Roku shares closed down almost 14% on Wednesday and analysts are divided as to which new entry to the market pushed the shares off a cliff. Some say it was Facebook’s announcement that it was entering the streaming business with the reintroduction of its Portal device and associated services. Others say it was Comcast’s announcement of its new Xfinity Flex box which turns your dumb TVs into smart TVs and will be included free to Comcast broadband customers. The tagline, “Simplify your streaming at no extra cost” is pretty compelling. After all, “free” is very pro consumer.
In Roku’s case, it was always just a matter of time. Roku is a business model, not a business. There’s no reason for Comcast to purchase Roku or any other sidecar (additional cable box) businesses. To fend off sidecars, all the cable companies have to do is wait for the all TVs to become Smart TVs, consumers to bulk up on cheap HDMI sticks like Chromecast or Amazon Fire TV Stick, or just offer the their own streaming sticks or boxes when you “cut the cord.” Because cut the cord has nothing to do with cutting the $300 billion of cable operator infrastructure we need to access the internet. It simply means consumers are choosing to access different bits over that infrastructure.
Roku share prices had gained over 350% this year. But underestimating “big dumb cable companies” or the abilities of devices that are over-the-wire updatable and already deployed at scale is dangerous business. There is no way the cable or telephone industries lay down and die because people are consuming bits differently. The telecom industry writ large owns the last half-mile, they have a billing relationship with most of America in place, and they can roll a truck (more or less) on demand. It’s tough to go door to door with a direct-to-consumer play and think you’re going to ride over the top (OTT) of that infrastructure scot free.
That said, I’m looking for Roku to come back strong. There are a bunch of very smart people in that organization and the universe just sent them a message which I’m sure they heard loud and clear.
Author’s note: This is not a sponsored post. I am the author of this article and it expresses my own opinions. I am not, nor is my company, receiving compensation for it.
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