The Vergecast - CES: Privacy and smart TVs with Vizio CTO Bill Baxter

Episode Date: January 7, 2019

To kick off our coverage of the Consumer Electronics Show, Verge editor-in-chief Nilay Patel sits down with Vizio chief technology officer Bill Baxter to talk about the future of the SmartCast platform, what it’s like to put AirPlay 2 and Apple HomeKit on Vizio TVs, and, most importantly, privacy relating to data tracking on smart TVs. Learn more about your ad choices. Visit podcastchoices.com/adchoices

Hey everybody, it's the line from the Vergecast. We're at CES 2019 this week. The biggest tech show in the world. It's a little bit crazy. We're going to have two regular Vergecasts this week. They're going to be sleep deprived and a little nutty. They're going to be really fun. And I'm trying to get as many interviews with tech execs as I can.

They're all in Vegas this week. They're all willing to talk. Our first interview is with Bill Baxter, the CTO of Vizio. You're probably familiar with Vizio. They're one of the most popular TV manufacturers in the United States. CES is a show about TVs. This is where all the TV news of the year gets made. There's big TV news this year.

Apple is integrating with smart TVs. They're letting Vizio put Airplay 2 and HomeKit on their TVs. They're letting LG do the same. They're putting the iTunes app on Samsung TVs, which is crazy. But I talked to Bill about what it's like to put Airplay 2 and HomeKit on the Vizio TVs, the future of his smartcast platform, and importantly, about privacy. So you may have seen a tweet I had a couple days ago. I noticed my parents' new Vizio P-Series TV is sending data to the network 10 times more than any other device in their

I asked Bill about this. You'll have to see what he says about it. But what we really talked about is the business model for smart TVs and the fact that that content recognition, that tracking, that advertising model is what keeps these TVs cheap. And taking it away might make them more expensive. It was a really interesting conversation. I have to say this about Vizio and what Bill. Bill is the CTO of Vizio. He's the chief technology officer. He's in charge. Vizio is a company based in California, their American company. It is super candid, super real. Real answers from a person who actually makes most of the smart TVs that get sold in America. It's kind of wild.

Check it out. Hello, I'm here with Bill Baxter, the CTO of Vizio. How's it going, Bill? I'm doing great. Thank you, NeNeary. We're at CES. You guys are back. It's been years since you were at CES in, in like, a big way.

You're here. We're actually in Vizio space for the listener. We've got a big space at the Vodara. We just saw a bunch of their TVs. We saw a HomeKit demo. What brought you back to the show? So it's actually the second year we've done this venue at the Vodara, and it is a big step up from what we had.

done in prior years, probably going way back to like 2011, 12 or something. What brought us back was we have a great story to tell, and all the people here that we need to hear that story are here. It's not really primarily for press. It's primarily to sell TVs, to retailers. And so we bring them through. You can see that with this space, we can more conveniently show our lineup and then show how the technology works and then show you all the new features that are coming out from a smart perspective. Yeah, I feel like everybody gets that wrong about CS, that the main purpose of the show is to talk to the retailers and suppliers and partners. And then the press, like, we make a big deal out of it because we get to talk to you

and see all the stuff, well, like fundamentally the audience of the show is something else. Yeah, exactly. That said, I'm literally looking at a wall of your new TVs. You announced a bunch of new TVs. You're consolidating some lines in the new V-series. You bring quantum dots to the M. You've got a new P-series, Quantum X. What's the big story of Vizio TVs this year?

Yeah, so Vizio strategy has always been to pack a lot of value, a lot of technology into a TV, and give it to people in a budget price. I mean, we have to be very straightforward about that. This last year, we introduced quantum dot technology in our high-end P-series, and it turned out to be the top LCD LED TV in the industry in the U.S. And as we always do,

we also want to waterfall that down to our lower-end series so that other consumers can benefit that. So you see us taking quantum dot from that P-Series quantum down to what is now our P-Series quantum again this year, but then we even have a lot. higher end on top of that, but then we took it down to the M series. And then in addition to that, we have consolidated what was our E and D series into a V series where they're all 4K and up with full array backlighting. And so our entire series from our entire lineup from V up through P-Series

quantum X has full array local dimming or full array and then depends on which, you know, how many zones there are as you move up in that line. So we just looked at a really cool demo. where you took out the diffuser and we got to see the LCD in front of the actual LED backlights. I can't describe it because it's a radio show, but trust me, it was cool. And it's obvious that you're moving to, like, a higher density of backlights over time that are brighter. Correct. There's, like, a limit to that, right? Eventually, last night, Samsung announced micro LED, where literally every light source and every pixel are one and the same.

