Loading...
Symbols:
Authors:

Netflix's Roku is Doomed to Fail

by: Thomas Hawk May 21, 2008 | about stocks: NFLX    
Thomas Hawk

Thomas Hawk

About this author:
Become a Contributor Submit an Article
  • Font Size:
  • Print

Netflix (NFLX) and Roku Tuesday announced the $100 Netflix Roku. What's a Netflix Roku? It's a $100 box that will let you watch Netflix "Watch Now" movies on demand with yet another new box to clutter up your living room. CNET has a review here. They say they've had a box and have been testing it for two weeks. Interestingly, it looks like Mike K, who runs the top Netflix blog on the internet Hacking Netflix, hasn't had one for the past two weeks. Interesting how everyone is always saying that "Netflix gets blogging."

So why is this a bad move? Easy. Because nobody will buy the box. Well not nobody. They'll sell a couple of them I suppose, but this thing will never really get off the ground in a big way. We've seen this movie before, it was called Akimbo. Remember the Akimbo box that was going to revolutionize how we watched TV? So why will the Netflix Roku box fail? Simple.

1. People don't want more boxes in their living room, they want less. A satellite receiver or cable box, an XBox 360, a home theater sound system, a TiVo, an AppleTV, a DVD player, etc. etc. The last thing people want is one more ugly box cluttering up their living room.

2. The content on the box is not very compelling. Do I want Netflix "Watch Now" in my living room? Sure. Would I pay $100 to buy a box that streams old episodes of Columbo or Xena Warrior Princess Season 1? No.

Can I get Juno on the Roku? No. Can I get Michael Clayton, or There Will Be Blood or American Gangster on the Roku? Nope.

Now some people will say that the hot new releases will be on this box, that it's only a matter of time, etc. but I think until we see that, the box is premature.

The funny thing is that there is already a better way to get Netflix "Watch Now" into your living room without having to pay $100 to buy yet another box. It's called the XBox 360. You can already (theoretically) stream Netflix's "Watch Now" service directly to your XBox 360 with your Media Center PC (that is up in your attic or over in your home office and connected via your home network -- not in your living room). I've been trying to get this to work a few weeks myself now but I've been hampered by the dreaded Netflix/Microsoft (MSFT) "good for the consumer" DRM issues.

So why is Netflix screwing around with Roku, when they could be working on and developing a better solution with the XBox 360? My guess is that it's simply shortsightedness. Roku is probably offering them something like $20 per box and Microsoft likely won't pay them anything. The problem is that $20 per box doesn't amount to a hill of beans if you don't sell any boxes.

The better solution is to better improve the XBox 360 version of "Watch Now" and then let Microsoft's marketing department push this new "one more reason why people ought to buy an XBox 360" (that also is a DVD player, game player, extender which gets all of your TV, photos and music to your living room, and now also plays Netflix content -- think less boxes, not more).

Of course if Netflix pushes this idea then nobody will buy the $100 (and their $20 cut) Roku box.

Of course another way to spin this story is simply that the Roku is the best thing since sliced bread and is the "$100 AppleTV Killer" like they did over at CNET's News "Blog", which got to break yet another story. Good thing Netflix gets blogging!

Related Articles

This article has 25 comments:

  •  
    May 21 03:56 AM
    If you use Netflix's Watch Instant feature, $99.99 to watch all that content on a big screen seems like a great deal.

    Good call on Google btw... better come up with another pseudonym "Thomas Hawk"
    Reply
  •  
    May 21 03:57 AM
    seekingalpha.com/artic...
    Reply
  •  
    May 21 08:31 AM
    Most ridiculous line of reasoning I have seen in a long time.

    BTW, you didn't mention the price of XBox while complaining about one-shot $100 for all you can watch movies.
    Reply
  •  
    May 21 09:18 AM
    Even at the fastest connection speed, 'watch now' videos have too low a resolution for a big screen. I have my PC connected to my 50" screen with a wired and fast connection, and I've never seen a 'watch now' movie that was passable for that size. They're just too stretched and blocky.

