finally selling its own TVs

Roku isn’t the underdog in streaming anymore.

Years ago, the company foretold how it would withstand competition from the likes of Amazon, Google, and Apple. While those companies fixated on streaming boxes and dongles, Roku’s plan involved shipping its software on cheap TVs from up-and-coming brands, keeping that software conservatively simple, and making money from the ads and other revenues that flow through its platform.

It worked. Roku’s software now ships on four out of every 10 smart TVs sold in the United States, and it has 75.8 million accounts on its platform. While the company is still in search of profitability (as many streaming businesses are), and it laid off 10% of its workforce this fall (as many other tech companies have), it’s long past the risk of being squished by big tech rivals.

Instead, it’s everyone else that Roku now has to worry about. From cable companies and TV makers to the holding company behind TiVo, more players than ever are looking for a piece of the smart TV business. Roku has been saying for years that smart TV platforms will consolidate over time, but that’s the one prediction the company has gotten completely wrong.

Mustafa Ozgen, Roku’s president of devices, is not worried. The company still believes it has the best platform for smart TV makers, but it’s also started selling its own-branded sets so it can have more say over what its customers experience. In the long run, Ozgen believes Roku will be the one putting the squeeze on the new underdogs.

“The platforms that have the scale will be able to keep meeting the requirements of the ecosystem, whereas the subscale ones, the new entrants, will not be able to get there,” he says.

The smart TV dilemma

Roku’s proposition for smart TV makers is about cost and simplicity. It provides them with motherboard reference designs for different kinds of TVs, and it’s obsessive about whittling down hardware requirements to keep costs down. A Roku TV with a meager 512 MB of RAM will still feel fluid, for instance, while other platforms might need double the memory.

Roku also handles the entire software update process—Google’s Android TV platform, by contrast, leaves that job to TV makers—and has an unbeaten track record in supporting older sets. Even the first Roku smart TVs from 2014 continue to receive updates.

“If [TV makers] can focus on manufacturing their devices, and we focus on building the software and maintaining it in the field, that saves them a lot of R&D dollars as well as maintenance dollars,” Ozgen says.

The approach has been fruitful for partners such as TCL and Hisense, which were both obscure players when they became the first Roku TV makers 2014. At a time when licensing options were limited, Roku provided them with a vibrant smart TV platform, along with name recognition and relationships with retailers.

“The original idea was that nobody would buy a TCL TV, because they’ve never heard of it. But if they had the Roku operating system on it, it would make it easier to buy,” says TVRev Lead Analyst Alan Wolk.

TCL and Hisense now rank second and fourth respectively in global TV market share according to Omdia. But as they’ve grown, they’ve become less loyal to Roku. TCL launched its first Android TV sets in 2020, and began shipping Fire TV-powered sets last year. Hisense has expanded to Android TV, Fire TV, Comcast’s XClass platform, and its own Vidaa operating system.

The list of potential partners is also growing. Samsung and LG have started licensing their respective Tizen and WebOS platforms to other TV makers, and Vizio says it might license its software as well. Comcast and Charter have also launched a joint streaming platform under the Xumo brand, and Xperi is pushing TiVo OS.

The result is more leverage for TV makers. In 2021, The Information reported that Google was paying TV makers up to $15 per unit to use its Android TV platform, nearly double what Roku was offering. TiVo, meanwhile, has promised TV makers an ongoing share of ad revenue from its free streaming services.

“I’ve always flagged that as a potential danger, because Amazon can come in and say, ‘Well, what are they paying you? We’ll double it,’” Wolk says.

Enter Roku TVs

All this might help explain why Roku has started selling TVs under its own brand name.

The company launched its Select Series and Plus Series TVs in May, and at the time the move puzzled some observers. Roku’s TV manufacturer partners already cover a wide range of screen sizes and prices, and Roku’s sets fall roughly into the middle of the pack. By selling its own branded sets, Roku is on some level competing with its partners.

Still, those TVs represent a way for Roku to control its own destiny. It doesn’t have to ply another company with per-unit payments or revenue shares, nor does it have to accommodate TV makers’ forays into free streaming, like the TCLtv+ app that TCL plans to bring to Roku.

In a way, it’s reminiscent of how Roku launched its own streaming service, called the Roku Channel, in 2017. Just as the Roku Channel gives the company more control over advertising—it now accounts for 3% of all viewing time on Roku’s platform—Roku TVs give the company more control over the smart TV business.

“I think that in making their own TV, they can minimize any disruption that could come from possible interruptions in their partnerships with other OEMs,” says Adam Wright, IDC’s research manager for smart home devices.

Not that Roku will acknowledge any of this. Ozgen says TV makers wanting to offer their own services wasn’t a factor in Roku selling its own TVs, and points out that TCL already offers a free streaming app, called TCL Channel, on Roku’s platform.

“We support our OEMs. But that’s not really an underlying reason to offer TVs,” he says.

