The main issue to me with Roku is their reliance on TV manufacturers. People talk about Apple TV, Amazon Firestick, etc. These are all competition. But to me, longer term, the real battle will be with what operating system is already embedded in the Smart TV when it leaves the store. Roku dongles have already been seeing a big increase in demand during Coronavirus lockdown. That’s because people still have an old TV without a good operating system. I have a Roku dongle myself because my 5 year old Samsung does not have a good operating system. It is limited to only a few of the top streaming services that were around when the TV was made. With the increase in new streaming services, like Peacock and Disney+, I would either need to buy a new TV with an improved OS, or a $35 Roku fob (or Amazon Firestick). So, these fob device sales can expect to fall over time as a larger and larger portion of TVs sold are Smart TVs, and the Smart TV has an improved, up to date OS that will have all the channels and be able to add new ones as time goes on. Samsung and LG, two very large TV makers, have their own OS. HiSense and TCL are the main TV makers that use Roku. And this brings me to the risk with Roku. What I worry about with Roku is TCL getting rid of Roku and deciding they want to move up the value chain and have their own home-brewed OS. You can see that TCL went from 15% of all smart TVs sold in 2020 to something like 25% last year, based on volume. I can only conclude that Roku is riding TCL’s coattails in the US, and that it is a mutually beneficial partnership. TCL is not the only manufacturer that has seen their market share increase. Virtually all TV makers that use Roku as their OS have seen their market share increase.
The goal, the big opportunity is that Roku will duplicate it’s success here to overseas as they work on an international effort. And TCL, and others (some that don’t even sell here but have a very big presence in Asia for example) will adapt the Roku OS as it becomes available in other regions of the world.
The risk is they don’t. The other risk is TV makers pull away from the Roku OS. This is the reason I would not want to have Roku some crazy big portion of my portfolio. While the opportunities are great, the risks are also great. Roku seems to have reduced a certain other risk, and that is, as their user numbers continue to grow, streaming services will absolutely want to make sure they are available on the Roku OS. And this becomes a great source of power to Roku. The problem, in turn, is that Roku is dependent upon TV makers for that power.
Roku has been very successful in USA. And every time some company made some announcement about a competing product that dropped Roku’s share price, it was a buying opportunity. Comcast late last year for example put out a “free fob” where you can use it as an alternative to a Roku OS and this literally made the stock crash somewhere around 30-50%. The problem is that free fob is only available if you rent Comcast’s modem (as opposed to just buy your own) and it was a very poor alternative to Roku because not that many channels were available. Do cable TV services really want to obsolete themselves and make people realize they can just stream TV instead of paying $100 a month for cable TV and watch shows on the TV’s scheduling instead of the customer’s?
I really need to keep an eye on what TCL is doing to try and get an idea they may displace Roku.
The Company will continue to optimize its channel structure in the PRC market by launching advanced digital marketing tools such as T Sales and TCL Home implementing the activity of “Explore Markets in Counties, Develop 10 Thousands of New Stores” in April. Since the pandemic situation has taken a turn for the better in China, sales volume in the second quarter is anticipated to resume growth. Moreover, the Company has launched the TCL•XESS Smart Screen, the first rotatable screen capable of auto rotation to vertical mode in the TV industry, which is the first to achieve seamless switch between mobile phone and large screen, with deploy of pop-up AI camera and capability of interaction among multiple screens. The TCL•XESS Smart Screen has received high recognition from the consumers since the first day it launched.
This is an android-based tablet. Available here in USA. It gets bad ratings on amazon.
The user base of Internet business continued to expand. The accumulative number of newly-activated users operated by Huan reached 2.92 million in the first quarter of 2020. Meanwhile, the accumulative number of global users exceeded 45 million, reaching 45.25 million, which up by 30.0% year-on-year. And the average daily number of global active users rapidly surged to 23.41 million, with year-on-year increase of 36.7% (Source: Huan Technology Co., Ltd. “Huan”). As of March 2020, the existing subscribers of Falcon Network Technology has significantly increased by 148.8% year-on-year, and the revenue from the online membership business of Falcon Network Technology in the first quarter of 2020 rapidly increased by 141.1%, showing the further improvement of the profitability.
I don’t know what this is, and it seems difficult to find out if this is some sort of alternative to Roku as it’s only available in China it seems.
TCL Electronics focuses on smart display industry and servicing global users, as its market share has been continuously increased in the past three years, with the total shipment in 2019 ranked top 2 in global, indicating its growth outperformed the industry. As the global layout of display panel will undergo a great change, China’s panel industry will rise further, and the enterprises from Korea will gradually shrink out of the LCD panel industry. As a Chinese leading enterprise in smart display industry, TCL Electronics will further seize the development opportunities. Due to the uncertainties of the pandemic in overseas recently, the Company will continue to invest in R&D and product innovation, and strive to maintain annual sales growth. In addition, the Company will focus on developing global Internet business, and vigorously propel the “AI x IoT” strategy, in order to become a global leading intelligent technology company and create greater value for shareholders.
When they talk about panel displays, I see that not as a threat to Roku but actual physical picture quality from the panel screen. However I am not sure what the AI x IoT strategy is.
Roku has said they do not pay TV makers to install their OS. They said they have heard “rumors” of other OS companies doing so but never anything confirmed. If they do not get enough power over the TV makers, I see that as a risk. However, on the other hand… with what Roku has been spending just to get where they are now, maybe it wouldn’t be worth it for these other TV makers to try and replicate what Roku has done.
Late last year they had this to say:
The Company deepened its Internet TV business partnership with Roku (ROKU) in North America and Google (GOOGL) in Europe and South America in the first half of the year to jointly upgrade user experience of TCL TVs in overseas markets. With stronger profitability of its overseas Internet business, TCL Electronics has become the first Chinese company of the industry to gain large-scale and sustainable revenue generated from overseas Internet business.
They went on to say this:
In the future, the Company will further penetrate into key overseas markets and deepen strategic cooperation with Roku and Google; proactively expand into emerging markets which have huge potential such as India and South America; optimize its product mix and channel structure in China; build an even stronger brand awareness in the global market and improve brand influence, continuously enhance global manufacturing layout and continue to increase global market share. At the same time, the Company will push forward its Internet business and the strategy of “AI x IoT” and strive to realize the interconnection of hardware + software + all devices with various loT scenarios, and provide users with smart and healthy living products and services with the aim to become a global leading smart technology company with recurring and sustainable Internet business revenue, and create greater value for shareholders.
I looked up the AI X IoT, and it is an android based OS.
So at no point during this review did I see anything where TCL is working on it’s own OS. But the war between Roku and Android is far from over. Roku has a strong presence in US, now starting to push for overseas where Android has a much bigger dominance.
Anthony Wood stated that any PC based OS did not succeed for the cell phone. Only when Google made Android specifically for the phone, did an OS take off. Android is built for the phone, so they may fail in the TV market for that same reason that Microsoft and others failed in the phone market when trying to apply their PC OS to it.
Obviously the sooner they get going internationally, the better. So companies aren’t having to start from scratch when they have devoted so much to Android.