    Smaller monitors are a different story. They would look fine, perhaps great, on a 27" CRT.

    The biggest problem here is the selection. I've found very few popular releases in 'watch now.' It seems to be mostly older shows, documentaries, and B-movies.
    Reply
  •  
    May 21 10:44 AM
    I'm a happy NFLX member. On days like today, when I've only got one dvd at home (kid's movie that I don't want to watch again), I can choose from tons of movie & shows (granted, not new releases) that are worth watching. Now, I watch 'em by myself, on the laptop. But, with a box (and we are a Playstation family, not Xbox) we could have the whole family watching fav's or classic's.

    For me, $100 is cheap enough.
    Reply
  •  
    May 21 11:11 AM
    Do you have cable Steve? What is 90% of cable? Old movies and TV shows. Netflix is offering the same for 1/4th the price of a cable subscription, with one upfront charge of $99.00.

    And your belief that customers will pass on Roku when they can simply (theoretically?) stream PC content to their Xbox 360 game console just as soon as they figure out how to hack the Netflix/Microsoft DRM...what the hell was that?? How much money have you got invested in the belief that ANYONE is going to do that??

    And your reasoning about "people not wanting more boxes in their living room", stumbles on your strange definition of "people". Maybe the kind of advice your making here actually earns you enough to own a satelitte dish or digital cable (at least you didn't say both!), an Xbox 360, full home theater, TiVo, AppleTV and a stereo system along have a "Media Center PC" doing nothing in an attic (or was it in your home office? I forget...). Unfortunately most "people" don't have the problem of too many $1000.00 + toys cluttering up their living rooms.
    Reply
  •  
    May 21 02:00 PM
    Wow! What dumb reasoning!
    Reply
  •  
    May 21 05:32 PM
    I guess you missed the part about how the Roku has a chipset that they want to actively license to TV and other electronic manufacturers so that people won't need "another box". It would be built right in.

    I still agree with some sentiments in the article, but c'mon, at least do some basic research before you write.
    Reply
  •  
    May 21 05:59 PM
    Another very short sighted view of one move Netflix is making among many. Netflix NEEDS a hardware solution just to be in the game with Apple, Microsoft, Amazon, etc. They don't create content so their business is adding value to a delivery channel. The box does that for the years between now and the day flat panels connect to that mythical wi-fi network that can stream hd movies directly from the Disney vault to your home - on demand.

    Also, the idea of them hitching their business to a Microsoft product would be monumentally stupid as MS would have no incentive to honor the relationship. What does Netflix really offer MS in that deal? Netflix doesn't own the content and MS could at some point in the future, license that content directly and cut Netflix out without impacting the MS customer base at all. Once that deal is done, they'd have a built in hook to the customer base Netflix would have handed them. Not smart.

    Reply
  •  
    May 21 11:29 PM
    I guess I'll pile on and say that I agree with the commenter's sentiments, which is also the majority sentiment on my favorite gadget blog -- that this is a very interesting product by Netflix. I currently have a Netflix DVD subscription, and with a paltry $100 investment I can add unlimited, instant downloads of 1000's of movies and TV show to watch on my living room TV. One big overlooked rental segment is esteemed series (HBO, Showtime, etc.) which would normally constitute many DVD rentals, but now an entire series can be watched for no additional outlay other than this inexpensive hardware. And not that this is huge, but Mac users are not able to stream Netflix movies to their computers, so this let's them in on the instant game. And, of course, once someone buys a box, they will have more reason not to cancel their monthly Netflix subscriptions.
    Reply
  •  
    May 21 11:46 PM
    You are being shortsighted. Have you read the latest Netflix quarterly report? It clearly states that their goal isn't this box for Watch Instantly, but to proliferate their name across multiple (if not hundred) hardware manufacturers. They expect 3 more this year, they already have LG coming out with products Q3, and that is just the beginning. They talked about this on their conference call. XBox might just be one of them.

