The wait is over for Walmart. The company has just closed its acquisition of TV maker Vizio. The acquisition first made news back in February, but has since been in a holding pattern due to standard federal regulatory approval. Now, Walmart is free to proceed with the all-cash $2.3 billion deal.
Since the deal was first announced, the biggest question is Why? Why would a retail giant acquire a popular budget TV maker? On the surface, this could flatten its supply chain for greater unit economics in popular product categories like TVs and soundbars. Vizio has become a popular choice for both.
But a bigger reason lurking beaneath the surface has more to do with a theme we often revisit here on Localogy Insider: revenue diversification. For Walmart – and most retailers – the most logical and synergistic path to diversification lies with retail media. This brings ad dollars into the retail revenue mix.
Backing up, retail media’s primary domain is physical spaces themselves. The thinking is that retailers sit in a unique and influential spot to propel consumer spending at lower and cash-register adjacent portions of the purchase funnel. But a growing trend in retail media is to utilize offsite inventory.
Latest Frontier
That brings us back to Vizio, which is Walmart’s vessel to bring retail media beyond its own four walls. In other words, it can build an ad network that includes both in-store inventory and consumers’ living rooms. This also importantly taps into the latest frontier for digital advertising: smart TV interfaces.
That last part requires a bit of background. Competitive pressure in the TV world has driven prices down. To maintain margins, TV brands from LG to Samsung increasingly treat their smart TV interfaces and menus as commercial zones. Some, like Roku, also offer free ad-supported streaming content.
Sony is one exception, as most of its TVs run on GoogleTV, which has limited ads. AppleTV (OTT) users also sidestep ads. But several Smart TV operating systems, including Vizio, include an ad-rich environment. Vizio’s Smart TV operating system SmartCast has more than 18 million users.
So for Walmart, Vizio positions it to sell ads in all new ways. And when you combine that with its in-store retail media endeavors, it can start to achieve economies of scale. In ad network terms, that translates to greater reach, cross-platform targeting, format variety, and sales bundling opportunities.
Elephant in the Room
When looking at all of the above, the elephant in the room is Amazon. Walmart’s online rival has shown what can be done by bolting advertising to e-commerce. There are natural synergies and, again, revenue diversification advantages. Walmart no doubt sees Amazon’s exploding ad business as validation.
On another level, Amazon’s ad business has likewise expanded to the living room. It’s increasingly blitzing that domain when you consider the Prime TV app, as well as Amazon Fire TV set-top boxes. More directly related to Walmart’s Vizio play, Amazon now sells full-fledged white-label TVs.
There could also be competitive pressure driving Walmart’s Vizio play. Amazon last year surpassed Walmart for consumer spending in the U.S. So it could be getting nervous due to the maturation of its core retail business, which is often the biggest trigger for revenue-diversification moves like this.
An open question is whether all these retail media networks – now propelled by Walmart’s latest expansion – will impact ad markets. In other words, will it lead to ad-inventory oversupply that competes for zero-sum – and downturn-impacted – ad spending budgets? Walmart and Amazon will soon find out.
