Roku (NASDAQ:ROKU) used to compare itself to large pay-TV providers in its shareholder letters. Now, the cable companies are doing it themselves.
Two of Comcast's (NASDAQ:CMCSA) strategic priorities that were outlined by CEO Brian Roberts on the company's recent earnings call were aggregation and streaming. That's exactly what Roku does in a nutshell, and Comcast has taken several steps to copy Roku's products. Can Roku stave off the giant conglomerate?
Bringing content distribution into the 21st century
At its core, Comcast has always been an aggregator. The cable-TV bundle is just an aggregation of networks from various media companies, packaged up and sold to the end consumer. But there are a lot of sources beyond a cable bundle these days, and Comcast wants to be the one that brings them all together.
The company offers its X1 set-top box to video subscribers and the Flex box to broadband-only subscribers. Both use the same underlying software to aggregate content with a focus on video-on-demand from various sources.
Comcast has licensed its platform to a couple of other cable companies but sees much more potential to reach a broader audience. Roku, for example, counted 46 million active accounts on its devices as of the end of the third quarter. Comcast had just 32.7 million customer relationships as of the end of September.
The cable giant is reportedly in talks with Walmart to develop and distribute a smart TV using Comcast's X1 platform, according to The Wall Street Journal. The report says Comcast is considering a revenue-share agreement with Walmart, which is something Roku has resisted with its smart-TV partners.
"We look forward to expanding this expertise to other distributors," Roberts said of Comcast's X1 software on the earnings call. He believes "an even larger nationwide, and potentially international syndication model, will create new opportunities in this rapidly changing ecosystem." In other words, Comcast wants to get its platform into as many homes around the world as possible -- just like Roku.
Investing in ad-supported streaming
Comcast released Peacock this summer and now counts 22 million sign-ups for the streaming service. The company is highly focused on the ad-supported aspect of the service but also offers a $10-per-month subscription tier to remove the advertisements.
Comcast has mostly used Peacock as a differentiator for its broadband offering, including the $5-per-month subscription tier with its broadband service. It also offers its broadband households a free Flex device. The strategy has resulted in 1 million customers taking the Flex device and has made Peacock the No. 1 streaming service on the platform.
Those numbers pale in comparison to Roku and The Roku Channel, though. As mentioned, Roku has 46 million active accounts and says The Roku Channel reached households with an estimated 54 million viewers last quarter. What's more, it's seeing growing engagement among those viewers, with hours viewed growing twice as fast as the overall platform last quarter. Comcast didn't provide any details about viewer engagement with Peacock.
But Comcast eventually wants to make Peacock more than just an add-on to its broadband service or Flex devices. It wants to be on every major streaming platform but has faced roadblocks in negotiations with some, including Roku. (The two finally signed a deal in September, two months after Peacock's launch.) Roku, likewise, has expanded The Roku Channel well beyond its own platform.
Unlike Roku, Comcast is investing heavily in licensed and original content for Peacock. The Roku Channel has shifted to mostly providing content from other media companies and sharing revenue from ad sales. That gives Comcast a greater incentive to get the service in front of people, including developing new devices with its software and pre-installing Peacock. Pre-installing The Roku Channel on new Roku devices has been a key to its success.
Roku investors shouldn't be afraid
While Comcast is a massive media company with tens of millions of pre-existing customer relationships, Roku is still in the leadership position when it comes to video aggregation and streaming. It's successfully overtaken other big competitors in the device space, including Samsung's popular smart TVs.
Comcast is years behind when it comes to device development, retail partnerships, and streaming content-distribution agreements. It also doesn't have the same consumer brand as Roku.
Expanding beyond its own customers will be difficult. Still, Comcast is leading the way among the pay-TV giants in adapting to consumer demands for home-video entertainment and creating greater customer loyalty by competing with Roku.