Market Insight

Roku launches new hardware lineup, adds M-GO service

October 09, 2013

Paul Erickson Paul Erickson Senior Research Analyst, Service Provider Technology

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Roku recently announced a refresh to its product line of over-the-top (OTT) streaming media boxes, with the top-end Roku 3 remaining unchanged and the three less expensive models receiving updated hardware and branding. The company's changes to its offerings are outlined as follows:

• The low-end Roku LT receives a new look and retains the same feature set as its predecessor, and remains at $49. The LT remains a product relegated strictly to online sales and occasional retail promotions.

• Roku 1 replaces the Roku HD at $59 and adds 1080p resolution to the feature set (the Roku HD was 720p-only)

• Roku 2 replaces the Roku 2 XD at $79 and adds the remote control headphone jack and dual-band wireless formerly only found in the Roku 3. The only functional difference between the Roku 2 and 3 is the motion-based gaming capability.

• The Roku UI across current-generation Roku devices will receive an update, integrating Technicolor and DreamWorks Animation's M-GO on-demand streaming TV and movie service into the home screen. A shortcut button to M-GO is integrated into the remote control included with the new devices (Roku LT, 1, and 2). 

• For the first time, with the launch of the new models, Roku's product line will have retail availability in all of its current markets: US, Canada, UK, and Ireland.

• Over the next few months, DIAL compatibility will be introduced, in order to allow AirPlay-like device discovery, along with launching of local apps residing on the Roku device, from compatible mobile devices.

• The Roku mobile app for iOS and Android now adds video capability to the existing photo viewing capability - you can now play your phone's videos on your TV via their app and a compatible Roku device. The new video viewing functionality works on all iOS devices and only newer Android devices.

The latest updates to its product line underscore that Roku seeks to outmaneuver both larger and smaller competitors by delivering its core hardware functionality and content access across multiple price bands. It is expected that in the markets within which Roku participates, the standalone OTT STB market will remain primarily a two-player race, as the respective strengths of Apple's and Roku's propositions leave little competitive room for other entrants.

Previously, iPhone and iPad integration for media viewing and playback and easy connection via AirPlay was the Apple TV's trump card. However, as Roku expands the playback capabilities of its smartphone apps to support photos, audio, and video, and adds both DIAL support and an alternative to iTunes (M-GO) for content purchases, it is clear that the company is strategically attempting to competitively erode the uniqueness of each major facet of the Apple TV proposition, from content availability to its iOS ecosystem-centric features.

Roku has not made radical changes in its pricing strategy, nor introduced new technology nor a new top model. In contrast, the company has strengthened and solidified each of its products beneath its flagship Roku 3, increasing its competitive ability versus both sub-$99 competitors and the $99 Apple TV. All of the affected models have now received updated design language in line with the Roku 3, along with upgraded functionality for all models but the limited-distribution LT model.

While the price points of its product line have not changed, the company has strengthened the feature set of each mainstream model below its $99 flagship, with the most significant upgrade to its $79 model. The company has arguably moved the competitive set point further downward towards that price band. While the Roku 3 seems the company's natural competitor for Apple TV at the same price point, it is the $79 Roku 2 that is the company's competitive spearhead for the mainstream. The Roku 2 possesses nearly all the same capabilities of the Roku 3, including the unique remote listening functionality. The company has publicly stated that 40% of customers reported that the remote listening feature was why they opted to purchase a Roku 3. Should Apple release a hardware and software refresh to Apple TV, it seems that Roku is well-hedged competitively; it is unlikely that an upgraded Apple TV at $99 will be able to match either Roku's access to content or its unique remote audio capability available at the $79 level.

As a functional addition to its content strategy, Roku's alliance with M-GO is strategically sound, in that it adds a transactional source of first-run TV and movie content. Independent of M-GO's individual merits, it is a competitive move by Roku to add a functional alternative to the iTunes Store to its overall proposition. Whether M-GO is in reality comparable to iTunes as a source of content is debatable, but its addition only strengthens the already robust and diverse content mix offered by Roku. Roku's continued effort to expand its content portfolio with large and small content providers (including pay-TV operators) reflects the company's recognition that content is a crucial differentiator in an increasingly crowded market for OTT video delivery hardware.

Ultimately even though headphone listening and dual-band wireless are interesting, as is mobile connectivity, it is the amount of content access for the dollar that Roku offers that is still its strongest competitive factor. The company's ability to offer access to arguably the broadest mix of content options (including pay-TV client capability) among all standalone retail OTT STB makers, to both current HDMI-equipped and older  non-HDMI TV sets, for a price ranging from $49 to $99, is a market position that its competitors  will find difficult to erode. Compared to its competitors, such as Netgear, D-Link, Vizio, and more, only Apple maintains a stronger competitive position by nature of its large, well-established brand and Apple TV's integration with a large, established iOS ecosystem.

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