How Roku Hopes to Move From Boxes to TVs

By Joshua Brustein 

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Courtesy Roku

Roku TV

For several years, Roku has been making delightful little boxes that allow people to watch video streamed from the Internet to their televisions. Now the company is cutting out the middleman, working with Chinese manufacturers Hisense(600060:CH) and TCL (2618:HK) to sell Internet TVs powered by its software. Roku first announced that it was building televisions at the Consumer Electronics Show in January, and it is showing them publicly for the first time this week. They will go on sale this fall.

The general look and feel will be familiar to anyone who has used one of Roku’s boxes. Almost all 1,700 channels available through a standard Roku are available on the TVs, with the exception of WatchESPN and Watch Disney. (Roku couldn’t reach a distribution deal with Disney (DIS) for the new devices.) Smartphone apps allow people to pull up Netflix (NFLX) or YouTube (GOOG) videos on their phones and play them through the new TVs, so long as the devices are on the same wireless network.

Smart TVs have been a hard sell, which is odd when you consider that most people in the entertainment industry tell you they represent the future. It’s not that smart TVs haven’t made it into the wild. More than 63 percent of households with broadband connections had at least one TV that connected to the Internet early in 2014, up 10 percent from the year before, according to the Diffusion Group. Michael Gerson, Diffusion’s president, says he’s not sure how much the devices have been changing people’s behavior. In other words, manufacturers are adding Internet connectivity to televisions, but not in a way that inspire people to make much use of it.

STORY: Chinese TV Maker Hisense Takes Aim at Sony

Roku would seem well-positioned to change that. Its boxes are the biggest dedicated media-streaming devices in the U.S., accounting for 44 percent of the industry’s sales, according to Parks Associates. Apple TVs (AAPL) made up 26 percent of sales. Roku owners are also more likely than Apple TV owners to use their devices for over-the-top services such as Netflix. Televisions potentially hold greater appeal because they integrate the cable and Internet viewing experiences. On the other hand, it’s a bigger hassle to replace a TV once the software goes out of date, or the processor becomes obsolete within 18 months of the initial purchase. Roku says it will update the software regularly, but the company acknowledges that it can’t do much about the inevitable physical obsolescence of its machines.

Unlike Apple, which has been rumored for years to be preparing to manufacture  televisions, Roku is satisfied to be the software provider for smart TVs. It makes more sense for companies such as Hisense and TCL to team up with it than to design their own operating systems; neither has Roku’s software expertise or relationships with content companies. In exchange, Roku is sacrificing its distinctive design and name recognition in the U.S. To most Americans, a Hisense TV will look and sound like the generic brand.

They’re priced that way, too. While neither Roku partners is a household name in the U.S., TCL is the world’s third-largest TV manufacturer, and Hisense is sixth. They can turn this scale into cheap, cheap televisions. Hisense says it isn’t setting a price on the televisions—it will let the retailers decide—but expects its smart TVs to fetch less than the combined price of a standard TV and a separate Roku box. TCL’s version ranges from $230 for a 32-inch model to $650 for a 55-inch version. When asked how they’ll distinguish themselves in the U.S. market, the two companies give almost identical answers, citing such things as vertical integration and factories conveniently located in northern Mexico.

STORY: Netflix's Ken Florance: The Man Who Keeps the Video Streaming

Both companies already make smart TVs, but their executives haven’t been impressed by the efforts. Chris Larson of TCL says that until now, the industry has handled Internet connectivity in the same way it treated 3D: as features added to drive up device prices, even if consumers didn’t want them. “If you look at any smart TV on the market, including ours, it’s a dysfunctional experience,” he says.

Netflix is now paying Time Warner Cable for direct access and faster streams

by Stacey Higginbotham

photo: Thinkstock/Devonyu

SUMMARY:

Netflix, the online streaming giant, has signed a paid peering deal with Time Warner Cable, meaning that it now has deals with the four biggest U.S. ISPs.

Time Warner Cable signed a direct interconnection deal with Netflix, making it the fourth of the big four U.S. ISPs to sign paid peering agreements with the streaming video provider. Presumably, this agreement should improve the Netflix viewing experience of Time Warner Cable’s broadband subscribers who also like to tune into Netflix fare.

Time Warner confirmed the deal happened in June and the implementation has been rolling out this month. The interconnection doesn’t come as a huge surprise given that Netflix has signed agreements with Comcast, Verizon and AT&T in the last few months after fighting with the providers directly and through its transit providersLevel 3 and Cogent.

That fighting unfortunately left consumers caught in the middle between Netflix and ISPs as the quality of their video streams suffered and both Netflix and ISPs blamed each other. While Netflix has signed these paid peering agreements with ISPs, it is still arguing before the FCC and in the court of public opinion that these agreements violate the spirit of network neutrality.

Netflix originally tried to address peering issues by offering ISPs access to its own content delivery network called OpenConnect. It signed deals with some U.S.-based and a number of international ISPs that led to Netflix deploying caching boxes inside the ISPs’ networks. But the major U.S. ISPs argued that Netflix was avoiding paying for the burden its traffic put on their networks and said they didn’t want to support different servers for every different internet service on the market, despite already hosting servers for sites such as Google, Facebook, Amazon and Microsoft in many cases.

However, apparently Apple, as it is building out its own content delivery network, has signed paid peering agreements with ISPs, perhaps marking a shift in how the big content companies and ISPs will broker traffic going forward.

Meanwhile, the FCC is gathering data on these deals, so we may see them quietly eliminated, continue as before but now with tacit FCC approval, or perhaps regulated depending on what it discovers. I’m just eager to see the data about end-to-end broadband quality make its way to the consumer.

Because over the top services are so fragmented, there’s a lot that could go wrong. It would be nice to get an understanding of what’s happening between my television and the Netflix server.

Updated: I removed the traceroute, because it was truncated. I’ll replace it with a complete one when I get one showing the direct hops again.