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Market Insight

PayPal joins forces with LG to enable app purchases on their Smart TV Platform

April 25, 2013

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LG has integrated Paypal's online payment system with its Smart TV software platform. The new functionality is currently available to 2013 LG Smart TV models only, sold in Canada, United Kingdom and the United States. Starting in April 2013, this will become available to 2013 models sold in Australia, France, Germany, Italy and Spain.

The revenue generated by Smart TV app sales is usually a secondary concern to TV manufacturers, with a competitive app store typically used to drive hardware sales. The IHS US Smart TV survey found that in 2012, Smart TV capability was considered a major factor in 31 per cent of planned TV purchases in the US, more important than 3D capability at 19 per cent though still less important than picture quality, price and screen size . As the majority of TV shipments become Smart TVs, the user interface and platform capability will become increasingly important, particularly in mid-to-premium tier TVs. Running a Smart TV platform entails additional operating cost for the manufacturer, whilst the additional revenue available upon the sale of the hardware decreases as Smart TV becomes a standard feature. To deal with this issue, TV manufacturers can either minimise Smart TV platform operating costs by outsourcing to a third party, such as Google or Roku or choose to invest in their in-house platforms in order to maintain hardware differentiation and drive service revenues. The latter approach benefits strongly from integration of widely used payment systems such as Paypal.

Smart TV platforms are potentially very attractive to set makers as they offer an opportunity to make money after the sale of the hardware at retail. This revenue can be generated by either business-to-business (B2B) or business-to-consumer (B2C) offerings. B2B opportunities include enabling advertisers to conduct data-targeted advertising campaigns within the platform, as well as pursuing revenue sharing deals with third party app developers. B2C revenue could be generated through direct payment for apps, games or content within a Smart TV platform. Within these, targeted advertising arguably represents the greatest revenue opportunity for Smart TVs, but this Paypal announcement significantly advances LG's ability to capitalise on the B2C opportunities in direct consumer purchases.

At present Smart TV platforms are limited in their ability to sell directly to consumers by their payment mechanisms, which often require credit card and personal detail input before each purchase. A poor user experience coupled with clumsy input via a remote control naturally limits the number of direct transactions. Finding ways to enable customers to easily make purchases therefore becomes critically important for growing this revenue stream. Paypal could help achieve this, offering a much lighter user experience and, crucially, a highly reputable brand with a large existing base of users (over 110m at the end of 2012). The use of a known quantity already holding financial details will lower a key barrier to entry, that of inputting credit card details into an unknown system. Furthermore, providing a proven payment platform familiar to consumers could help entice more developers to develop apps for LG's platform.

Paypal payments have been available within Smart TV apps since 2011, but LG is the first manufacturer to allow consumers to make purchases directly from it's Smart TV platform using Paypal, rather than from within an app. This opens up the opportunity to capture currently unexploited revenue streams. For example, bypassing the need to use third party apps like Netflix, TV manufacturers could offer consumers direct purchases and rentals of movies and TV series using their Smart TV UI rather than through an app.

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