Yep. Are you on that same trajectory, or is there a density limit to the backlighting? There's really mainly a cost limit, if you will. But this year, you know, we moved up to 384 local dimming zones in our period series, Quantum X, almost double, well, doubled the number of zones from last year. And that was the top rated LCD LED TV. But still, you know, there's a little bit of blooming effect around some of the images, so it doesn't have exactly the kind of blacks that you get on an LG OLED.

At some point, you know, the perceptibility of those blooming zones become you know, much less when you add more local dimming zones. So at 384, as you saw, as we compared an OLED against a Vizio P-Series Quantum X, you're starting to not even see any blooming around the brights. And so, you know, we will continue to push the threshold of what we can do there. You know, also having to be mindful that, you know, yeah, I can put as much as I want into that TV and I've got to deal with the cost and I have to deal with the thermal. And so, yeah. You know, you don't want your TV to be your home heater. Yeah.

So there is some, there are some limits. Well, I want to stay in the hardware for just a minute, and then I, there's some big software news here that I want to make sure we talk about. But just on the hardware for one more beat, it seems like the rest of the industry is talking about next generation hardware. Like we've hit mass adoption or mass, or critical mass of 4KHTR. Right. So that those sets are available.

You are now making them at extremely affordable prices, and there's really just black levels and brightness and color is what you get as you pay more as opposed to maybe two or three years ago or is 1080P and then very expensive. Yeah, exactly. They're very clear steps. Are you thinking, okay, we've got to make a shift to OLED, we've got to make a shift to micro LED, AKs on the horizon, or are you trying to live inside like the 4K HDR world right now? So I think the answer to your question is we are absolutely looking at what we can do from the top of our lineup to enhance that technology and mini and micro LEDs are part of that strategy in the long run. But we're also, we're also open to the thought of OLED. But we're fearful that even though it has such great black

levels, that you don't get the color volume that you get on the P-Series, quantum X with quantum color technology. So, yeah, we would be open to that. I mean, and then more to your point with respect to the evolution of the hardware, there are things coming like 8K, you know, but we're an American company focused on an American market mainly. And there's really just no rational reason this why I would say, hey, buy this Uber expensive TV. When in reality, what are you going to do? Plug your laptop into it and, you know, it's... I feel that if all the people who plug their laptops into the TVs, visit your customers are like... They might. Yeah, it might be, actually. But

Honestly, we continue to look at that every year. And again, being truthful to our brand and what we think we bring to customers, we have to be careful not to go out and overbuild over spec of TV that we can't get into the mainstream of the market. So are your prices staying the same this year? Yeah, absolutely. You'll see comparable pricing, if not better than last year. Oh, better? Yeah, in some areas, yeah.

Very cool. At the top end or at the mid range? Mid-low. That's great. Okay, so that's the TVs. When are they going to start shipping? So, spring. Okay.

It's normal. Normal. The usual CES. Yeah, yeah, exactly. This is our spring launch line up, so it resets at retail in the springtime through, say, June, July. Cool. So that's the TVs. The big news here, though, really seems like it's on the software side.

So you've got Smartcast 3.0. Yeah. It feels like the really big news of SmartCast 3.0, the really big news of CS, honestly, is Apple's letting you integrate airplane, home kit. into that stack. What was that conversation like? Do they come to you and say, look, it's time. We're launching the streaming service. We need to scale. Or have you been talking for a while? Well, I can't go into the details of how long we've been working with Apple. You know, you've got to take a step back and think about the retail space and what someone does when they

buy a TV and you start to think about three major smart home ecosystems and all that stuff. Like, what does a blue shirt say to a customer when they walk in the door at Best Buy, hey, do you have an Android phone? You call them blue shirts? That's great. Sorry, was that not allowed to call on blue shirts? No, this is wonderful. I'm going to call on blue shirts from now on. Oh, sorry, sorry, sorry.