    Also, you can hook up your PC/Laptop to the TV directly without XBox to view Watch Instantly content. You just have to have the correct cables and some computer savvy. But for those that don't have either will buy this box. It will get traction. Plus, NFLX margins aren't impacted by this box, so all the revenue will go straight to the bottom line.

    So, while future hardware releases will undermine this product, from a NFLX point of view, it doesn't matter since the products that will undermine this one will replace the lost revenue and then some!
    Reply
  •  
    May 25 11:10 AM
    Thomas, kudos to for being a super blogger and getting your articles linked on Yahoo... It's great to see you doing blogging justice and helping to cement its place as irrelevant and second rate reporting by the internet wackos.

    Inside word from Netflix was that the initial run of Roku Netflix players sold out the initial production. It seems that they are in fact finding a sweet spot with a device that can stream content all for $99 bucks.

    You mention making it work with xbox? Thomas, I have a degree in computer science, and an xbox... When I get home from work the last thing I want to do is troubleshoot my living room. I'll take a standalone device any day that does what it's supposed to do well. And the Roku devices appears to be that device for streaming movies. By the way my box shows up on Wednesday according to Fedex.

    Enjoy your blogging.
    Reply
  •  
    May 27 12:16 PM
    They have to deliver the video streams in at least DVD quality for this business to elvolve. Right now it is VHS at best.

    Wonder what Reed Hastings and his team are thinking! They need to try the streaming media quality at EdgeStream who are delivering videos streams in HD today.
    Reply
  •  
    May 29 01:02 PM
    I have to say there are a few things in your article that don't make sense.

    First, who has "A satellite receiver or cable box, an XBox 360, a home theater sound system, a TiVo, an AppleTV, a DVD player, etc. etc. " anymore? The first two (satellite receiver w/ built hard drive and Xbox 360) make the TiVo, Apple TV and DVD player redundant. And, really, Xbox? Blu-ray won, get a PS3!

    Second, this is not a solution for the high-end customer, but for the ease-of-use customer. How many parents of toddlers would galdly pay $100 to have an endless supply of kids programming at their fingertips, rather than have to hear the same old Barney dvd over and over and over?

    Finally, the limited content available now is only indicative of the infancy of the technology. The major distribution companies will realize soon enough that digital is the future of content delivery, and while they do NFLX will be improving their technology so that eventually you'll be watching streaming HD new releases for $14.99/month.
    Reply
  •  
    May 29 04:24 PM
    then go buy a 299$ apple tv and rent movies for 24hs 4 bucks each time you'd like to watch one exclusively on Itunes and watch your entertainment budget skyrocket.

    what part of FREE content don't you understand ?

    did you notice the HDMI input at the end of the device ?

    do you know this is one of many devices with netflix streaming yet to come ?


    what a uninformed whinny b*tch you are.
    Reply
  •  
    Jun 04 04:51 PM
    I think you're totally off in this article.

    "1. People don't want more boxes in their living room, they want less"

    That's your top argument against it, huh?
    How do you explain the popularity of the Xbox, playstations, Wii, DVD palyers, etc? I really think people don't care.

    I predict that Roku will be very popular, especially with current Netflix subscribers. It is just so simple to use, and there is something awesome about browsing for "free" movies. It has that "x-factor" that a hit product should have.
    Reply
  •  
    Jun 05 12:38 AM
    Latest sales report for the player doomed to fail:
    news.cnet.com/8301-107...
    Reply
  •  
    Jun 05 03:00 AM
    I guess if everyone had an Xbox 360, your article would have some merit. Considering how obtrusive looking and loud a 360 is in a home theater setting, its hilarious to see you pump it as a better solution. The 360 power supply is bigger than the entire Roku, a 360 probably uses more electricity when its shut off than a Roku does while streaming a movie.

