This premium-television business is getting nerve-wracking as 2012 revs up. Right now, there’s no clear path forward. Are traditional cable and satellite services surviving? Are on-demand, streaming services like the much-maligned Netflix (NASDAQ:NFLX) going to take over the world, forcing all sides of the business to reevaluate how to generate revenue from advertising?
Shake your Magic 8 Ball…and the answer is, “Reply hazy, try again later.”
According to Credit Suisse analyst Stefan Anninger, the entire multichannel TV-services business, from Time Warner Cable (NYSE:TWC) to DirecTV (NASDAQ:DTV), remained completely flat from September 2010 through September 2011. There are 100.8 million pay TV subscribers out there. Meanwhile, a survey conducted by research group Deloitte claims that 9 million subscribers stopped their pay-TV service in 2011 in favor of streaming alternatives like Netflix, Hulu, and Amazon‘s (NASDAQ:AMZN) Amazon Prime. That’s a massive discrepancy that illustrates the one certain point: Change is afoot. Old and new need to meet somewhere in the middle to keep consumers happy and advertisers spending, and the key to that is making the service even cheaper and more accessible. To that end, Roku is blazing a promising trail.
Its latest device could be a game-changer. Roku make a line of set-top boxes that plug into your television, not unlike TiVo‘s (NASDAQ:TIVO), but Roku’s boxes are built specifically for streaming television and entertainment services. The new Roku device isn’t a box at all, though. On Tuesday, the company announced its Streaming Stick, a tiny dongle that plugs into an HDTV’s HDMI port and provides the same range of service as more familiar boxes. About the size of an eraser, the stick would seem to make turning a regular TV into a Web-connected TV as simple as plugging it in.
Like the boxes, the stick offers a broad selection of channels. These range from free options such as News Corp. (NASDAQ:NWS) properties Fox News and Wall Street Journal Live to additional premium services such as Netflix, HBOGo, Amazon Instant, and NBA League Pass. This is in addition to other entertainment apps such as games (Angry Birds) and Internet radio (Pandora (NYSE:P). Roku also creates some of its own content. The boxes are versatile and cheap, ranging in price from $50 to $100. The Stick is also expected to fall in that price range.
In the race to bring television audiences to connected living-room viewing — i.e., television and entertainment from the Internet — Roku has done an admirable job since its boxes went on sale in 2008. The company has sold around 2.5 million Roku boxes, putting it on par with the Apple TV set-top box from Apple (NASDAQ:AAPL) and ahead of some standalone for-pay streaming services, such as Hulu Plus.
As more competitors enter the field, Roku’s stick is unique. Google (NASDAQ:GOOG) tried to storm into the connected-TV market with Google TV in 2010, but consumers roundly ignored the expensive Sony (NYSE:SNE) televisions and Logitech (NASDAQ:LOGI) set-top boxes with the technology in it.
Google is promising numerous televisions in 2012 with Google TV inside, just as Apple is gearing up to release its own line of connected HDTVs. Manufacturers from Samsung (PINK:SSNLF) to Panasonic (NYSE:PC) are planning to release new televisions as well. Of course, all of these companies are relying on consumers to spend several hundred dollars for a new television set, while Roku’s Stick is priced as an impulse purchase.
The Stick won’t be a runaway hit out of the gate. This model is only compatible with televisions that have Mobile High-Definition Link-compatible HDTVs, a common feature in sets made by Samsung, Toshiba, and others, but by no means universal.
Roku may not even reap the greatest rewards of its forward-thinking design. Competitors such as Google may well rush to imitate the approach — the low-cost, compact strategy has certainly helped the spread of the Android phone-operating system, and it could do the same for Google TV. Regardless, it’ll be devices like Roku’s Stick that determine how people spend their money on television viewing by the end of 2012.
As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello and become a fan of InvestorPlace on Facebook.