I'll probably get in trouble for that later. But anyway. I'm going to take it as a term of endearment. Yes, it is actually. But it is a difficult task for them when you have three significant and, and I think very competitive, you know, smart home ecosystems, voice AI ecosystems. And we don't want to be that TV where you go, oh, God, it doesn't work with this or it doesn't work with that. And we're really a proponent of an open ecosystem. And so as you look at,

you look at the integration of AirPlay 2 and HomeKit, what you see is, yeah, that TV could have done that before without Airplay 2. Like, you know, you realize that, right? I mean, I sat with you in a bar in New York City a couple of few years ago, and we were launching SmartCats 1, which was all second screen driven. But, you know, we want to make sure that if you're living in an Apple household or a Google household or an Amazon household, that the TV fits into your lifestyle and you don't have to worry when you purchase it. And that actually does simplify the message for retailers of what TV they can promote for the consumer. So did you have to do any additional, I mean, Sprintcast is unique in the industry. It's not, it's the only Chromecast based

TV operating system out there. It's your product. Did you have to do any additional work to support Airplay 2 that was surprising in any way? So, you know, we are, we are the only Chromecast built in TV in the industry. That's that's absolutely true. And that is its own separate vertical ecosystem in a way, right? It's all cast. It works with Google Assistant quite nicely. We've sent a Google assistant with works with Google to even go more broadly than just cast. But that is, you know, it's like when you get, you know, you get a car and it has car player Android Auto, right? If you plug your phone in, you're pretty happy that it is one, you know, it's the one for your car, or your phone, instead of like the one the automaker had.

And so the parallel doesn't go much from a technical detail there, but at least from a consumer expectation standpoint, we're delivering that experience that they thought they would want being an Android owner. Now, if you look at AirPlay, you know, they do strive to solve some of the same problems, you know, remote casting, if you will, of content to a TV. And they do it in roughly the same way in the sense that your phone no longer needs to be part of the sure once the stream begins. You know, and in earlier versions of Airplay, you know, you, if you left, you know, the stream would stop, right? But, but in this case, you know, once the TV takes

over, just like with cast, it just streams the content. Yeah, so we just, just to be clear for the audience, we just watched this demo. Your demo person said, show me mission, Hey, Siri, Show Me Mission Impossible on the TV. And a TV actually went to iTunes and pulled a 4K HDR stream with Atmos and then played that on the TV. Yeah. It wasn't streaming from the phone. That's what most people think. better play. And yeah, and exactly. And that's going to be a consumer education thing. This isn't, this isn't a sprint. It's, you know, just when we launched Smartcast 1, right, you know, I think you and a lot of people in the industry had healthy skepticism about a pure second screen paradigm. And Chris,

your writer, probably, you know, has it half right. You know, we hit a demographic that we wanted to hit with Smartcast 1. But on the other hand, we wanted to broaden that demographic with smartcast 2 to ensure that, you know, we were having the largest total addressable. market we could get. Now that we're on Airplay 2, we have the ability to bring to customers who are in an Apple ecosystem. They have iPhones or iPads or whatever, and laptops. We bring them a set of functionality that Apple has envisioned for what this new future of smart home and, you know, second screen interactions with the TV would look like. And it's not my job to bet on any one of those. I think they can all do great.

And so we did that. But if you take it a step farther, then you add home kit to this picture, which I think is probably going to be something that's even more subtle and lost in the mix, is that's how you get the really tight integration with the iPhone. So when you see things like the widget and the ability to just grab your phone and pause play and do that stuff, this has all been part of our vision for what a TV should do anyway. You know, who wants that old IR clunky remote? Some do.

Some cut their teeth on D-PAT. remotes, right? I have it literally. And so we'll provide that. But on the other hand, you know, the center of the smart home today is arguably the phone. It's not a TV. It's not a laptop. It's nothing, right? And so if you come out with that perspective, which has been our perspective for many years, you start to see that when you have that type and phone integration, like we had with cast on Android, now you have it with, you know, AirPlay and HomeKit on the iPhone. Now we have really an unmatched experience on the, you know, the iPod platforms, you know, iPhones, iPads, and that sort of stuff.

