Vizio, the king of value-priced TVs traditionally sold through discount chains and warehouse clubs, is looking at you as it revamps its business model.
The California-based company filed a Form S–1 with the Securities and Exchange Commission on Friday looking to raise at least $172.5 million from its initial public offering. The company plans to sell Class A shares under the ticker symbol “VZIO,” at a price and time to be announced later. It hasn’t indicated which exchange it will use.
Going public forced the company to reveal a few previously undisclosed facts about its business operations and strategy for the future, which places a great deal of emphasis on mining viewing data from customers’ connected products for sale to advertisers and content distributors. In fact, the company’s new mission statement is to “deliver the ultimate entertainment experience through our community of connected consumers, advertisers and media content providers.”
More on Vizio’s IPO after the jump:
The IPO indicated Vizio now sells products through some 8,000 storefronts throughout the United States, generating $45 million in net income and $3.1 billion in revenue in 2014. In the first six months of 2015, Vizio reported $1.3 billion in revenue with a net income of just $31.4 million. “Substantially all of these amounts were generated from the sale of televisions and sound bars,” the IPO states.
Vizio also said it has sold more than 65 million TVs since its inception in 2002, and more than 15 million of those have been so-called “smart” TVs. About 8 million of those smart TVs are connected to the Internet, the IPO states.
The IPO makes clear that connected TVs and products represent a key part of the company’s future business strategy, both through the sale of hardware at razor-thin margins and by supplementing that by selling customer viewing data to advertisers and content producers. It’s also planning to expand sales to countries outside of North America.
“We believe this user base is large enough to reflect U.S. census demographics, which we believe enables us to offer higher quality, more accurate and timely viewing behavior data than previously available from other sources,” the document states. “This real-time data allows us to provide the media and advertising ecosystem with actionable viewership insights.”
The IPO revealed that Vizio monitors anonymous streaming activity on the connected TVs it sells using its embedded “Inscape” software. The IPO said that Vizio connected products have streamed “more than 3 billion hours of entertainment.”
The practice is nothing new, as other companies including TiVo and satellite and cable companies have acknowledged mining viewer data from devices connected either to the Internet or by cable, satellite or telephony services.
Vizio said its Inscape software is new and has not yet generated substantial income for the company. It said that users have the ability to turn off the viewer monitoring, and warns potential investors of the potential for negative backlash from privacy watchdog groups.
“We collect, process, store, use and to some extent disclose information collected from or about purchasers and users of our products, and from the devices themselves. The collection and use of personal information, and analysis and sharing of anonymous user data and unique identifiers to inform advertising or analyze viewing behaviors subject us to legislative and regulatory burdens, may expose us to liability, and our actual or perceived failure to adequately protect consumer data could harm our brand, our reputation in the marketplace and our business,” the IPO states.
Vizio Smart TVs are programmed to collect specific viewing information, “in association with non-personal information (which we define in our posted privacy policies as a data element or elements in a form that does not alone permit direct association with a specific person).”
Vizio acknowledges that “U.S. and foreign governments have enacted or are considering legislation related to digital advertising and we expect to see an increase in legislation and regulation related to digital advertising, the use of location or behavioral data to inform advertising, the collection and use of Internet user data and unique device identifiers, such as IP address, and other data protection and privacy regulation. Such laws and legislation could affect our costs of doing business, and may adversely affect the demand for, or effectiveness and value of, our Inscape data services solution.”
In the case of Vizio, the embedded software can tell what programs a viewer watches, even on external devices like gaming consoles, by evaluating 100 billion anonymous viewing data points. Vizio can use that data to help guide viewers more easily to programs they want to watch, or to help advertisers direct commercials to targeted audiences for additional revenue streams.
Product Development and Maunfacturing
Although Vizio has long stated that it develops and tests the products it sells, the new IPO filing reveals a somewhat different picture in cautionary remarks to potential investors.
On one hand Vizio states: “We have deployed new technologies that advance the picture and audio quality of our products, such as UHD, HDR, Ultra Color Spectrum, full-array LED backlight designs and new picture processing technologies.” Vizio adds: “We plan to increase our investment in research and development to expand and enhance the features and capabilities of our award-winning products, including our discovery and engagement software, 3D vector-based audio reproduction and Inscape data services.”
On the other hand, Vizio states: “We do not have internal manufacturing or testing facilities or capabilities, and all of our products are manufactured, assembled, tested and packaged by third-party manufacturers, who are original design manufacturers, or ODMs, and original equipment manufacturers, or OEMs. Our manufacturers are, in turn, responsible for procuring or manufacturing the components used in the manufacturing of our products from a limited number of suppliers.”
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Vizio said its “four largest manufacturers accounted for 94 percent, 97 percent, and 97 percent of our inventory purchases for the years ended Dec. 31, 2012, 2013 and 2014, respectively, and 98 percent and 98 percent of our inventory purchases for the six months ended June 30, 2014 and 2015, respectively.
“Moreover, our manufacturers AmTRAN Technology and Q-Run Holdings, an affiliate of our manufacturer Hon Hai Precision, are our related parties, holding 20.4 percent and 8.3 percent of our common stock on an as-converted basis as of June 30, 2015, respectively. These two manufacturers accounted for approximately 12 percent and 25 percent of our inventory purchases for the year ended Dec. 31, 2014, respectively, and 8 percent and 23 percent for the six months ended June 30, 2015, respectively.”
