, Samsung, Vizio and Roku (TCL) are going to be seeing their user bases growing steadily over the next several years. (The average replacement cycle for a TV in the U.S. is around seven years.)

The demise of the dongle is also fueling the growth of smart TVs. While the dongle is far from dead right now, the main reasons to turn to a Roku or Amazon stick—better interface and larger app selection—are no longer valid as smart TV OEMs have dramatically upped their interface games. Roku and Amazon themselves are putting more effort into their own smart TVs too, as they realize that a $300 TV is not as readily swapped out for a competitor as a $29 dongle.

ACR data is not without its own flaws however. Only two of the companies that collect ACR data—VIZIO and Gracenote—actually license that data to third parties, which greatly reduces the data set that can be used to create measurement stats. (The remaining OEMs use the data for their own purposes, to support their ad sales teams and their FASTs.)

In addition, many, if not most households do not exclusively have one brand of TV in the house. That, critics note, can make it difficult to ascertain household data in households with multiple TVs, especially if one TV is the main set and/or if different family members exclusively use different TVs.

All that said, the more viewing that happens on smart TVs, the more valuable ACR data will be as it captures both streaming and linear. While set-top box data has appeal as both a check on ACR data and as a way to understand household viewing, the shrinking size of the set top box database, along with the fact that it does not measure most streaming viewing both serve to lessen its overall value for measurement purposes.

The result is that TV viewing is going to become trickier to accurately measure in the years to come, which is why those companies who are able to figure it out will find themselves in the proverbial catbird seat.

Over-the-top video continues to grow in popularity from a consumer perspective, but it remains a business challenge for both ad- and subscription-based service providers as they try to gather scale in what’s been a highly fragmented market.

On the ad-based, free side of the OTT ledger, Xumo claims it is making significant progress in scale, reach and financial profitability.

With respect to scale, Xumo’s lineup now spans more than 150 digital “channels,” including CBSN, Newsy, NBC News, Fail Army, PGA Tour, The Pet Collective, Baeble Music, Machinima, History and Fox Sports, to name only a few.

Thanks to deep, “native” integrations with smart TV makers such as LG Electronics, Vizio, Hisense, Panasonic and Sharp, alongside Xumo apps for Roku players and Roku TVs, Samsung smart TVs and a set-top box integration agreement with Layer3 TV (the Denver-based pay TV service that’s now part of T-Mobile), Xumo also touts a reach of about 30 million U.S. homes.

Related: Layer3 TV Expands OTT Slate With Xumo

“On the distribution side, we’ve hit a critical mass,” Colin Petrie-Norris, Xumo’s CEO, said. “I’m a big believer that distribution drives everything else.”

Regarding audience and usage, Xumo says it has 3.5 million monthly active users, saw a 325% boost in viewership in 2017 over 2016, and is seeing this area grow through the first half of 2018.

Petrie-Norris said the average Xumo user watches four hours of content per month, with the vast majority — north of 90% — viewing the service on TV-connected platforms, and the balance on Xumo’s apps for mobile devices and web browsers.

Exclusive Agent

Based on ACR (automatic content recognition) data analyzed from TV-maker partners, Xumo estimated that upward of 20% of its users watch its lineup of channels as their exclusive TV experience. “That’s a massive cord-cutter segment,” Petrie-Norris said.

Xumo is privately held and doesn’t disclose financials, but Petrie-Norris said the company is flirting with profitability.

“We’ve brushed up against it a couple of times,” he said, adding that Xumo expects to turn the corner sometime this summer.

That progress comes by way of a business model that is entirely based on a free, ad-based standard.

The bulk of that comes from a programmatic system that enables private marketplace deals, allowing, for example, advertisers to buy against specific audiences and channels for a premium rate.

Xumo also has a sales team in Los Angeles and New York focused on bigger sponsorships and integrated marketing campaigns. The company also works directly with its digital channel partners, allowing them to sell ads on the service.

Looking Ahead

As for priorities for the rest of the year, Xumo will focus on expanding distribution, exploring interactive advertising packages and targeted, data-based products, while also continuing to build out its content lineup, possibly with a greater focus on live sports.

“Live drives a lot of engagement for us,” Petrie-Norris said.

Expect Xumo to stick to its knitting with an ad-fueled option and steer away from subscription-based services, even as some content partners ask them about supporting transaction-based models.

“We’ll never say no to anything, but we’re seeing tremendous interest in the ad-supported option,” Petrie-Norris said, adding that Xumo can live on ad-loads that are a third or less smaller than those on traditional TV. “I think we’ll be doubling down on the ad business.”