So is HomeKit separate? You had to implement that separately from Airways? It's separate. And some will not implement it. Some that you've already seen announced will not be implementing HomeKit. And so they won't have that tight integration. And we are the first in the exclusive company to demo it, both AirPlay 2 and HomeKit. And I think when you dig deep into that, like we're going to go into an open beta here in the first quarter here, you'll start to see that, yeah, you have to have the two to really

create that seamless, easy-to-use interface. That's really cool. So did Apple put any constraints on what you're allowed to do in terms of, like, tracking with HomeKit? So, like, yesterday I asked Samsung. They announced what they were announcing, and I asked them very specifically, will your ACR be able to look at what's happening on iTunes because they have the iTunes app? And Apple is very clear.

We're saying no, Samsung can't do that. Do they have the same restrictions with you? So I don't, I can't, I will not comment specifically on our, on the terms of the, the, the agreement with Apple, but we certainly honor that, those privacy issues for them. Okay, because I just, I'm going to tell you, I have a P-Series TV. Yep. I just put one in over the holidays at my parents' house. Yeah. And it hits that, it hits the network 10x more than any other device on their network.

And I'm wondering, is that all tracking? Is that just talking, getting the cast interface down? Is it just caching Pluto TV? what's going on there? Because I think that's a big question. I think that's a fine question. I think you know that Vizio has been pioneering privacy, viewing data disclosures for the last several years.

And we actually lead the industry in those disclosures. It could be, I don't know, that it was. It would depend on were you watching TV at the time? Because if it wasn't, I mean, this is really a customer service issue in a way. I don't know. Could be a bug. Honestly, like it's software, right? There could be a bug where maybe the IoT stack that's supposed to be telling the cloud that I'm turned off is doing it all the time.

I actually do not know. But I'd love for someone to call it a customer service. I mean, he's pointing at me. He would love me to call the customer service. What are your parents? Well, no, I mean, I think as smart TVs get more ubiquitous, as more things go on the network, this is the question. What are they doing in the background? What are they watching?

What data is being shared? And now as you have multiple services and multiple giant platform vendors with very different ideas, right? Google and Apple, you support them both. They have radically different ideas about how data should be collected and use. How do you see yourself sitting in the middle of that? And then you are, in fact, collecting your own data. You do run an ACR. Absolutely.

We do that and there are, first of all, we... By the way, ACR is automatic content recognition. I need to be polite to the people. So it's what the glass on the TV sees. Just to be really straight, whatever the TV sees, if the user has gone through the setup process and opted into automatic content recognition, then we will enable that for when you're on certain use cases because there are restrictions. And we don't want to violate the customer's privacy rights. And we certainly anonymize that data. And we don't try to in any way infringe on their privacy.

Having said that, we are the industry leader in those disclosures. And I think you'll see a lot of changes. I mean, in the privacy landscape over the next couple of years, you know, you've California law coming online in 2020, which we are way ahead of in terms of getting on top of that. We have EU stuff that we've already gone down the path on. And I think that will portend really to what happens at the national level. You know, sometimes some people say, you know, what happens in California ends up being, you know. I mean, I think it's amazing that we are now at this point.

I'm at CS. I'm in front of like a wall of TVs. And we're talking about national data regulation. Like, yeah, I think we're, it's a unique place, at least in my history covering the industry, to be in this moment and we're talking about California regulation and GDPR. Yeah. That's not usually what I talk about with TV vendors at CNAs. But you are, I mean, these are basically computers, right?

I mean, they're running tablets, like gigantic tablets. Yeah, look, when we do automatic contact recognition, we give the industry real consumer benefit. And I think that's sometimes lost in the whole story. It's like, wow, did you know I was watching that TV show? And it's like, I didn't know you were watching that TV show, but I know that TV saw that TV show if you opted in. And then we can translate that into how can we better serve you in many different ways. And so there are real benefits.

And so you won't see us shying away from trying to continue down that path, but you will also see that we will continue to lead the industry in terms of how consumers can find out what we're collecting, specifically what we collected, what we're going to use it for, and how they can turn it off if they don't like it. And we'll continue to push the envelope on that and make sure that customers are protected. This episode of Vergecast is brought to you by Fundrise. Fundrise is the future of real estate investing.

