Why Apple Must Fear Roku

Time Warner Cable integration isn't much, but treads on iTV turf

Time Warner becoming available on Roku last week may be more relevant to Apple than either participating company.

If anything, it’s less what their combined forces represent, and more what could still be, that sends a shot across the bow at Cupertino.

The unlikely pairing got its share of breathless coverage, and no wonder:  Here’s a cable operator essentially allowing a company seemingly positioned as an alternative to cable subscriptions serve as its set-top-box provider.

Letting subscribers sip its vintage from new bottles may seem a counterintuitive move for TW Cable, akin to Moet & Chandon suddenly outsourcing an iteration of Dom Pérignon to a purveyor of box wines.

But the move makes sense for TW Cable, which like many pay TV distributors is so awful at delivering a good user experience that they’re better off ceding that ground. Providing subscribers with hardware is practically a liability considering the expense of truckrolls necessary for installation and repair.

Allowing subscribers to authenticate their subscriptions via Roku tells you where the value of TW Cable is entirely: its package of channels. And that’s a package that Roku doesn’t have, which is why the lion that is TW Cable is willing to lie down with this high-tech lamb. No over-the-top TV device has a ghost of a chance of inducing cord-cutting in meaningful numbers in the short term.

Beautiful as the recently released Roku 3 is, the programming it provides poses no threat to TW Cable. The 750 channels available are either negligible niche plays or streaming services like Hulu Plus that command an additional fee and appear on nearly every connected device,.

Nevertheless, Roku is a comer that earned investment dollars last year from the likes of News Corp. and BSkyB because it is peddling its slick purple-puck product as briskly as a much bigger competitor– Apple TV — not to mention shrinking it to even smaller devices that bring broadband connections to TVs.

But by integrating with Time Warner Cable, Roku is drawing comparison to something even bigger than Apple TV: iTV, the name given to the mystical offering everyone expects Apple to bring to market though its existence has yet to be confirmed.

That comparison is inevitable because Roku is doing what the latest conventional wisdom on iTV tells us will be its business model: teaming with existing pay-TV providers to bring their content to its devices via authentication.

But the way iTV will supposedly make this model work is by piping the TV package into a device so spectacularly better that it will put the current TVs to shame.

And that’s just the beginning of where this Roku-TW Cable partnership falls down.

Yes, there’s a nice interface for accessing programming but it’s not different than the one the MSO already has in place on iPad, for instance.

Yes, it deserves credit for being the first device to offer a full complement of channels outside a set-top box, something that Microsoft’s XBox didn’t manage to do with its own MSO partners, Comcast and Verizon.

But what XBox has done with select partners like ESPN, building interactive experiences that dimensionalize the programming into more than just porting over a feed–that’s the true value-add Roku hasn’t delivered.

Maybe this would be a bigger deal if TW Cable didn’t make Roku access available only to those who buy it on top of their current video and data subscriptions. It’s like Moet & Chandon saying you can only buy boxed Dom if you buy that oldfangled glass-and-cork model first. Thanks, but no thanks.

Bottom line: Neither Roku nor TW Cable is going to see a surge in subscribers as a result of their partnership. If anything, TW Cable could see a decline in the number of customers who own second set-tops considering Roku is now effectively their replacement. It even underscores the inevitability that MSOs could get out of the set-top box biz entirely and just stick to packaging channels.

And yet as passable as the Roku-TW Cable deal is, it highlights a vulnerability to Apple: The longer iTV takes to get to market, the higher the risk someone is going to crack this market wide open before Apple even gets a chance. Maybe XBox or another videogame console like Nintendo’s TVii will do it before Roku figures it out, but Apple’s endless tinkering could be undone by just plain bad timing.

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