Market Insight

Roku’s New Lineup Shakes Up the DMA Status Quo, Causing Competitive Positioning Issues for Google, Amazon, and Apple

September 27, 2016  | Subscribers Only

Paul Erickson Paul Erickson Senior Research Analyst, Service Provider Technology

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Roku recently announced a new product lineup for its line of standalone streaming video players. The products and developments announced included:

  • Two new entry-level models, the $29 Roku Express and $39 Express+. Both are 75% smaller than the Roku 1 they replace as the low-end option in the Roku line. The Express+ adds support for component output, to allow connection to legacy TVs with analog audio/video inputs. Both models utilize single band Wi-Fi, support 1080p maximum resolution, and have twice the processing power of the Roku 1. Both models also have full Roku content portfolio access, and support both voice search and private listening through the Roku mobile app.
  • The $49 Streaming Stick is the only surviving member of the prior lineup, and remains the sole stick form factor option in the line. Compared to Express models, it offers dual-band Wi-Fi, has a Wi-Fi instead of IR remote, and is a more portable form factor for those using it on travel.
  • Roku's midrange models are now the $79 Premiere and $99 Premiere+, with both models supporting 4K resolution in a form factor 40% smaller than the current Roku 4. Premiere models feature dual-band Wi-Fi, a quad-core processor, and also eliminate the Roku 4's cooling fan. The Premiere+ adds a Wi-Fi remote with private listening jack, connectivity, and HDR10 support.
  • Roku's top end model, the $129 Ultra, builds upon the Premiere+ by adding optical audio out, a mic-equipped voice remote with gaming buttons, and remote finder functionality.
  • The Premiere and Ultra models all support 4K at 60fps, and utilize the same SoC. The Ultra model has additional storage for increased channel caching. All three models also support a night listening mode, with dynamic range compression of audio.
  • Roku's universal search now supports over 100 channels, with search results prioritized in order of price from low to high.
  • The new line debuts in US, Canada, and Mexico in the Fall of 2016, and likely to be rolled out to other markets in 2017.

Our Analysis:

Roku’s latest product line refresh is an overhaul of the company’s long-held product naming scheme and price/product tiers along two main vectors – affordability and picture quality. The revision is well-timed, given the rapid drop in 4K TV set pricing and increased competition in the streaming video device market. The company’s steady success in the mainstream consumer streaming media device market and the service provider market has seemingly emboldened the company to expand both its platform’s capabilities as well as its product line depth.

Roku has one-upped Amazon and now leads in cross-content search with support for more than 100 sources – a tripling compared to last year. Combined with the deepest content access in the category (over 3,500 channels), Roku has strengthened the agnostic, consumption-first position that has become the company’s trademark. 

Roku’s new hardware lineup, spanning 6 models from $29 to $129, is a seeming declaration by the company that it intends to own the market. The depth of products is a clear and determined effort to capture streaming video consumers of all levels of need and budget. Underscoring this point is the Express+, which replaces the former Roku 1’s place in the lineup as the only device on the mainstream market still able to serve consumers with legacy non-HDMI TVs.

Low budget model to likely cause Google and Amazon to drop prices 

At the low end, Roku’s new $29 Express model is expected to cause an eventual pricing and positioning reset for Google’s Chromecast and Amazon’s Fire TV Stick. The previous bar for full standalone functionality was $39 for Fire TV Stick, with Chromecast offering basic enablement via casting for $35. The new Roku Express significantly drops the cost of entry for full standalone functionality and will undoubtedly exert pressure on Google to drop the price of the casting-only Chromecast to price parity or below. Amazon is also expected to respond competitively with Fire TV stick pricing, either with a drop in regular price or more aggressive Amazon Prime member specials, to avoid a significant price gap with a competitor offering.

4K and HDR support is cause of concern for Amazon and Apple 

At the opposite end of the spectrum, Roku has also dropped the cost of entry for both 4K and HDR support. This will cause positioning concerns for Amazon’s Fire TV, which offers 4K at a higher price than Roku Premiere, and lacks HDR support at the same price tier as Roku’s Premiere+. All of Roku’s 4K models deliver 4K at 60 frames per second, which Fire TV is also incapable of.

While Apple’s $149 Apple TV enjoys innately strong and largely price-insensitive traction with the iOS device user base, Roku’s delivery of both 4K and HDR at price points lower than today’s 4th generation Apple TV will draw consumer attention to the lack of both in Apple’s offering. Apple may thus adjust its current Apple TV pricing scheme downward earlier than planned once channel inventory of the previous 3rd generation Apple TV is finally exhausted.

Express model to cause the most competitive disruption

With this new lineup, though added midrange and high end depth will address the growing 4K TV set market, Roku’s most disruptive product in the new lineup is undoubtedly the new entry-level Express model. Chromecast’s low price, despite not being a standalone product, propelled it to become the most popular-selling streaming device in the world. With that as background, it is expected that Roku Express’ delivery of full standalone capability at an even lower price point will result in a strong consumer response.

Due to Chromecast’s proven success in low cost streaming enablement at $35, and Roku Express’ offering of true standalone functionality at an even lower price, consumer response this year-end holiday season is expected to be very positive. This strong increase in low-end model demand upgrades IHS Technology forecasts for Roku to 14 million units shipping in 2016, steadily growing to 20.4 million shipping in 2020. This places Roku ahead of Apple TV’s global shipments of 11.8 million units in 2016, and behind Chromecast at 17 million units for the year.

With this reshuffle of the DMA market’s deepest deck, the next weeks and months will bear watching to observe what changes in pricing and positioning Apple, Google, and Amazon make in response to Roku’s new lineup. Should Google launch a new Chromecast, its pricing will be of particular importance in light of Roku’s new assault on the market at price bands both above and below today’s $35 Chromecast.

The price of Roku’s extensive new range of products is potential consumer confusion. Roku’s challenge with its new, deeper lineup will be clearly communicating to consumers both differentiation and purchase justification for each product in the new line. Without this, consumers may find the depth of choices difficult to navigate when figuring out which product best suits their needs. 

The competitive shake-up and competitors’ resulting repositioning over the next two quarters caused by Roku’s new lineup and particularly its Express model will create one clear winner – the consumer. Roku’s role as competitive foil to the giants of Google, Apple, and Amazon will result in collectively greater levels of choice and functionality at lower price points than ever before for streaming video consumers.

 

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