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Middleman that have traditionally weighed down real estate investing, saving investors time and money. There's also unparalleled transparency and real-time reporting that let you see how the development of specific properties impact your overall portfolio. So visit fundrise.com slash vergecast. That's F-U-N-D-R-I-S-E dot com slash vergecast to have your first three months of fees waived. Let me ask you like a, I guess like a philosophical question. You guys are committed to low price points and you often beat the industry at those price points. Can you hit those price points without the additional data collection the TV does if you don't have an ad business or a data business on top of the TV?

So that's a great question, actually. We should have a beer and have a long chat about that. You know, I think ideally... I mean, it's only 845. I know. I know. I don't know this is a CES. I've been up all night.

So, look, it's not just about data collection. It's about post-purchase monetization of the TV. This is a cutthroat industry. It's a 6% margin industry, right? I mean, you know, it's pretty ruthless. You could say it's self-inflicted, or you could say there's a greater strategy going on here, and there is. The greater strategy is I really don't need to make money off of the TV. I need to cover my cost.

I need to cover my, you know, SG&A, and then I need to make money off those TVs. They live in households like 6.9 years. The average lifetime of Vizio TV in a house of the 6.9 years, you would probably be amazed at the number of people come up to me and they say, I love your TVs. I have one. And I'm like, oh, and I'm like super excited. And they, yeah, it's 11 years old. I'm like, dude, that's full HD. Or not even full HD. That's 8. That's 720P. But they do last a long time. And our strategy, and I think you've seen this with all of our software upgrades, including the Airplay 2 and the home kit, is that we want to make those backward compatible to those TVs. So we're continuing to invest in those older TVs to bring them up

to feature level a comparison with the new TVs where there's no hardware limitation that would otherwise prevent that. And the reason why we do that is there are ways to monetize that TV. And data is one, but not only. That's sort of like a business of singles and doubles. It's not home runs, right? You make a little money here, a little money there. You sell some movies, you sell some TV shows, you sell some ads, you know. Yeah. It's not really that different than the verge website, to be honest with you. I mean, I would love to get, I mean, if I could charge a couple thousand dollars,

if people would look at the website for 10 years and I. Sell laptops. Yeah. The verge laptop. I've been down the stroke with you guys before. Hey, wait. I love the visual. Anyway.

Thank you. There was a time. But I guess my real question is, what are the home runs then? What are the businesses that let you say it's fine if everybody opts out to the data collection? Look, we're totally fine with that. That doesn't matter to me really at all. No, there's advertising on the TV.

So I think you might have seen we introduced in 2018 what we think adds value to a customer who doesn't want to go buy a cable subscription. They don't want to, you know, they really just want the box to turn on and kind of feel like it is a cable TV box. But it has channels and it has commercials that actually pay for the service that operates that. And then we make a little bit of revenue off of that. That's a very rapidly going business. You don't have to look very far past like Roku's 10Q to figure out that there's a lot of gold in those hills. And that doesn't involve any data collection at all. It's just a matter of serving up ads at a high price.

I think what's really interesting about that is, again, you do have a unique platform. If you look at Roku, they've got kind of massive international scale. So people are incentivized to make a Roku app. You'll probably hit a bunch of TVs. Android TV, not quite as much scale, but you've got an Android app. It's like pretty easy to just like move it over there and whatever Samsung ties and thing. Like that's a lot of platforms for people to support. Is it easy to say, hey, also make a smart cast app?

Well, I think you have to look at a couple of things here. You know, 80% of the viewing minutes on our TVs is done through cable and satellite. Okay. So let's not let that be lost in this equation of all this cable cutting and cable trimming and all that stuff. that's important. And then actually take the next step and you go, okay, of those 20%, 80% of that 20% is consumed by five apps. And then if you go to 10 apps, you get to like 88% of the viewing minutes in there.

Now you're optimizing for like 8% of the overall TV viewing minutes. Why do you have to go that far down the lineup when you have AirPlay 2? It's going to be the leading in the industry in terms of the availability of that. We already had Chromecast, which has. has thousands of applications. And so our strategy is not to have to embrace every first screen application that we have out there. It's to address the consumer needs.

