news The nation’s largest telco Telstra today revealed it will launch a Telstra-branded version of the popular Roku TV streaming device to Australians, as the telco struggles to ensure its over-the-top services remain relevant in a next-generation viewing world which increasingly appears to be dominated by the likes of US giant Netflix.
In a post on its Exchange site, Telstra head of IPTV and Pay TV Eric Kearley noted that the re-badged Roku 2 device — which Telstra will sell as “Telstra TV” — would aggregate a number of TV streaming platforms for use by Telstra customers, including Foxtel’s Presto, Netflix, and Telstra’s BigPond Movies service.
A selection of catch-up free to air TV services will be available when the device launches in September, and the Stan platform will also be supported “later this year”.
“Australians have enthusiastically embraced video streaming as an entertainment platform and Telstra TV will differentiate Telstra as a provider of streaming content,” Joe Pollard, Telstra GMD Media and Marketing said in a separate statement. “Rather than restrict our customers’ choices, we want to host all the popular streaming video services on our platforms and make it easy for them to get all the content they want in the one place.”
“Roku is renowned for producing streaming devices with an exciting variety of entertainment choices and great value. Roku devices are popular among consumers in the US, Canada and UK. By combining our networks and content with Roku Powered players and the Roku platform, we will offer a brilliant streaming experience in the market designed specifically for Australian consumers.”
“We are already the network of choice for video for many customers around Australia and the demand for video content will only increase the need for superior networks to deliver this content.”
Roku has not previously directly sold its set-top box in Australia, but Australians have still been able to buy the company’s products and have them shipped to Australia by third parties.
The Telstra TV box appears to be based on one of the three Roku unit the company sells overseas. It is capable of outputting 720p and 1080p high definition television and Dolby Digital 7.1 sound. The unit comes with support for 802.11n dual band wireless and a 10/100 Ethernet port for connectivity. A MicroSD slot and USB port are included.
The unit features a Dual ARM A9 1GHz CPU, 512MB RAM, a 256MB Flash storage drive, a HDMI 1.4 port for outputting signal to a TV, and a remote for controlling the unit. BigPond Movies and Presto will be unmetered in terms of customers’ broadband data quota, but the other platforms’ data usage (eg Netflix and Stan) will still apply when used through the Telstra TV box.
Notably, it does not appear as though Telstra TV is a direct replacement for the Foxtel pay TV platform which Telstra is a joint shareholder in — the Telstra TV box will not support streaming Foxtel directly, only the more limited Play online service which Foxtel sells separately. Telstra has not yet released pricing for the device, although it apears as though it will include bundling options.
What I think we’re seeing here is a panicked reaction from Telstra to the almost overnight success of the Netflix Internet television platform launching in Australia.
Netflix only launched in March, but stats from Roy Morgan research show the platform already has more than a million local customers — more than ten times the number of any other Internet streaming service in Australia. And this huge customer base is only set to grow — I wouldn’t be overly surprised if it doubled by the end of this year.
This extremely rapid growth curve for Netflix in Australia means two things to Telstra’s management.
Firstly, it puts the limited success that Telstra has had with platforms such as BigPond Movies and the T-Box into perspective. Although the company has signed up quite a few Telstra customers to these add-on products, bolstering its underlying margins, there is no doubt that the overnight success of Netflix dwarfs these gains. There is also a huge risk for Telstra that its customers will start ditching the T-Box and BigPond Movies for the more agile Netflix offering.
Secondly, the success of Netflix entails huge potential financial losses for Telstra. The company’s fixed-line broadband profits are based on the assumption that almost all customers will not use the full download quota they are paying for. The more bandwidth Telstra customers download on their existing plans — and Netflix use sends bandwidth usage sky high — the more Telstra pays in terms of its own bandwidth costs, and the more its margins shrink.
Telstra’s extremely rapid launch of a re-badged Roku box in Australia is no doubt a tactic to deal with these issues — keeping customers on a Telstra set-top-box platform which allows Telstra to continue to market its own value-added entertainment services and pitch Foxtel Presto at customers as well. I also strongly suspect that Telstra will be pressuring Netflix behind the scenes to start paying cash money for the impact it’s causing on Telstra’s network.
However, this is a very short-sighted launch. The real issue for Telstra is not Netflix, and it’s not the T-Box. Re-badging Roku for the Australian market won’t solve its problems.
The real issue for Telstra is that it is struggling to reconcile its investment in Foxtel — Australia’s largest content delivery platform — with its own mission selling telecommunications.
Right now we have a ridiculous situation where a telco, Telstra, wants to bundle content on top of its telecommunications network, while Foxtel, a content delivery platform, wants to bundle telecommunications services with its content. Both are struggling with the area that is not their own — Telstra does not do content well, and I doubt Foxtel will do telecommunications well.
The solution needs to come in two parts. Foxtel must firstly come up with a way to stop losing customers and potential customers to Netflix. Netflix is a real and present threat to Foxtel, and so far Foxtel’s own online offerings have failed to address that threat. Bundling them with Telstra services is not going to help that situation.
When Foxtel has done that, Telstra must work closely with Foxtel so that customers are heavily incentivised to purchase both Foxtel and Telstra in lock-in bundles that they will never want to escape. The pair already do offer solid packages. But they’re primarily attractive to families with a lot of money to spend — the younger Netflix generation is not that keen. Telstra and Foxtel need to work out a way to target that generation better.
The nasty thing for both Telstra and Foxtel is that this is going to necessarily involve giving up some of the fat profits they’ve come to enjoy for the past two decades of partnership. But here’s a reality check: Netflix has changed the game. Telstra and Foxtel cannot hang onto the past.
The option that Telstra appears to be pursuing right now is to try to offer a Roku bundle with Netflix, Stan and Presto to customers for less than $30 a month. This will be a decent effort if Telstra can pull it off.
But I don’t think it represents the end game. That will require some deeper thinking about the fundamental relationship between Foxtel and Telstra. Nothing I’ve seen from Telstra so far indicates the company has yet gotten that right.
Image credit: Telstra