Your browser is not supported. Please update it.

28 June 2018

Apple and Roku follow Amazon into channels, but not business model

Roku, like Apple, has been widely reported to be copying Amazon’s Channels model, but the underlying business model looks quite different. It is difficult to follow someone’s business model when you don’t know what it is and that is still the case here. Even Amazon seems unclear of its exact strategy over TV, although it is crystallizing over a mix of free content with its Prime subscription to draw people in and then a series of tiers at a premium above the basic price. At one time it looked like Amazon would just be giving all its video content away to build up its Prime subscriber base, but that would limit overall revenues as growth slows beyond the 100 million mark. It would never get anywhere near Facebook customer levels on the back of a paid offering where prices continue to go up.

This contrasts with the Netflix model which is to keep growing the subs base on the back an all-inclusive content offering and being the number one brand in SVoD. Amazon has a lot of catching up to become the first place people go for premium on-demand content but does not need to as the world’s biggest online retailer and cloud infrastructure provider as well. It is now building up its channel offering around that as a new revenue generator exploiting demand for niche offerings from consumers, who do not want to pay for content they do not watch. The downside of this is that they still have to pay for Prime, but it now looks like Amazon might be considering separating the video out for distribution via third parties.

It took a step in that direction by allowing BT to distribute Prime video through its TV service although at this stage only to Prime subscribers. This fits with BT’s plan to become a super-aggregator, already carrying Sky’s movies and sports channels, and with Amazon’s aim of getting its content out there however it can. Amazon wants to be both an aggregator within its Channels and also a distributor.

Apple and especially Roku are coming at this from a different direction, as predominantly device makers seeking to expand their subscription services. Roku’s plan is to merge its various paid services to the channels for a more streamlined offering like Amazon’s. Currently it allows access to subscription services such as HBO Now and CBS All Access through its channel store via its boxes, but users must download an app, corresponding to a channel, onto their device before signing up through the service provider’s web site or the TV. Then, as with Amazon Channels, video subscriptions will be bundled in one place so that users can subscribe to multiple channels at once. Even then they still must pay for the different subscriptions separately, so the next step for Roku as well as Amazon Channels, will be to bundle the billing together as well. That will require some integration and agreement at the back-office level.

While Amazon has been accumulating subscribers to Prime, Roku’s traditional business model has been to grow its audience by selling affordable streaming devices retail, while also distributing them through partnerships with TV makers. It then generates revenues from this audience through ads, and to a lesser extent services. Revenue from ads and services overtook that from hardware sales for the first time in Q1 2018.

Roku already has what it calls its own channel, but this is really a free service supported by ads aggregating titles from major Hollywood studio catalogs and other online content providers. It offers this alongside other channels on its devices. The idea now is to offer paid subscription services as separate channels which is where it is following the Amazon model of segregated content.

Roku will still want to exploit the popularity of its Streaming Stick, which continues to beat all comers including Amazon’s Fire TV Stick as well as Google’s Chromecast in evaluations of content options and performance. There is also a risk being a follower of Amazon, which has a multi-pronged strategy and is dangerous both as a competitor and partner. Operators such as BT are in both camps in that Amazon is now distributing its Prime service that way, but also stepping up its experiments in premium live sports itself with bigger rights acquisitions, including recently an English Premier League football package.

Apple is also going to start selling third-party video subscription services directly through its TV app like Roku and Amazon, but unlikely to launch it until 2019. Currently Apple sells third-party subscriptions, but users have to go to the app to get them, although they can exploit their Apple payment information to avoid much rekeying. With the new approach Apple publishers would no longer in principle have to build their own apps for devices such as Apple TV. It would instead bolster Apple’s own TV app as a program guide for aggregated online video. The downside is that users would lose the functions of the third parties’ own UIs but then we can’t have everything. This would be the online equivalent of the old universal remote controls for multiple TV sets and services, which never really caught on because they were a rather limited lowest common denominator.

Apple, Roku and Amazon have advantages makers of those remotes never had with access to data enabling them to fold all that content into personalized services.