The news: Connected TV (CTV) manufacturers Roku and Vizio are seeing a significant slowdown in hardware sales, prompting them to turn to advertising to offset declining revenues.

The two companies are reportedly selling TV sets and connected devices at a loss in order to maintain sales in a highly saturated market and onboard users to their advertising ecosystems, per Broadband TV News.

The hardware decline: We forecast that 86% of US households will use a connected device this year, climbing to 89.4% by 2028. That relatively slow growth and high penetration means CTV manufacturers can’t rely on hardware sales alone to drive revenues.

• However, CTV advertising is lucrative and can more than make up for the losses. In Q3, the company’s platform revenues rose 15% to $908 million, soaring above Wall Street expectations and cementing CTV’s success as an ad channel.
• After several years of rapid expansion, we forecast that US CTV ad spending growth will begin to decline steadily, dropping from 23.1% this year ($28.49 billion) to 11.2% in 2028 ($46.89 billion). That drop isn’t due to a lack of interest in CTV advertising; CTV has become one of the leading spending channels in digital advertising.

The moat: The CTV sector is flush with competitors, but a lack of standardized measurement makes it somewhat difficult for marketers to compare platforms’ performance.

• CTV platforms that can establish strong relationships with advertisers early could benefit from long-term spending because of that dynamic, as advertisers could be hesitant to allocate budgets to platforms with unfamiliar KPIs.
• The current holiday season is a crucial period for creating those relationships. Amazon drew significant attention from marketers over the Cyber Five weekend for its shoppable marketing features, but Walmart’s recently completed Vizio acquisition sets the stage for a battle between the two retailers’ CTV businesses.