Vizio warns that reliance on its manufacturing sources and their component suppliers introduces a number of risks including: a lack of long-term contracts with manufacturers, who could “cease to provide products to us with little or no notice.”
In addition: “Our ODMs could become our competitors by selling directly to retailers and discontinuing manufacturing or supplying us with their products.”
Ironically, AmTRAN, which is an equity holder in the company, currently markets its own line of televisions in the United States under the JVC brand.
“If we fail to manage our relationship with our manufacturers effectively, or if they experience operational difficulties, our ability to ship products to our customers could be impaired and our competitive position and reputation could be harmed,” Vizio warns.
Retail Expansion
Quietly over the past year, Vizio has started to move beyond the national discount store chains, and into regional and mom-and-pop AV specialty stores and custom installers that can handle the upscale mix of goods it’s preparing to offer.
Vizio, which for almost two years has shown samples of high dynamic range-enabled 4K Ultra HDTVs under a promised-but-not-yet-delivered “Reference Series,” appears to be moving closer to bringing those products to market.
In its IPO, Vizio said that for 2012, 2013, and 2014, 85 percent, 84 percent and 80 percent of its net sales came from four major customers – “Costco, Sam’s Club and Wal-Mart each accounted for more than 10 percent of net sales in each of the periods noted, and Best Buy also accounted for more than 10% of net sales in each period beginning in 2013.” In 2014, Wal-Mart and Sam’s Club comprised 40 percent and 12 percent of net sales, respectively.
“Wal-Mart, Sam’s Club and several other entities purchasing from us are affiliates under common control, and collectively they comprised 54 percent of our net sales for the year ended Dec. 31, 2014,” according to Vizio’s IPO. “However, throughout our history and presently, we have dealt with separate purchasing departments at Wal-Mart and Sam’s Club, and have at times sold products to Sam’s Club without selling products to Wal-Mart.”
Vizio also offers products online through large online retailers such as Walmart.com and Amazon.com. The company also sells products directly to consumers through an online store.
Regional Retailers
Vizio said it is continuing to build relationships with distributors to expand into new channels, such as regional independent retailers, which are chains that generally sell in only a particular region of the United States.
“We believe that they provide an attractive growth opportunity for our business with retail models that can drive additional sales for our premium product lines,” the company said in the IPO.
The brand will need an army of well-trained and knowledgeable salespeople to explain the reason for paying much more for the new sets than the models Vizio sells elsewhere.
The problem is that since 2002, the price-driven value strategy of Vizio which was soon followed by a legion of entry and opening price point brands, has forced the industry to prematurely cut prices on new TV technologies, well ahead of the normal life-cycle scheduling. This has cut sort the time manufacturers have to generate a return on investment, while compressing profit margins independent retailers need from TVs and other goods to remain in business. Now Vizio is looking to convince some of those same dealers to bring the brand aboard.
“We believe our distribution footprint covers a significant portion of the U.S. consumer electronics market, but we have not yet made a focused effort to penetrate regional independent retailers. We believe that these regional independent retailers represent a significant growth opportunity for us, and we plan to capitalize on the strength of our brand to increase our presence,” the IPO states.
Last week, the company abruptly postponed a Webinar it had arranged to communicate its new direction to potential new retail partners, presumably due to the issuance of the IPO on Friday.
Dealers tell HD Guru that in the last year Vizio has teamed up with distributors including Ingram Micro, Tech Data and most recently, the members of Powerhouse Alliance, to bring better featured and better performing Vizio products to independent retailers, but at the margins Vizio has offered, the lines have been difficult for some to justify.
One specialty A/V retailer, who wished not to be named, said he’s been signed on as a Vizio dealer through distributor partners for more than a year, but has refrained from bringing products in because he is waiting for models that deliver “the best picture quality and customer support possible.”
He said that Vizio’s “dealer net is almost the same as retail and at the end of each quarter you get a small trailing credit that hardly covers shipping cost. All of the premium TV manufacturers went to UPP (Unilateral Price Program) on all mid- to high-end TVs, so I expect we will see a more traditional dealer program,” from Vizio, the dealer said.
Vizio has made no secret that it is eventually planning to offer a line of high-end LED LCD TVs capable of supporting Dolby Labs’ Dolby Vision HDR solutions. Dolby, in turn, has lined up Warner Bros. to support the HDR technology with content carrying special HDR metadata that the TVs will be able to read in order to display the wider contrast ratio and higher brightness levels needed to boost image details and color that is normally covered up or washed out in deep black or bright white areas of an image.
Dennis Holzer, executive director of the PowerHouse Alliance, a group of A/V distributors around the country, said A/V specialty retailers should consider adding Vizio to their mix because, “Vizio offers consumers a full line of premium products that can expand the customer base.”
“Vizo’s premium products offer another source of options for our dealers who already offer a full range of value-added services, allowing them to differentiate from mass retailers,” Holzer told us.
Powerhouse distributors will initially have access to Vizio’s mid-tier M-Series 4K Ultra HDTVs, but Holzer would not comment on whether or not the company would have access to Reference Series products.
Regarding service and support, Holzer said Powerhouse “will ensure customer satisfaction, as they do in all other lines that the group carries.”
More distribution details are expected to emerge from Vizio’s rescheduled webinar August 27th.
By Greg Tarr
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