Although some Arris investors reacted poorly when Roku and Comcast announced the release of a new app for Roku devices that can be used in lieu of a traditional set-top box, an industry analyst held that it shouldn't have a big effect on Arris’s business with its largest customer.
Arris shares dropped sharply soon after the announcement was made at 1 p.m. ET today, but the stock quickly recovered. Arris shares closed down 14 cents (0.49%), to $28.58 each Tuesday.
While the news was expected (Roku and Comcast announced plans for the app about nine months ago), the market initially reacted otherwise, Simon Leopold, analyst with Raymond James, said today in a research note with the title: ARRS: The Sky is Not Falling, Roku at Comcast Is Not a Shock.
“Most, including us, see the traditional set top box (STB) as challenged, but offset by the deployment of next generation IP gateways and media boxes along with infrastructure to support them, and today's release does not alter our view on the trajectory,” Leopold wrote. “The initiative does not alter ARRIS' trajectory that includes increased Network & Cloud and Broadband sales while traditional STBs decline.”
And while the model to be employed by Comcast for Roku devices does allow for customers to get almost the full pay TV experience on Roku boxes bought at retail, it doesn’t seem to reflect a massive near-term shift in how the market functions today.
According to Bloomberg, Comcast subs who use a Roku as their primary device (rather than a regular set-top) will get a $2.50 monthly credit. However, the FAQ for the Xfinity TV app being tested on the Roku platform notes that customers won’t be on the hook for equipment charges regarding their use of Roku devices during the trial. But upon conclusion of the test “you will be informed of the charges that will apply for connecting this device with your XFINITY TV service and will have the opportunity to opt in,” it reads.
Update: Comcast clarified that, in or out of beta, there will be no equipment charges for use of the Xfinity TV app on a Roku. But out of beta, other fees associated with a customer’s account would apply, such as additional outlet charges. The company also confirmed that the app will be available to video subs who also subscribe to Gigabit Pro, Comcast's 2-Gig residential broadband service that uses FTTP technology.
Plus, those Roku/Xfinity TV app users will require an Xfinity IP gateway in their home – something that Arris also makes.
Also factoring into Arris’s favor the decision by new FCC chairman Ajit Pai to pull the plug on proposed new set-top box rules. The industry was already evolving to support retail devices using apps without the regulatory efforts, Leopold added.
He also does not expect the new Roku app from Comcast to have much of an impact on the MSO’s plan to have more than 60% (in the low-60 percentage range) of its video sub base on X1 by the end of 2017.
But Leopold speculated that the app, though initially available to customers in Comcast’s traditional service footprint, could position the MSO to compete out-of-region and take on virtual MVPD services like DirecTV Now.
For its part, Comcast has poured cold water on the idea, arguing repeatedly that the economics of an OTT-TV service don’t add up, at least for now.
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