    If you want to argue having a game system to do it all, its FAR better to get a PS3, Bluray makes it a no-brainer. PS3 can also play MP3, WMA, DivX and Xvid, and every PS3 has WiFi and a built in user-upgradeable SATA hard drive Like the 360, it plays files off any networked PC. Unlike the 360, it has a real HD movie player.

    I have a Roku. I also have a Toshiba A-35 HD-DVD, PS3, Dish Network HD PVR. They are all connected to a Yamaha 863 7.2 Dolby HD receiver and 50" Samsung plasma TV. I love my Roku, I plan to buy another one for the 42" Panasonic plasma in the rec room.

    Netflix has a winner on their hands.
    Reply
  •  
    Jun 05 04:52 PM
    Wow, what a hater... I ordered last week and the system is impressive, awesome quality and audio through optical is amazing... The only issues would be periodically pausing when streaming to adjust quality and the lack of "new" movies. But, well worth the money and extends my on demand library!

    Stop hating and try the product your self!
    Reply
  •  
    Jun 06 11:34 AM
    Full Disclosure: I bought Netflix after the release of the Roku. Am also a Netflix subscriber.

    With an LG TV coming out with the equivalent of the Roku embedded, and the possibly of an arrangement with Microsoft to have the Watch It Now stream through the 360, it's clear the Roku isn't Netflix's final solution to beating Apple and Amazon at digital delivery.

    That being said, it doesn't hurt to have Pioneers help it figure out the bugs, get a wider base of consumer input on their offerings and generate buzz about their business model. Netflix already has good customer service, a growing subscription #, slowing churn (% customers leaving). Let us not forget that Apple's service is not subscription based, and Amazon is brand new at this.

    Netflix will possibly continue to form partnerships with major electronics manufacturers and later possibly distribution companies as the overwhelmingly positive reviews of this digital approach spread from where it is now (tech blogs to MM to early adopters).


    The lack of HD content should be resolved, but whether or not new movies will be added is paramount to penetrating the younger crowds. Most mature audiences don't NEED to see the latest release in order to justify paying $5-$20 for a service that delivers this much content. I can't see why the major movie studios would agree to a subscription model for newer movies when movie downloading isn't ripping apart their dvd sales #s. UNLESS:

    Apple's new model gained acceptance because mp3s were so easy to download. But free MP3s had been around since the early 90s (I was one of those kids in AOL chat rooms and IRC rooms downloading off of bots). What changed was Napster and bandwith. Bandwith might grow with the purchase of the C-Block, with reduced rates, 3g networks, but also might shrink with the fight against net neutrality and price discrimination. For anyone with 45 minutes on their hands and semblance of internet savvy, she can learn to download torrents of HD movies, rip them to a dvd and watch them on her tv. Were this to spread or get more popular via a Napster-clone-cum-Medi... combo....well you get the point.

    Holding the stock down now is primarily consumer spending, which will shrink with increased energy prices, increased unemployment, decreased lending, falling house prices. Netflix growth rates will stagnate and the stock wont generate much more buzz until a new device comes out, prolly around xmas. So I can't necessarily say, go ahead and Buy It Now. It's a long term hold for me because I'm optimistic about their opportunities.
    Reply
  •  
    Jun 08 07:49 PM
    I'm a new Netflix subscriber after having used a competing service. Watch Instant is the best value in entertainment today... $8.95/month for unlimited hours of material most people didn't even know existed, much of which is incredibe, like the British series MI5 for example. Some people will like Roku. For anyone with a house full of thousands of dollars worth of video equiment and computers $99 is nothing, and I don't see how it could possibly hurt Netflix. Watch Instant has pretty much guaranteed I'll be a Netflix subscriber for the forseeable future. I'm buying stock.
    Reply
  •  
    Jun 09 04:47 PM
    have this device for the last two weeks and it is something that i enjoy using. I used a mac mini to watch the netflix watch now feature, but now I do not need to boot up the apple os and then fusion plus IE to watch the content on Netflix (MS DRM works only with IE). The earlier way of doing it was so painful that i was willing to pay 99USD for this device. What are the plus - Boots real quick (a few seconds) and I am ready to watch (takes lesser time to start playing than a BD disk on a PS3). Well the video quality is something that is not desirable or top notch but I think the device is capable of handling HD quality CODECS (Got a component as well as HDMI /S-Video PORT) and for a small factor (size of four deck of cards) it does not take much of my rack space either.

