Roku Shakes Up Streaming Video Devices

When Netflix (NASDAQ: NFLX  ) first brought us streaming video, it was the service more than the device that got people talking. Now, as dedicated streaming video devices continue to invade the mainstream, a new study from Parks Associates has revealed that Roku is the primary device of choice in more homes than Apple (NASDAQ: AAPL  ) TV; Google's (NASDAQ: GOOGL  ) Chromecast is likely too recent an entrant to the space to have achieved meaningful market penetration.

The data
According to Parks Associates, a recent study of 10,000 U.S. homes with broadband revealed that of homes that have a streaming video media device, 37% primarily used Roku versus 24% for Apple TV. When coupled with the additional result that since 2011, the number of homes that have such a device has doubled to 14%, the growth for Roku is meaningful. The firm further predicts that by 2017, the number of connected TV devices sold annually worldwide will reach 330 million. This is a meaningful market and one that can drive a lot of consumer dollars into the hands of select companies.

A differentiated market
One of Netflix's early appeals was that the service was available on and through a wide array of devices. The company had a fair amount of success convincing manufacturers of TVs and gaming consoles to include the service as a "built-in," giving Netflix immediate exposure. Then, through the pervasive advent of apps, Netflix was quickly available on tablets and then smartphones. Finally, along came the streaming video device.

The interplay between services like Netflix and streaming device manufacturers has remained one of cooperation -- the more services Roku, Apple TV, and Chromecast can offer, the better -- but you must begin to wonder if this will become a new battlefield as well. As an increasing number of smart TVs come along, you must expect that most will come equipped with one or more of these services already built in. The appeal thus far has been the low price that these devices carry, but as integration continues, how the pie gets sliced up will be critical.

The services themselves -- like Netflix -- will likely be content to continue receiving revenue from subscribers, but what about the device makers? If Apple brings its own smart TV to market, it will clearly be able to capture more revenue, while still providing the same services and access to purchases through iTunes. Google's late entry into the market makes any true visibility challenging, but you can be sure it will get involved in some way.

This leaves a big void for Roku, although Roku's Streaming Stick enables TVs already in much the same way as Chromecast. Where I believe Roku is differentiating itself from its competitors is in the breadth of channels it offers, and the level of customization. Much like Google's YouTube allows channels to be created and carried via the Internet, Roku offers developers the ability to bring new channels to the Roku customer base. As production becomes a less and less expensive proposition -- and independent content rises in popularity (if YouTube provides a fair representation) -- then these custom channels may give Roku a unique place in the market.

What does it all mean?
Before considering what conclusions may be able to be drawn from this information, there's a hypothetical I would offer on the data. The study cites what device is "primarily" used by the studied households. When I contacted Park Associates for clarification on what was meant by the term, the firm explained that 84% of respondents said they had only one device. The remaining 16% -- those with more than one device -- reported that they used Roku more than Apple TV. 

The other big question I had was whether devices like tablets and smartphones, which can easily be used for streaming services like Netflix to your TV, were counted. Park Associates explained to me that the 37% and 24% figures for Roku and Apple were specifically focused on streaming video media devices -- the remaining percentage covers other options, but specifically not game consoles, Blu-ray, or smart TVs, and the whole studied did not investigate iPads or iPhones that were used to stream video. What this means is that Apple may have a bigger footprint in the space than was reflected.

On a broader scale, I believe that this type of data reveals an important paradigm shift going on in home entertainment. Regardless of the device, as more and more households begin to rely on streaming content, the very nature of the TV industry will change. Less and less content is being watched in real time, meaning that the relationship between advertisers and cable and satellite providers is likely to change. Looking ahead, watching this type of data should give you a powerful insight into how consumer dollars will flow to these companies and which will flourish.

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Read/Post Comments (6) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 19, 2013, at 8:31 PM, enwealthen wrote:

    I love my Roku for two primary reasons: saving $80/month from canceling my satellite subscription, and the simple remote control. I've streamed video from my PS3, laptop, even my phone, and it works, but nothing compares with being able to kick back on the sofa and use your remote control to click through your entertainment. Sure, Roku doesn't have Youtube, and Chromecast does, but you can't underestimate the power of simplicity and the remote control that everyone is used to.

    If you want to know more about why and how I switched to Roku + Netflix, I wrote about it at http://www.enwealthen.com/2013/08/the-great-tv-conspiracy-or...

  • Report this Comment On August 20, 2013, at 12:45 AM, mtairyvi wrote:

    I have 4 Roku's and have convinced dozens of friends to give up cable and join the lower cost (or free) benefit of using Roku.

    You can get YOU TUBE to your TV via a pay-one-time computer program called www.playon.tv

    The difference is that this program is on your computer, and for access to the many additional channels provided, you have to keep your computer on to use it.

    Use your Roku Remote... Play ON is just another channel once you set it up.

  • Report this Comment On August 20, 2013, at 5:25 AM, Henry3Dogg wrote:

    "a new study from Parks Associates has revealed that Roku is the primary device of choice in more homes than Apple (NASDAQ: AAPL ) TV"

    Untrue.

    Since the study only looked at homes in the USA, it only showed that Roku is "...the primary device of choice..." In more homes than Apple TV in the USA.

    But Roku is basically a US device. Apple TV is worldwide.

    Apple TV is way ahead of Roku worldwide.

    I note you don't explain who paid for this "study" and how they defined and measured "...primary device of choice..."

  • Report this Comment On August 20, 2013, at 8:35 AM, moopert wrote:

    I don't get the reasoning behind buying another device to stream to your TV when you could hook up your PC with a simple HDMI cable and get the same thing.

  • Report this Comment On August 20, 2013, at 9:23 AM, dogjudge wrote:

    For all of the people that I've talked to (unscientific to say the least) cable and dish have successfully killed the goose that laid the golden egg.

    The four negatives that I see:

    - While cable/dish started with reasonable pricing, perhaps $30-40, for basic to mid-level programming, their pricing has gone crazy. $80-100 for basic to mid-level pricing.

    - Although I haven't had problems, many people that I speak to have had constant customer service problems.

    - Pricing is ridiculous. "Special" deals offered to new subscribers. Deals that are only applicable for the first year and then you get hit with significant increases. Looking at pricing for new customers while your prices are maybe 30%+ higher. "Special", off the books pricing if you call and threaten to cancel service.

    - Last, but not least, bundling. I really don't care that they have six shopping channels. I don't care that they've got six religious channels. Etc., etc., etc.

    Aereo is coming to my area soon. Between that and Roku, I figure I'm going to cut off cable and save at least $80.00/month.

    Unless cable/dish come up with new pricing structures (including elimination of bundling), they are simply going to lose market share.

    The only way that I can see around this is for them to make exclusive deals cutting out competitors, but I think that cat is out of the bag already.

  • Report this Comment On August 21, 2013, at 3:23 PM, maddogpilot1 wrote:

    Roku, Apple tv, etc.. are essentially "portal replacements" for traditional cable tv. You must alter your viewing habits a bit but once that adjustment is made it;s really no big deal.

    I've always liked the idea of A la carte tv and if you are one of those that doesn't need the tv on all day.... these devices are for you.

    Oh, saving money is cool, too!

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