July 27, 2012

Roku Gets a Boost from Content Providers

Roku announced this week they had closed their fifth strategic investment round for a staggering $45M. Significantly, British Sky Broadcasting (the UKs Sky satellite broadcaster) and Sky’s parent company, News Corporation, both joined existing investors Menlo Ventures and Globespan Capital Partners and an unnamed investor (rumored to be Dish Network) in the financing round. In the previous four rounds of financing Roku raised a total of $32M.

Both Sky and News Corp have experience with Roku already. In the US, News Corp properties such as Wall Street Journal and Fox News already have channels on the box. As I discussed in my podcast with Will Richmond last week, Sky has just launched Now TV allowing customers to rent movies and subscribe to Sky Movie Channel directly over the Internet. Roku announced last week that Now TV would soon be available in the UK on their set-top box.

But why would Sky and News Corp both want to invest in Roku, a tiny company that has only sold 3M boxes? This is particularly puzzling when you consider that TDG is forecasting 160 million homes worldwide will have a smart TV by the end of this year. If Sky and News Corp want their content to reach consumers from the Internet wouldn’t this be the most direct route, no investment required?

As I discuss in my latest report on smart TVs released this week, smart TVs present a number of problems for content providers and aggregators. One of the biggest problems is fragmentation of the smart TV platforms. Not only are all the manufacturer app platforms incompatible, often an individual OEM introduces changes that make their own portal incompatible between model years! This will make it virtually impossible for a company like Sky or News Corp to reach all smart TVs without writing many, many apps.

As well, with a lifecycle of 8 years or more, TV sets just can’t keep up with the pace of web innovation. The latest apps very likely won’t run on a two year old TV set and consumers are very unlikely to spend another $1,500 on a new TV just to get them.

What’s needed is a cheap, flexible platform that rectifies these issues. And that’s where Roku comes in. Sky and News Corp can pick the top platforms to develop apps for – like Xbox 360 and Samsung smart TVs – and rely on Roku to reach the rest. Since the box costs as little as $50 (£50 in the UK) customers won’t miss a beat if they need to buy one to get their favorite web video service.

But what of the problem of technical obsolescence? At such cheap prices, customers won’t worry if they need to get a new box every couple of years to get the latest app or service. This will allow Roku to continue to improve their platform and keep pace with all the web innovations we are sure to see in the coming years.

News Corp and Sky both see the value of Roku for their immediate content distribution needs. With their investment in the company, they are making a statement that they believe the Roku approach has a much broader and sustained market appeal.

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