Ozgen instead offers a more diplomatic explanation: TV makers don’t always want to adopt features that Roku believes in, such as remotes with hands-free voice control built in. By selling its own TVs, Roku can experiment with new ideas that might trickle down to other TV makers over time.

“In many cases, our OEMs have different views,” Ozgen says. “Either they look at the market differently than us, or they don’t want to take the risk introducing a feature they’re not sure about, or they put their energy of innovation into different areas of hardware.”

The company says it’s been successful so far. While Roku hasn’t released sales figures, it reported a 33% revenue increase in its device segment last quarter, which it partly attributed to the new televisions. Ozgen also said in an earnings call that its TVs helped drive a higher proportion of new accounts in overseas markets, where Roku has lagged behind its rivals. Reviewers have generally praised the TVs for their value and smart TV software, and Ozgen points out that that all of its models have a least a 4.5-star rating from users on Best Buy’s website.

The waiting game

Roku has some other advantages over its smart TV rivals. Most notably, it continues to sell external streaming players that can work with any TV, whereas Samsung, LG, and Vizio have stuck to smart TVs exclusively. Ozgen says unit sales for Roku’s smart TVs and streaming players are roughly equal, and they’re important both for bringing in new users and keeping them on the platform.

“Despite the fact that everyone thinks that streaming players are going away, they are still there, and they are great products for the consumers and for Roku,” he says.

Roku has also placed some side bets on products that might keep people in its ecosystem and reduce its dependence on advertising, which accounts for most of Roku’s revenues but is vulnerable to the whims of the ad market. The company sells speakers and subwoofers that work best with its own streaming devices—though it reportedly scaled back broader home audio plans—and it partnered with Wyze last year on a line of Roku smart home devices, which it sells for cheap and monetizes through security and camera subscriptions.

“It’s going to help us create another revenue stream besides the advertising revenue stream, and also enlarge our ecosystem and grow our relationship with our customer base,” Ozgen says.

And in the end, Roku’s platform is still among the simplest to use. TV makers might partner with other upstart platforms because it’s more favorable financially, but they can’t argue that customers are getting a better experience as a result.

All of which explains why Ozgen still believes consolidation is coming: Users will ultimately coalesce around larger and more familiar platforms, and its other partners—namely media companies and advertisers—will tire of supporting smaller platforms with fewer features.

“The platforms that scale up over time will be able to meet these needs from the ecosystems, whereas the new entrants are always going to be sub-scale, and are always going to be painful to work with,” he says.

Roku isn’t the underdog in streaming anymore.

Years ago, the company foretold how it would withstand competition from the likes of Amazon, Google, and Apple. While those companies fixated on streaming boxes and dongles, Roku’s plan involved shipping its software on cheap TVs from up-and-coming brands, keeping that software conservatively simple, and making money from the ads and other revenues that flow through its platform.

It worked. Roku’s software now ships on four out of every 10 smart TVs sold in the United States, and it has 75.8 million accounts on its platform. While the company is still in search of profitability (as many streaming businesses are), and it laid off 10% of its workforce this fall (as many other tech companies have), it’s long past the risk of being squished by big tech rivals.

Instead, it’s everyone else that Roku now has to worry about. From cable companies and TV makers to the holding company behind TiVo, more players than ever are looking for a piece of the smart TV business. Roku has been saying for years that smart TV platforms will consolidate over time, but that’s the one prediction the company has gotten completely wrong.

Mustafa Ozgen, Roku’s president of devices, is not worried. The company still believes it has the best platform for smart TV makers, but it’s also started selling its own-branded sets so it can have more say over what its customers experience. In the long run, Ozgen believes Roku will be the one putting the squeeze on the new underdogs.

“The platforms that have the scale will be able to keep meeting the requirements of the ecosystem, whereas the subscale ones, the new entrants, will not be able to get there,” he says.

The smart TV dilemma

Roku’s proposition for smart TV makers is about cost and simplicity. It provides them with motherboard reference designs for different kinds of TVs, and it’s obsessive about whittling down hardware requirements to keep costs down. A Roku TV with a meager 512 MB of RAM will still feel fluid, for instance, while other platforms might need double the memory.

Roku also handles the entire software update process—Google’s Android TV platform, by contrast, leaves that job to TV makers—and has an unbeaten track record in supporting older sets. Even the first Roku smart TVs from 2014 continue to receive updates.

“If [TV makers] can focus on manufacturing their devices, and we focus on building the software and maintaining it in the field, that saves them a lot of R&D dollars as well as maintenance dollars,” Ozgen says.

The approach has been fruitful for partners such as TCL and Hisense, which were both obscure players when they became the first Roku TV makers 2014. At a time when licensing options were limited, Roku provided them with a vibrant smart TV platform, along with name recognition and relationships with retailers.

“The original idea was that nobody would buy a TCL TV, because they’ve never heard of it. But if they had the Roku operating system on it, it would make it easier to buy,” says TVRev Lead Analyst Alan Wolk.