    Well old movies may be something that I enjoy watching. Already had a run of TORA TORA TORA, DOCTOR DOLITTLE, JUMANJI, BRIDGE ON RIVE KWAI and I have a set of them waiting to be watched. Some of these titles you may not even find at your local blockbuster.

    The only problem with this device is that you need to add the movies to your instant queue from a computer and the roku device does not have that feature. I am just waiting for somebody to make this 99 Dollar device to boot linux and get me the best of linux world to this device.

    It is definitely something that is useful that I have the option to select a movie that I want to watch depending on my mood. A war movie at 01:00 AM without commercials.... Well the ROKU serves the purpose
    Reply
  •  
    Jun 10 12:38 AM
    I have to agree with most of the comments so far. Netflix' download service is great. Despite a limited selection, it beats the crap out of cable (and, even, beats the crap out of an entire month's worth of cable).

    I just watched 3 entire seasons of "The Office" for free on my laptop. I've been a Netflix member for a while and was already happy with it. The download service is icing on the cake.

    And, forget the X-Box and all that nonsense. If you have a laptop and a decent TV, then you can go directly to the VGA connector on the back, and the TV will be a monitor. The Netflix streaming isn't HD, but is still pretty good (fast internet connection helps) and can come across with a 16:9 aspect ratio. The Roku box is for people who don't want to hook their PC directly to their TV. It's a relatively inexpensive and non-recurring cost to get a full time internet connection to the TV. What's wrong with that?
    Reply
  •  
    Jun 10 05:37 PM
    Funny that the day I find this article telling how the Roku will fail that I also find this article that they are sold out...

    eastbay.bizjournals.co...

    Netflix set-top boxes sold out

    In less than three weeks, Netflix Inc.'s new set-top boxes have been cleared out, and the Los Gatos company said it is pressing its supplier to speed up production.

    The set-top system, made by Saratoga-based Roku Inc. and introduced on May 20, allows Netflix customers to order movies online and watch them on TV using Wi-Fi technology.

    Netflix (NASDAQ: NFLX) chief executive Reed Hastings declined to say how many of the $100 devices have been sold but did say the company's goal is to make its service "ubiquitous" on a wide selection of devices by 2010.

    Netflix, which distributes movies to subscribers through the U.S. mail, is working with three other consumer electronics manufacturers to build its software into products such as DVD players and game consoles, Hastings said.

    Privately held Roku said its backlog will take six to eight weeks to clear up as more units arrive from Asia.

    Analysts say one prospective Netflix partner is believed to be Redmond, Wash.-based Microsoft Corp. (NASDAQ: MSFT), which would adapt the Xbox game console to show streaming movies. Hastings, a Microsoft director, said other partnerships will be announced later this year.

    Silicon Valley / San Jose Business Journal
    Reply
  •  
    Sep 12 01:07 AM
    Our family dumped cable and we bought a Roku and I could not be happier. Our kids, ages 6 and 4, learned how to use it immediately. Setup was done in a few minutes. Picture quality on a 27 inch TV is great even with a 1.5 MB DSL connection. No idea what you were talking about there. We dumped cable for a new antenna system and Roku allow us to provide additional programming for the kids that they can't get from PBS. If all you watch is the latest movies, guess what? You can still get them in the mail. Stop hating dude. I think it's a great deal.
    Reply
More Comments on NFLX ยป
More by Thomas Hawk
Articles on related themes
Television
Game Consoles
Digital Home
Cell Phones