And we know what they're watching because they tell us, we survey them. What apps are you using and that sort of stuff? And we want to make sure those are there. So to answer your question, to make that a longer answer for you, there are certain apps that we still are working on to bring to the platform and we'll continue to do that. But I don't think you should expect that we're going to try to compare. Pete, with any your smart TV platform on the total volume of applications that are on the smart TV itself. Because I think that's massively inefficient for the industry as a whole.

I mean, not just when you look at us as we're an HTML5 smart TV platform. We're not that different from Tyson with Samsung or WebOS from LG. So it's not a big switch for these guys to go port their web-based user interface to our TV. It's actually really straightforward. We are connected to that way in the first place. But on the other hand, I'm not going to go out there and say, God, I've got to have every app in the universe on my TV because the marginal rate of return I get for each one of those

is very, very low at this point. And you're still looking at cable and satellite boxes. Yeah, and you've got to deal with cable and satellite. And look, it's not even our job to force a shift out of cable and satellite. Video Premium Video Services end up being what customers want because maybe changes in price point or feature sets or whatever. We want our TV to be the best TV for that experience.

If you want to go buy an Apple TV or a Roku streaming player, by all means, buy our TV and plug that in. But what I would say is don't think about, if you compare our SmartOS against Roku or any of these others,

don't think about it as this one monolithic number. Think about how you use a TV and think about what's important to you. And when we survey our customers, smart is in the middle of like 40 concerns that consumers have.

It's not at the top. It's price. it's color, contrast. You know, there's all those things that are a TV end up being right at the top. And so we think we're the best TV of the smart TVs in many, many ways. So I was just synthesizing this conversation.

One sort of like, I don't know, verge nerd meme that I hear in our comments or on our Twitter people talk to me is, I just want a dumb TV. I just want that panel with no smarts and I'll figure it out on my own. But it sounds like that lifetime monetization problem would prevent you from just making a dumb panel that you could sell to somebody. Well, it wouldn't prevent us, to be honest with you, what it would do is we'd collect a little bit more margin at retail to offset it.

Again, it may be an aspirational goal to not have high margins on our TV business because I can make it up downstream. On the other hand, I'm actually aggregating that monetization across a large number of users, some of which that opt out. You know, we already have to deal with that today. And it's a blended revenue model where, in the end, Vizio succeeds. But, you know, it's not wholly dependent on those sorts of things like data collection. I'm very excited for what sounds like you promising me that you're going to sell me a P-series quantum. That's just a, I'm kidding. P-Series quantum X.

Both the Lent the PR person just looked at me very angrily. Yeah, if you want one, I'll say too. All right. So here's actually the question I get the most often about Vizio. This is where I end it, is international expansion. So we have readers around the world. You guys are in a few. You're mostly in America.

Do you think about going wider? Absolutely. This is something we tell ourselves, you know, look, when it's right, when we feel like we have exactly the right product that we need to scale internationally, we'll do that. I think you've seen as we transition from our prior smart OS in 2014-15 over to Smartcast and how that's evolving. We're looking at, okay, when does it, you know, when do you get that net promoter rating that you want and all these. these things that are metrics about how how good the product is, how much engagement it creates with consumers. And so we do look at international. It is one of the ways, obviously, outside of brewing market share in North America, which we feel we'll do this year for sure. But,

you know, the biggest way is we could go international. And so we're doing some tests. You know, we're trying to get in there the right way. There are trade barriers in some cases that make it very difficult, as you may be well aware of. And so we just have to look at it all together. And so I don't have anything to announce. But absolutely. We definitely need to expand our footprint at some point. Awesome. Well, thank you so much, Bill. It's always a pleasure to come hang out of Vizio. Regardless of whether we're at CS or a bar in New York, it's always a good time here. Appreciate it. Thank you. So I was Bill Baxter, the CTO of Vizio. I love talking to Vizio and I love talking to Bill. Always super candid, super real about what's going on. Very illuminating.

We're going to have more of these interviews throughout the week while we're at CES. And we're going to have two, count them, two sleep-deprived episodes of the Vergecast coming your way with Dieter, with Ashley, with Vlad, with everybody else we can find the Vergecast to get on a microphone with us. Stay tuned for the rest of this week from CES 2019.