Xumo has the technological capability to offer digital channels in 4K, as much of its content comes in a high-resolution mezzanine format. For now, Xumo will not be pursuing 4K yet, due to the higher costs of streaming in that format; at least not until the advertising market gets more strongly behind OTT-delivered 4K content.

Roku has hit back against a new Consumer Reports study finding that smart TVs from makers such as Samsung, LG Electronics, Sony, Vizio and TCL (which makes a line of Roku-powered TVs) are vulnerable to hackers, holding that they can be broken into to track what viewers are watching.

As USA Today notes, Consumer Reports said it was able to break into a TCL/Roku TV using a feature that Roku developed that enables remote use of a remote control on other platforms, including smartphones.

"What we found most disturbing about this, was the relative simplicity of," how easy it was to hack those products, Glenn Derene, Consumer Reports' senior director of content, told the publication.

Gary Ellison, Roku’s VP of trust engineering, posted a blog item holding that Consumer Reports “got it wrong,” at least with respect to how Roku's platform was characterized.

“This is a mischaracterization of a feature,” he wrote. “It is unfortunate that the feature was reported in this way. We want to assure our customers that there is no security risk.”

Ellison acknowledged that Roku enables outside developers to create remote control applications that consumers can use to control their Roku product using an open interface, and added that consumers also have the ability to turn off that feature.

He also said Roku’s support of ACR (automatic content recognition), another technology that Consumer Reports viewed as a vulnerability because it can be used to target ads, is an opt-in feature.

But, as USA Today rightly points out, data gathering practices and general privacy issues with smart TVs have been drawing scrutiny.

About a year ago, for example, Vizio agreed to pay $2.2 million to settle federal and state charges that millions of its connected TVs were collecting viewing data without the consumer’s knowledge or consent.

Apple has finalized a deal to acquire Shazam, the company behind a popular music-recognition application/service.

TechCrunch first reported of the deal late last week, and Recode said the deal values Shazam about $400 million, noting that it’s a steep discount when comparing it to the $1 billion valuation that Shazam enjoyed following its last round of funding.

Snap, an integration partner of Shazam's, was also angling to acquire the company, Recode said.

Shazam, founded in 1999, has raised about $143 million, according to CrunchBase.

Apple hasn’t detailed its plans for Shazam other than to note that it will be a “natural fit” with the Apple Music service.

“We are thrilled that Shazam and its talented team will be joining Apple,” Apple said in a statement to multiple media outlets. "Apple Music and Shazam are a natural fit, sharing a passion for music discovery and delivering great music experiences to our users. We have exciting plans in store, and we look forward to combining with Shazam upon approval of today’s agreement."

In addition to being integrated with Apple Music, Recode reckoned that the tie-up will also “take away referrals” rival streaming music service Spotify.

Shazam also has also done some work in the TV world, working with networks such as Bravo, and was tied into a shop-by-TV tilt in 2015 for the Super Bowl XLIX half-time show.  

Cognitive Networks, a company that has developed a cloud-based automatic content recognition (ACR) platform for smart TVs, has locked in a $14.5 million “B” round as it looks to expand its footprint to 20 million “active” connected TVs in 2015. 

Cognitive Networks, a San Francisco-based company founded in 2008, said existing investors Rogers Venture Partners and DCM Ventures and three new investors (Hearst Ventures and two still-undisclosed strategic investors) joined the $14.5 million round. Cognitive, which also disclosed the new funding round in this SEC filing on November 20, has raised $21 million so far.

Cognitive said it will use the funds to support the expansion of its proprietary, HTML5-based ACR platform, called ENGAGE, which is used to trigger and deliver interactive elements, such as polls, quizzes and advertising, that sync up with TV programming.

Among some of Cognitive’s early activity, LG is using the company’s ACR platform in newer model smart TV models to support “SHO Sync,” an app from Showtime Networks that delivers interactive features that sync up with live, on-demand or DVR-recorded versions of original series. Cognitive has also customized a show-reminder app developed by Visible World for the National Geographic Channel.

In July, Cognitive announced that it had secured a patent for its “smart client” technology, which followed a patent it received last year for its core ACR technology.

Cognitive Networks said it will demo its technology at January’s International CES (booth 15126a at the Las Vegas Convention Center Central Hall), and will exhibit at CES Unveiled on Sunday, Jan. 4 from 4:00 until 7:00 p.m. at the Mandalay Bay Hotel & Casino.