TCL and Hisense now rank second and fourth respectively in global TV market share according to Omdia. But as they’ve grown, they’ve become less loyal to Roku. TCL launched its first Android TV sets in 2020, and began shipping Fire TV-powered sets last year. Hisense has expanded to Android TV, Fire TV, Comcast’s XClass platform, and its own Vidaa operating system.

The list of potential partners is also growing. Samsung and LG have started licensing their respective Tizen and WebOS platforms to other TV makers, and Vizio says it might license its software as well. Comcast and Charter have also launched a joint streaming platform under the Xumo brand, and Xperi is pushing TiVo OS.

The result is more leverage for TV makers. In 2021, The Information reported that Google was paying TV makers up to $15 per unit to use its Android TV platform, nearly double what Roku was offering. TiVo, meanwhile, has promised TV makers an ongoing share of ad revenue from its free streaming services.

“I’ve always flagged that as a potential danger, because Amazon can come in and say, ‘Well, what are they paying you? We’ll double it,’” Wolk says.

Enter Roku TVs

All this might help explain why Roku has started selling TVs under its own brand name.

The company launched its Select Series and Plus Series TVs in May, and at the time the move puzzled some observers. Roku’s TV manufacturer partners already cover a wide range of screen sizes and prices, and Roku’s sets fall roughly into the middle of the pack. By selling its own branded sets, Roku is on some level competing with its partners.

Still, those TVs represent a way for Roku to control its own destiny. It doesn’t have to ply another company with per-unit payments or revenue shares, nor does it have to accommodate TV makers’ forays into free streaming, like the TCLtv+ app that TCL plans to bring to Roku.

In a way, it’s reminiscent of how Roku launched its own streaming service, called the Roku Channel, in 2017. Just as the Roku Channel gives the company more control over advertising—it now accounts for 3% of all viewing time on Roku’s platform—Roku TVs give the company more control over the smart TV business.

“I think that in making their own TV, they can minimize any disruption that could come from possible interruptions in their partnerships with other OEMs,” says Adam Wright, IDC’s research manager for smart home devices.

Not that Roku will acknowledge any of this. Ozgen says TV makers wanting to offer their own services wasn’t a factor in Roku selling its own TVs, and points out that TCL already offers a free streaming app, called TCL Channel, on Roku’s platform.

“We support our OEMs. But that’s not really an underlying reason to offer TVs,” he says.

Ozgen instead offers a more diplomatic explanation: TV makers don’t always want to adopt features that Roku believes in, such as remotes with hands-free voice control built in. By selling its own TVs, Roku can experiment with new ideas that might trickle down to other TV makers over time.

“In many cases, our OEMs have different views,” Ozgen says. “Either they look at the market differently than us, or they don’t want to take the risk introducing a feature they’re not sure about, or they put their energy of innovation into different areas of hardware.”

The company says it’s been successful so far. While Roku hasn’t released sales figures, it reported a 33% revenue increase in its device segment last quarter, which it partly attributed to the new televisions. Ozgen also said in an earnings call that its TVs helped drive a higher proportion of new accounts in overseas markets, where Roku has lagged behind its rivals. Reviewers have generally praised the TVs for their value and smart TV software, and Ozgen points out that that all of its models have a least a 4.5-star rating from users on Best Buy’s website.

The waiting game

Roku has some other advantages over its smart TV rivals. Most notably, it continues to sell external streaming players that can work with any TV, whereas Samsung, LG, and Vizio have stuck to smart TVs exclusively. Ozgen says unit sales for Roku’s smart TVs and streaming players are roughly equal, and they’re important both for bringing in new users and keeping them on the platform.

“Despite the fact that everyone thinks that streaming players are going away, they are still there, and they are great products for the consumers and for Roku,” he says.

Roku has also placed some side bets on products that might keep people in its ecosystem and reduce its dependence on advertising, which accounts for most of Roku’s revenues but is vulnerable to the whims of the ad market. The company sells speakers and subwoofers that work best with its own streaming devices—though it reportedly scaled back broader home audio plans—and it partnered with Wyze last year on a line of Roku smart home devices, which it sells for cheap and monetizes through security and camera subscriptions.

“It’s going to help us create another revenue stream besides the advertising revenue stream, and also enlarge our ecosystem and grow our relationship with our customer base,” Ozgen says.

And in the end, Roku’s platform is still among the simplest to use. TV makers might partner with other upstart platforms because it’s more favorable financially, but they can’t argue that customers are getting a better experience as a result.

All of which explains why Ozgen still believes consolidation is coming: Users will ultimately coalesce around larger and more familiar platforms, and its other partners—namely media companies and advertisers—will tire of supporting smaller platforms with fewer features.

“The platforms that scale up over time will be able to meet these needs from the ecosystems, whereas the new entrants are always going to be sub-scale, and are always going to be painful to work with,” he says.