Cable and Roku

Disruptions often occur because businesses confuse their original mission with their current configuration. A great example is newspapers – while newspapers held the banner of “journalistic integrity”, they made their fortunes on the fact that for decades they held a de-facto monopoly on advertisers in their home markets. If you wanted to reach the whole town, you had to put it in the local paper, and this was the engine for their growth and profits. As there started to be many more ways to reach the city (from local TV ads to the internet, etc…) and the monopoly eroded, the “tide went out” on their journalism model because no one was really paying for that, it was just a free ride atop the advertising. This was brought home to me when someone I know left working for a local newspaper in a midwestern city and started working for a non-profit; she noticed instantly how much more polite they were even when rejecting her requests for business; they truly hated the monopoly newspaper and their bile was due to that relationship. And of course the evidence for newspapers’ abject decline is visible in the bankruptcy and stock prices of the remaining entities.

Cellular phone companies, too, are falling into this trap. Companies like Verizon provide a wireless network, and specialized companies like Motorola provided the phones. Between the network providers and the hardware providers, they thought that they owned the experience and would be able to capture large profits in the future. Today, other than when the situation is dire (AT&T), consumers are caring less and less about the particular phone network they use and the hardware, too, is going behind the scenes, as they care about the particular applications on their mobile devices. Apple and its brilliant iPhone took the profits from the network providers, who now are scrambling to hold customers and long-term contracts. And the iPhone itself over time will come under immense pressure on their long term profits as new entrants with similar functionality and access to applications can come in and bring commodity tools to the market efficiently. Originally the phone companies (AT&T, Sprint) and the hardware manufacturers (Motorola, Nokia, Blackberry) thought that they could control the network, user interface, and the content. While Apple is thriving against the new competition (for now) this entire “ecosystem” has not played out in the way it seemed a decade ago, and many of those that expected to capture above-average profits are now either commodity players (hardware) or struggling to keep up with capacity while not being able to leverage this spend into a long term guaranteed return (the cellular network providers). The value is going to those that can “monetize” the mobile advertising experience, which probably will be a group of software(Google) and social networking companies (Facebook).

Now we move onto cable. Cable existed as a foil to over-the-air television, an oligopoly like newspapers that bled its mission white until powerful intruders came and up-ended their business model. Cable started to buy content, and they built a parallel distribution network at huge cost to compete with what was available, for free, over the air. Cable today also is the primary mechanism for broadband internet service, which it links with its paid content (and a bit of phone), to charge large and growing fees.

This article at Bloomberg is titled “The Cable Industry Isn’t Stupid, Right?

The NPD Group put out a survey on Tuesday that suggested monthly pay-TV rates could reach $200 by 2020, up from the current average rate of $86. The analysts at NPD credit rising content-licensing fees and the average 6 percent rate increase that cable companies jam down users’ throats each year.

This is where the dis-aggregation of cable into 1) network provider (one amongst many) and 2) content provider becomes important.

I recently bought my parents a ROKU 2S box. The box is amazingly small, about the size of a mobile phone and a bit thicker. We plugged it in to an HDMI port on their TV and I connected it up to their wireless network (they have cable) and the software updated and the Roku box was working. In the picture below you can barely make out the small box to the right of the front channel speaker.

The Roku menu is very simple, as is the remote. There are a few channels pre-populated, and then you can pick other channels out of the list. The most popular are Amazon, Netflix, and Hulu, although there are many others (dozens or hundreds to choose from). Amazon was most interesting to me because I have “Amazon Prime”, and with Amazon Prime I get free “Instant Videos” through devices like Roku or any other Blue Ray DVD player like my Sony (see here) that has internet access. There are a vast array of movies you’d actually want to watch through Amazon prime, and the streaming worked fine (their connection was about 2MB up or down in the TV Room). Streaming HD at that rate might be a bit choppy but we didn’t notice it in the limited time I worked with it (at home I am able to stream 10MB through my Sony DVD player and it works great). You also can watch myriad TV series only available on cable, so my parents hopefully will like some of these. Today their TV is provided over the air and they like to watch network shows and also a lot of the BBC English TV which is provided over our local PBS channel (4 in fact, for Chicago). HBO GO is another fantastic channel, but I use Direct TV and HBO GO apparently hasn’t struck a deal with Direct TV yet – when they do I will be sure to program that in for my parents, as well. From my perspective this isn’t stealing because I am paying for HBO and Amazon Prime today and my parents are part of my family and each services allow a few devices on each service (not sure about HBO GO, but Amazon Prime allows 2 at a time).

