Roku’s Challenge, Streaming TV Platform Wars

Embedded toward the end of this article on TCL, is an interesting nugget about Roku. The whole article is about TCL, which remains one of the fastest-growing TV brands and is truly operating on a low-end disruption strategy in a way Vizio could not execute on. Part of this reason is TCL is a much larger Chinese tech company with a fair amount of IP and technology that Vizo never had.

TCL smartly partnered with Roku and is a significant part of Roku’s success. While streaming sticks and boxes were not a bad way to get started, integration with the TV will always be a better way to drive adoption and usage, and I have no doubt the TCL partnership is a big reason Roku has done so well.

Roku is the Windows or Android of the TV world for the moment. Android TV has done well outside the US, and FireTV has been growing but needs more design wins as the primary TV operating system before it can truly ramp it’s user-base.

I’m not sure Android TV has much chance in the US at this point, so when it comes to TV platforms, it seems like Roku or FireTV are the only games in town. I know people want to argue for Apple TV as a player, but I will address that in a moment.

I first want to highlight something in the article that speaks to Roku’s challenge by relying more on being an aggregator of content and TV services. From the Protocol article:

There’s only one problem: Roku doesn’t share its advertising and services revenue with TV manufacturers like TCL, Protocol learned from multiple industry insiders with knowledge of these relationships. What’s more, Roku controls virtually all aspects of its operating system on TVs manufactured by partners, making it much harder for TCL to promote its own services.

That’s very different from the way other TV platform providers engage with hardware manufacturers. Google, for instance, gives TV makers a dedicated section on the Android TV home screen to highlight apps or content of their choosing, which some device makers have been using for paid promotions.

Amazon is said to offer partners financial incentives as well. Amazon’s general manager and vice president, Marc Whitten, declined to comment on specific deals with hardware manufacturers during a recent conversation with Protocol but acknowledged that there is an industry-wide shift toward recurring revenues. “It would be rare to find a hardware company that’s not thinking about downstream revenue these days,” he said.

My concern for Roku is they will suffer from the challenge of being a one-trick pony. They must focus on more specific levers for growth than Amazon does because the only business model Roku has to lean on is advertising. They will be reluctant to share that much revenue from ads, and even a cut of the small percentage they get from subscription services they can help drive. Despite Roku’s stinginess, I suspect they will have to share some revenue with hardware companies, but, I think the financial upside for TV hardware OEMs may be more lucrative with other companies than Roku, which has me more concerned about Roku over the long-haul.

Streaming TV Platform Wars
The shift to cut the cable bill and move to streaming apps and services is accelerating. Most estimates now have the cable subscriber losses in 2020 to be north of 6 million and some as high as 8. Each year those estimates have been low but assuming it is in that range, that is a steady loss for the cable business.

It’s hard to bet against Disney at this point, given the overwhelming success of Disney+ and the opportunity for them to leverage Hulu and provide more content bundles. Cable networks seem to understand their revenue model is changing and are looking to streaming services and their apps as a part of this transition away from broadcast distribution. This shift will take time, but it is inevitable, and I’m not optimistic the traditional broadcast cable providers will figure it out or have a chance competing with the new guard.

Given there still needs to be an aggregator of content in this new world, the platform for these apps and services is an important part of the debate. I mentioned Apple might have lost too much ground here, and my worry for Apple is they simply become an app for content and not a platform. As of now, I view Apple’s play with TV to be more like HBO than Roku, or FireTV, or Android TV. I know folks at Apple would disagree with me on this, but that is how I see this playing out for now.

While there will be a battle for the apps themselves, the platform you use to navigate, discover, subscribe, and more is one of the more interesting and less talked about parts of this war. Controlling the TV interface puts the winners in a strong position when it comes to media and entertainment.

If I had to pick the platform I think will win, in the US at least, I lean toward Amazon with FireTV. I think they pose a much larger threat to Roku than many realize, including Roku investors, but it all comes down to getting more deals with TV OEMs.

Lastly, on Apple, if they are serious about being a TV/movie content provider I think they need more content an some IP. I think it would be very interesting if they bought ViacomCBS even though I know it would be expensive. But if they are serious something like this may be necessary. It also may be time for us to reignite the Apple should build a TV debate ;).