Consolidation Looming Among Internet Streaming Set-Top Box Suppliers

The narrowing of the number of suppliers has been a long time coming, since Apple and Roku have dominated the market for streaming set-tops almost since streaming began to emerge in 2007-2008, industry officials said. The two companies have a combined 79 percent share of U.S. market for the streaming set-tops, the installed base for which stood at 11 million units in Q1, said John Buffone, director-device practice for connected intelligence at NPD. Apple had a slight edge on Roku in market share and the companies were trailed by Western Digital and Netgear, said Buffone, declining to disclose the exact shares. Overall, there are expected to be 119 million connected devices by 2015 delivering the Internet to TVs, up from the current 78.5 million, Buffone said.

The consolidation is partly being driven by content providers, who are increasingly limiting access to their services to those streaming set-top suppliers with the most users or subscribers, industry officials said. Roku has more than five million “active households,” only a small percentage of which have installed the Roku 3 device since it became available earlier this year, said Steve Shannon, vice president-business development at Roku, which has more than 900 channels. Roku 3 added motion control for gaming and dual-band wireless support.

"The consolidation is being driven by the content providers who started with some momentary enthusiasm for supporting a broad array of platforms,” Shannon said. “Now they have looked at the lower-performing platforms as not worth it and they are stopping support for those as they update their apps and channels going forward. The tier two or tier three app stores are not going to get very much support."

Both D-Link and Vizio officials conceded that the standalone streaming devices haven’t been the easiest products to sell. Consumers still need further education on their use and the concept requires better explanation than it sometimes gets on the retail sales floor, said Vizio Product Marketing Manager Matthew DeHamer. Vizio sells the Co-star Google TV 2.0 set-top, but has no immediate plans to build the technology in TVs despite having demonstrated Google TV embedded in VIA Plus LCD models at CES 2012, Vizio executives have said. D-Link was the main supplier of the Boxee Box as well as Boxee TV, which added the ability to get local HD channels. Both were largely sold through Walmart, although Boxee TV recently began to expand distribution, Dan Kelly, vice president-marketing at D-Link, told us recently. While the Boxee Box sold well, Boxee TV struggled to get consumers to understand the addition of local HD channels, Kelly has said. The fate of the D-Link Boxee product now that Samsung has acquired the company isn’t clear and Kelly wasn’t available Monday to respond to our query. For its part, Seagate has “stepped out” of the streaming player market where it previously field the GoFlex TV HD, a Seagate spokesman said. Seagate shifted focus to storage products that stream to the media players, he said.

"The unknown is the cable TV providers of the world,” said Mark Shaw, CE merchandising director at Nebraska Furniture Mart. “They are not going to sit back and let the Internet take over their business model. I think that’s the question. Apple probably can succeed in the standalone category, but for the other guys it all comes down to whose services are on their devices."

To get the services on the streaming set-tops, suppliers are increasingly paying for the support, something that may be outside the reach of smaller vendors, industry officials said. “If they don’t have sufficient footprint to get revenue and potentially have to pay for support from content partners, it’s going to be a downward spiral that’s going to cause” second and third tier platforms to “wither away,” Shannon said. Roku recently raised $60 million, which will be used for software development and hiring engineers as the company is “inching toward” profitability, Shannon said.

Roku will continue its set-top business, which is “growing nicely,” Shannon said. But Roku also is “engaged with a large number” of TV and chip suppliers in building its technology into an IC, Shannon said. Roku is closing in on the ability for TV makers to ship sets with its technology at “close to zero” additional cost, Shannon said. “That’s achieved through making our software run on the least expensive television chipsets and architectures,” he said. “In our engineering organization a huge focus for us is making software perform well and smoothly on extremely low cost hardware."

Time Warner Cable’s TWC TV app, which debuted with the introduction of the Roku 3 set-top in March, has been “very popular” and drawn “thousands of downloads,” Shannon said. Roku has penetrated “a large subset” of Time Warner cable subscribers “within our footprint” and will add video-on-demand, Shannon said. Using the app, Time Warner subscribers can stream up to 300 live TV channels via Roku. “We are really just getting started with that program and it’s a toe in the water at this point,” Shannon said.