The Roku box and interface is amazingly simple. The founder of Roku is Anthony Wood, who also invented the DVR (Tivo). In this article Mr. Wood discusses his goal:

Wood said the future of TV is in Internet streaming, and the Saratoga company makes simple, inexpensive devices that connect TV screens to a growing world of video – from Netflix movies to commentator Glenn Beck’s show – that is stored out in the cloud.

The device is certainly simple and easy to use, and one of many, from game consoles (XBOX to DVD players to connecting a computer directly). Many new TV’s have this functionality built in, as well. But Wood is aiming their product at people like my parents:

“Our customers are not early adopters,” Wood said. “They’re people who watch TV. We put a lot of effort into making it really simple.”

One item that the Roku needs to include is a seamless interface between over the air HDTV and their channels, and integration of a channel guide with times for over the air TV. I don’t know technically how this can be done but it would be great to have a single interface and remote for both types of television.

You can also play games on the Roku, if you have the 2S with the new controller. Here I am starting up Angry Birds, which looked great. They will have simpler type games like Angry Birds, those that a casual user can play, and the remote is WII-like in that the cursor follows the remote as you move your hand. There is a “free” version of Angry Birds and then you can buy extensions, just like you can on your iPad, once you complete the base version. I was thinking about buying Galaga too but didn’t have enough time to play it yet.

If you are willing to pay a modest amount for Netflix or if you own Amazon Prime and have over the air TV (or someone who has HBO and isn’t using their offline HBO account) you can get pretty much everything except live sports over a device like Roku / XBOX / DVD player / or you computer. Much live sports is available over the air, but there are some events that are only available on dedicated cable.

Cable will have to determine how to fight off these challengers. As cable raises prices, more people, whether strapped by the recession or disgusted with constant rate increases, will consider devices like the ROKU or some other way to get content cheaper. At this point the “bundling” of cable the network and cable the content provider will start to fray. As a network, this is a difficult business to make money as soon as challengers enter the market, given the massive capital needed to build out the network and the multiple years of income streams necessary to pay this off and earn a return for investors.

Content providers, too, are moving into the “cloud” such as You Tube! or just producing directly for the web, like GBTV or other types of artists. Since the costs of straight to the web are so much cheaper than dealing with networks, in the long term this type of service will become a much larger part of the overall ecosystem, in the same way that digital music usurped physical CD’s.

There are new network providers, too. Condominiums are moving to microwave dishes and different connectivity methods than the traditional cable providers. The cable providers won’t come to your building unless they can wire everyone up and push a triple-play package (cable, internet and phone) into every unit. There also are different fixed wireless options coming up for the future, and bandwidth is getting cheaper for major locations that are thoroughly “wired”. The difficulty for the cable companies is that it is much cheaper and easier for them to saturate an existing market that they have wired than to wire up the world – they aren’t the post office. Those saturated customers in the big city or heavily wired suburbs are the ones for which new solutions will be tailored; not the guys in the sticks that are a pain to get to for which there is little competition.

Those expecting ever rising prices for “bundled” cable services including the network component and the content component are likely going to be disappointed. There are many new entrants in this market on the horizon and a general disgust at the established options (at this price point). The future will be disruptive, and Roku is a small part of this equation.

Another element of this is that pulling the technology out of the TV makes it a “dumb box” like your computer monitor. Once you have standard HDMI ports, you can just upgrade your Roku or whatever is driving it and you only need to occasionally replace it when it fails or when a new TV is so compellingly cheap. The dis-aggregation of hardware and software (brains) will slow the growth of this industry, as well. How often do you replace your computer monitor? That will be the type of decision you will make, not buying a TV because of new features or upgrades.

Cross posted at LITGM

18 thoughts on “Cable and Roku”

  1. I have to bookmark your post Carl. I have resisted getting cable for years because I can’t see subsidizing channels like CNN that would fall on their own weight if people could order them separately.

    With cable’s business model even if you don’t like a program you still have to pay for it.

    And their subscription prices have gone though the roof.

