This Little Box Could Kill Cable

This Little Box Could Kill Cable


The race for the crown in the realm of streaming video involves more players than "Game of Thrones": traditional cable titans; upstarts such as Aereo and Hulu; and tech innovators such as Netflix (NASDAQ: NFLX), Google (NASDAQ: GOOG), Apple (NASDAQ: AAPL) and, as I wrote here last week, Amazon (NASDAQ: AMZN).

Then there’s Saratoga, Calif.-based Roku. In a battle that boils down to content, price and convenience, the company’s latest player, released in March, makes it a strong contender. The Roku 3 provides access to more than 750 channels, including streaming video from Netflix, HBO Go and Amazon Instant Video.

With so many offerings, Roku can make belt-tightening look exciting to America’s middle class. At a time when cable bills can soar well into the triple digits, Roku at $99.99 offers cost-conscious families tremendous value. And even if they’re not necessarily tech-savvy, Roku makes it possible for them to enjoy the television shows, movies and electronic games that they feel they can’t live without.

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Thanks to the variety of entertainment content, the low price and the ease to connect it, Roku enjoys strong loyalty from its customers. “We are ridiculous junkies for this,” Carol Fitzgerald, a Roku convert of a few years who lives in suburban New Jersey with her husband and two children, told me. The Fitzgeralds are a two-Roku family, in fact.

One of the Fizgerald’s Roku devices “is connected to a two-channel audio system in one room (and) the other is connected to a TV,” Fitzgerald said. “We actually take the system on vacation with us so we can get whatever we want, when we want.”

I asked several users to describe their feelings about Roku and my favorite commentary came from a friend of mine who lamented: “My ex- got the Roku in our divorce settlement.”

Small wonder that MarketWatch reported in December, before the holiday-shopping rush, that Roku had sold 3 million of its boxes. Sweetening that success, marketing vice president Chuck Seiber told the website that roughly 42 percent of Roku’s customers came via a referral from a relative or friend.

So, what is all the hubbub about? The privately held company makes digital media receivers that permit users to have access to Internet-streamed video or audio content via their television sets. It offers subscription services and those that people can get for free (if they don’t mind sitting through advertisements).

The Roku 3 has a CPU that is five times faster than the Roku 2XS and a Wi-Fi Direct remote instead of a Bluetooth device. The newest model also makes available a headphone jack, with earphones supplied, in case you want to enjoy a private listening experience.


“The intuitive new interface makes it easy to find movies and shows quickly while the private listening mode is perfect for late-night streamers who don’t want to wake up the family,” Anthony Wood, Roku’s founder and chief executive officer, said in a press release when the device was released.

Roku is clearly close to Wood’s heart. “Roku” means “six” in Japanese, an homage to the number of companies he has created. It came of age in 2008 when it became a method for users to stream content from Netflix.

Ultimately, Roku hopes it will force American consumers to make a lifestyle choice: continue to keep your expensive cable mechanism or come over to the land of inexpensive home entertainment. Even as Roku spreads by word of mouth, the company must contend with better-capitalized and more familiar rivals. Roku can’t expect to deliver a knockout blow in such a crowded and intensely competitive market.

Much has been made of whether Roku can help to prompt the decline or even the eventual downfall of the cable industry. The media have had a fine time talking about America’s increasing ranks of so-called cord-cutters, who abandon cable for cheaper devices such as Roku.

At this point, most of Roku’s customers also possess cable services. Last year, media reports pegged the number of cord-cutters at approximately 400,000 people.

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The phenomenon is catching the attention of television leaders. Leslie Moonves, the chief executive of CBS Corp. (NYSE: CBS) said during a Wall Street Journal-sponsored breakfast last December, that the cord-cutters’ numbers have become “bigger than we had thought.”

Then there are the “cable-nevers,” another fed-up faction of American consumers. They do the cord-cutters one better. Instead of merely canceling their current cable contracts, these folks thumb their noses at the exorbitant prices and flatly refuse to sign up for costly cable services at all.

Ultimately, customer allegiance is what will keep Roku in the sweepstakes for your eyeballs. Its customers seem to follow a pattern when they approach the Roku: curiosity, followed my intrigue, followed by an “I’ll-give-it-a-shot” move, followed by a convert’s zeal.

Consider the saga of New York City music journalist and songwriter Jeff Slate. “Given that there are so many options, I wasn’t sure about making the switch to the Roku,” he told me. “We already had several game consoles and an entertainment center with apps that could easily access Netflix or Amazon Prime or HBO Go. But I became a convert quickly.”

“The Roku is simple and intuitive,” Slate mused. “Some of the interfaces of the applications lag behind, say, the PS3, but the ease of use really does it for me. While I’d miss some live TV, like CNN, if I jumped completely from cable, I do believe this is the future. Cable is pricing itself out of the market, and I can’t wait to see it die.”