Why HBO Max paid the Roku tax
Following what might be considered an epic Game of Thrones-like power struggle or a Sopranos-style shakedown that puts Billions (shoot, wrong service) at stake, Roku has added support for WarnerMedia’s HBO Max. On Roku, the streaming service finally joins studio-driven competitive services from Disney and NBC Universal as well as incumbents such as Netflix, Hulu, and Prime Video. In addition to hosting all top-tier U.S. streaming options, Roku maintains one of the longest tails in terms of content choices available on smart TV portals.
What does consumer ownership of smart TV platforms and subscription intent offer in terms of understanding what brought WarnerMedia to the table and agree to Roku’s terms as its studio-driven streaming rivals did?
n=500 U.S. adults weighted by U.S. Census
Questions: Which of the following devices, if any, do you own?, Which of the following services, if any, do you intend to subscribe to in the next six months?
Key Stats
51% of U.S. adults say that they own a smart TV or add-on box. Roku claims that its software runs on one in three connected televisions sold in the U.S.
As of September, only 13% of U.S. adults say that they intended to subscribe to HBO or HBO Max in the next six months, significantly less than the 19% that said they intended to subscribe to Disney+.
As of September, only 7% of U.S. adults said they intended to pay for NBC Universal’s Peacock service in the next six months. Peacock, unlike Disney+ and HBO Max, offers a substantial amount of programming in its free, ad-supported tier.
Key Takeaways
Goodbye, scarcity. Hello, market share.
Once, the scarcity of cable carriage allowed traditional cable and satellite providers to charge high fees to content providers, occasionally resulting in a conflict that produced programming blackout, with both sides taking their case to the court of public opinion before the eventual settlement.
But the rollout of studio-driven streaming services showed that broadband-based aggregators can also throw around their weight. While HBO Max had been the last of the major content holdouts among the studio-driven streaming newcomers, it was not the only one, as NBC Universal also threatened to pull its programming during negotiations with Roku, only to make Peacock available on the service a few weeks before the HBO Max agreement. As a largely ad-driven service, Peacock depends even more disproportionately on wide distribution versus carriage on premium devices most attractive to its subscriber base.
Why It Matters. On the Internet, of course, there is no technological scarcity. Rather, platform market share determines the gatekeepers. While much regulatory scrutiny has focused on Apple’s app store, there have also been significant platform control revenue stream opportunities for far smaller platform for Roku and even Facebook’s Oculus group. Roku’s small size may protect it from such scrutiny while its laser focus has given it confidence versus the ecosystem providers, but it has nonetheless become a competitive target.
The bad TV business has been good for Roku
Once thought to be vulnerable as manufacturers added streaming capabilities to their sets, Roku instead lined up licenses among brands from manufacturers that exited the TV business and instead licensed their brands to lesser-known manufacturers. Examples include Philips, Magnavox, Sharp., JVC, RCA and Hitachi. On the other hand, Roku has also embraced relative newcomers to the U.S. market from China, including TCL and HiSense as well as Walmart’s Onn electronics brand.
Why It Matters. In contrast to slick or even overwhelming interfaces on videogame consoles or some smart TVs, Roku saw opportunity to offer value with a simple four-way directional control-based interface that could easily accommodate low-end processing capabilities in a range of inexpensive televisions. Its unique opportunity was imbuing connectivity into a class of popular product that fell into a class of manufacturers without high software-driven customer experience ambitions (unlike automakers) and yet one that has also escaped direct cannibalization by the smartphone.
Joining Team Stream
There’s been much speculation that WarnerMedia wanted to nail down the Roku agreement in time for the premiere of its DC Extended Universe title Wonder Woman 1984, but AT&T’s media division had an even stronger incentive to get a deal done: the ticking clock on the quarantine-fueled customer acquisition opportunity. Theaters face an uncertain future and WarnerMedia has faced blowback for attacking theatrical release windows. Nevertheless, it’s more than the creatives who would like to see theaters providing an alternative to home streaming as vaccinations become widespread by the 2021 summer blockbuster season.
The quarantine has also benefitted Roku’s content efforts. In addition to strong use of the premium services, the pandemic that proved a boon to the kind of Might-As-Well-See-TV that has fueled a strong ad business for the Roku Channel. Roku launched its homegrown service in 2017 as a differentiated alternative to subscription-driven offerings — led by its founding content partner, Netflix — that dominated its channel selection. Now, in addition to hosting “channels for ad-supported pioneers (Crackle) hybrid services (Vudu), and a range of linearly driven newcomers (Xumo, Pluto TV) , it offers prime interface real estate to its own aggregated video programming that it recently brought to smartphones.
Why It Matters. For much of its hostry, Roku’s relationship with rivals that own streaming services, such as Apple, Amazon and Google, has been a one-way street. They’ve wanted placement on Roku’s deck, but Roku had no reciprocal demands. However, as the Roku Channel has become a stronger revenue driver for the service, the company has already done a deal with Amazon for placement on Fire TV; further negotiations could shift the balance of power among the competitors.
Related Commentary
First video, then audio. Roku muscled its way into becoming a de facto choice for a range of TV manufacturers by establishing market leadership with a range of inexpensive TV add-ons, the market power of which has attracted support for streaming services even from rival device makers (Roku was the only other device to support Prime Video at the launch of Fire TV) and Apple.
Now, Roku is reversing its approach as it barrels into the home audio market with inexpensive home theater gear like the inexpensive Roku Streambar. Unlike in streaming video, though, Roku could struggle to compete with giant incumbents like Amazon if it adds to the list of powerful Sonos competitors. That said, it could well steal share from traditional audio brands.
Google’s TV trickle. One of the few licensed competitors to Roku TV has been Android TV, embraced by Sony and, more recently, Chinese CES mainstay Konka as it attempts a TCL-style incursion into the U.S. market. Like Apple, Google has stayed out of the TV set market, but it finally wedged Android TV into its Chromecast line. The resulting Google TV, part of Google’s low-key fall device launch we discussed on the Techspansive podcast, offers a similar proposition to TiVo’s TiVo Stream dongle.
About R3
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About Ross Rubin
Ross Rubin is the founder and principal analyst at Reticle Research and the editor of R3. A technology industry analyst for over 20 years, he and developed services delivering insights at four major technology market research firms. He is also a contributor to ZDNet and Fast Company and co-hosts the Techspansive podcast.