    I am one of the few people I guess still using antenna TV although a recent WSJ article says it is getting a renaissance

    In the 80s i started changing my TV viewing habits – I watched hardly anything in “real time” – and with HDTV (and no cable) that option (unless you pay for TiVo? is gone.

    i suppose there wasn’t a public hue and cry because during that interlude most went to cable with their own recording options.

    My DSL is pretty slow – 756kb downloading speeds – what do any of you think is the minimum necessary?

  2. My parents also are slaves to the clock because of over the air high def TV. Luckily their PBS channels show programs on multiple times so they can usually find something that works, and they don’t have to skip through commercials. On network TV over the air they certainly have commercials.

    I think that 756kb should work for non high def movies and shows. The technology is evolving and different services buffer. It also depends on how much wifi you have in your TV room – you may get a poor signal there.

    If you have a family member who has HBO on one of most providers, you can have them put their code in to your device, whether it is an XBOX, a new DVD player with internet connectivity, or a box like a Roku. I’d suggest trying out the Roku (if you don’t want games you can get one for like 60 dollars) – the investment price point is so low it is worth a try.

  3. I wonder if anyone will think of simply buffering the streamed input and allow those of us with slower connections to simply watch it 10-30 minutes later without any jerkiness.

    I do agree that streaming is the future. I have a friend who just gets his content from streaming and I was surprised that he can get, say, last week’s episode of House on Hulu.

  4. Thanks Carl – this is a very timely article for me. And I have to think that buffering this streamed content is just around the corner; after all memory is cheap. And what would a typical 1080p movie take? 2GB?

  5. I think you would need more than 2MB to watch a 1080p video… but once again it depends on how they buffer. I just upgraded from 500k to 20MB (my building upgraded) so now I am home free. But 2MB would get you a lot.

    At the price point of 60 bucks you can just try for yourself. Once again another cheap option is that if you want to upgrade your DVD player to blu ray anyways many of the sony players have lots of streaming services.

    Essentially if you can get hulu, HBO Go, Amazon (for prime), and Netflix you have a huge range of choices. You will have to pay a monthly fee for lost of programs on hulu and netflix. There is lots of stuff on amazon if you already have prime (free shipping anyways). For HBO GO you need that service or to know someone who does that is a close family member who can get it working. HBO GO is awesome everything HBO ever did on demand.

  6. I’m not sure the Roku will do it but there are very small computers, which is what the Roku is, that will run MythTV. These are usually Linux boxes and the the interface takes care of a lot of the ‘too many channels’ problem.

    I ran an early version of part of the interface that ran on a web browser when I had my satellite dish stuff running. 700 channels off Dishes’ birds laid out like a spreadsheet in the browser and you could arrange recording well into the future.

    I have a friend who is not technically savvy and I will probably build him a small machine running MythTV pretty soon now.

  7. Blu-ray discs use crappy compression (MPEG2). With a modern codec (MPEG4), a 1080p movie is maybe 5-6GB. With h264 you can easily fit a 1080p rip on a standard DVD and it’ll look good.

    I’m not sure if “2MB” is meant to refer to a connection that’s 2MBytes/s (fast) or 2Mbits/s (slow). 2MBytes/s is certainly fast enough to watch HD video in realtime – 720p anyway. 2MBits/s isn’t. That would be marginal even for standard definition.

  8. Thanks everyone – I have a good friend who until recently was working at Broadcast International, where he was working on better compression algorithms.

    He was saying that eventually you’ll go to, say, IMDB – see a movie you like – click on the link – and watch it. everything from 1919 to today will be on disk for your viewing.

    I have no doubt its coming.

  9. Thank you for this post. A few years ago I bought a house in St. George, UT to get my parents out of Chicago winters. They really miss HGTV, etc., but I couldn’t justify signing up for a one-year cable or satellite contract. I’m going to give it a try at home and if it works OK I’ll give it to them when they fly down in January.

  10. I work at one of the big providers (it was mentioned in the article) and can tell you they are not taking the changes in the marketplace seriously. They argue mindlessly that it is impossible to offer an ala carte pricing model, where you only pay for the channels you want. They do not have a viable streaming plan, and spend all their energy putting lipstick on the product they currently have.

    One interesting aspect of this situation, is that employees of this company get all the channels for free. That has a numbing effect as to the value of their product.

    Oh yes, I recently canceled my account with them (my employer) and have four Roku boxes in my house. Here is my setup:

    1. A Dell Zeno HTPC in the living room. Serves up content from a 2TB hard drive, and has a hdtv tuner. The latter allows the Zeno to act as a dvr, using a free program guide. The Zeno can also be used as a regular pc for browsing, etc.

