There was probably a lot of eye rubbing as Roku (ROKU 2.14%) shareholders tried to assess the streaming pioneer's nearly 14% slide on Wednesday. The surprising culprit -- Comcast's (CMCSA -0.26%) Xfinity -- turned heads after announcing that it will include the rental of a proprietary streaming device at no additional cost to its internet-only subscribers.
Getting a streaming device without having to shell out any more money sounds scary if you're the competition, especially industry leader Roku with its 30.5 million active accounts that combine to spend roughly 3 billion hours a month streaming entertainment through its devices. Did Xfinity just start a price war where the opening shot is the zero? Then you have to realize that, well, this is Comcast. This is a cable giant that just a few years ago was voted the worst company in the country by Consumerist readers. If four of the world's biggest names in consumer tech haven't been able to disrupt Roku's market stronghold with their own streaming platforms, is Comcast really going to be the one that drives a stake through Roku's heart? I doubt it. You probably do, too.
Flexing its muscles
Comcast is taking baby steps to lick its credibility problem, so let's not dismiss this threat solely on consumer perception of the Xfinity brand. Comcast is faring better than most of its lesser rivals as the cord-cutting revolution plays out. It's also doing a lot of cool things outside its cable and internet stronghold.
However, back to why Xfinity Flex won't be a footnote on Roku's headstone, let's size up the current situation. Comcast has 25.6 million internet customers, a big number, but keep in mind that Comcast is offering the complimentary streaming box rental only to folks paying just for internet access. So if you happen to be an Xfinity internet customer but also one of its 20.6 million cable television accounts, you're not getting the Flex. Comcast isn't dumb. It realizes that if it arms folks paying fat cable bills every month with streaming devices, it's just a matter of time before they realize they don't need cable television given the growing number of premium and ad-supported platforms.
This doesn't mean that you can just subtract 20.6 million from 25.6 million to arrive at 5 million Xfinity customers as the current number of folks eligible for Flex boxes with their subscriptions. Xfinity also bundles internet phone and home security products, and ultimately two-thirds of its total 28.5 million residential customers are paying for at least two of those platforms. This doesn't raise the ceiling to 9.4 million -- the third of those accounts on just one product -- since that includes folks only on the hook for cable TV. Reality is somewhere in the middle, and even that is probably a generous estimate when you consider other factors.
For starters, a lot of Xfinity internet-only customers likely already have a smart television, and for smart TVs, Roku's operating system is the top dog for built-in platforms on third-party manufacturers. The rest should already own a streaming device, because why would you be paying Comcast only for internet unless you were taking care of your video needs elsewhere? In short, demand for the Flex box is going to be weak with existing customers and a potential consideration only for the slow trickle of new accounts hit with the offer as they sign up.
There's also the value consideration. Xfinity has been offering the Flex box for $5 a month, and it apparently hasn't taken off, judging by this new strategy. Comcast will continue to charge $5 a month for any additional Flex boxes.
It's no wonder folks weren't paying Comcast for these rentals. A similar Roku Express+ with the voice remote included in the Flex deal costs less than $40. Who would pay $5 a month for a device you could own outright at that rate in eight months? Even the free offer isn't a bargain if you have more than one TV in your home. If you have three TVs, you'd be paying the same price in a year and actually own the three Rokus instead of having Flex rentals (two paid and one complimentary). Oh, and let's not forget that Xfinity Flex doesn't offer access to the thousands of apps available through Roku. It's good to be the king.
The math doesn't add up. The value proposition doesn't promote growth. The disruption isn't very disruptive. In a world of so many compelling consumer discretionary stocks vying for your entertainment dollar, is Xfinity parent Comcast really at the top of your list? Roku may not be on top forever, but there is little chance that Xfinity Flex is the king slayer.