    2. Roku for each tv, including the main tv in the living room. The video quality from the Roku is far superior to my employer’s offerings because of the amount of compression providers use on their channels. The main tv Roku has a wired connection, where the others use wireless (which is super easy to setup and use, compared to cable, satellite, etc).

    3. Plex software runs on the PC, serving all my local content to the Rokus. The Roku’s have the Plex channel installed on them. Plex found all the metadata for all my content (after a little file name editing; and I mean a little, not weeks and weeks of editing) so that local content has a better guide (pictures, textual description, etc) than the Netflix stuff.

    4. subcriptions to Netflix, HuluPlus, MLS, foxsoccer, NBA, Mog. Here is a point your article didn’t address: when you actually only pay for content you want, your money goes a lot further. A Lot Further.

    The Mog channel is for music. For $5 a month, you can listen to any song or group you want, any time you want, at 320kbs quality. It is like Pandora except much much more interactive.

    One last thing. The viewing model for Roku is the inverse of cable/satellite. With the latter, you wait for a program to come around, before you can watch it. Of course you can record a lot fo shows on your dvr, but often times a person wants something new to watch. With Roku and it’s channels, you can watch anything in their catalog, any time you want. There is always something new to explore, as well as tons of things you already know. The amount of content at Netflix and HuluPlus alone is staggering. HuluPlus for instance, has 500 title from the Criterion Collection.

    I have kept my identity from you because the company I work for would fire me in a heartbeat for the heresy I have provided here.

  11. There are two {that I know of} machines that will record OTA{over the air} HD. The Channel Master will record in High Def, while the Magnavox will record in SD, or display live in HD.
    They can be set to record using scheduled timers, or on the fly. The Channel Master has several tuners, so it can record more than one OTA show at a time.
    The Magnavox also can transfer recorded shows to recordable DVD media, either in real-time or high speed depending.
    I had C-band dish until it was discontinued since 1992, and got a lot of what I wanted with little filler for very reasonable price. Less than the lowest current Dish or DirecTV rates. That was recordable if you didn’t mind setting two timers, one for the recorder, and one for the tuner/dish mover.
    Currently we are OTA only, and have more than enough to watch. I do miss A&E, Discovery, History and The Learning Channel, along with FOXN. SciFi {SyFy??? What does that mean?} became something else, and has quit producing original series to my knowledge.
    Maybe there will be dis-aggregators that allow a ala-carte selection of those that are valued.
    I do feel people are quitting both the pizza dish and cable in increasing numbers as the vendors greed and avarice are becoming obnoxious. The studios may have to go through some lean times before they respond to the customer rejection of their product.
    If there was a Roku with a buffer, as mentioned, it would work for me as I am limited to a 1/2Megabit pipeline unless I want to pay near $100/mo. No thanks…

  12. Okay, really, how plug n’ play is this stuff? I’m asking as someone who has zero level of patience with home electronics, and has the collection of broken remotes to show for it.

  13. The roku itself is very, very simple. You just need to plug it in to your TV’s HDMI port and then connect it to your wifi connection. To do that you need to know its broadcast name (SSID) and password.

    Then if you want content that isn’t free you will need to sign up for that, like Netflix or Hulu plus. You can do that on the web and then connect the Roku to it once and you are done. Also if you already have amazon prime you can connect that up, too.

    Everyone else – thanks for the comments, they are great. I do not consider myself an expert, more of a “late adopter”, and this is appreciated.

  14. As Best Buy slowly sinks and its business model fails, there are a lot of kids who work for their “Geek Squad” division who are very good at installing and setting up these devices. I fully expect Best Buy to dissolve into that service model. I don’t even think you have to buy from Best Buy to call them now. Something to think about.

    I was living at Lake Arrowhead, which is pretty remote and had to set up my new TV myself. My best tech days are behind me. I am back at sea level since my stroke and heart attack last year and service is much more available. My sons tried to help me last year but they are not as savvy as I am and we never got some things working right. No Geek Squad in the mountains.

  15. A small point. All the DVR boxes are simply Linux computers set up to do TV recording. Almost any computer will do just fine and is the best way to record online content.

    If you have a computer in the stream you do not need a DVR.

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