On Friday, April 30, Roku removed the YouTube TV app from its Channel Store, culminating a week featuring the kind of threatening, back-and-forth rhetoric we’ve become accustomed to seeing in traditional pay TV carriage battles, and ramping up what has the potential to become all-out war between two of the biggest technology companies in video streaming.
For now, a considerable subsection of the more than 3 million YouTube TV subscribers who use Roku to access their virtual pay TV service are unaffected, so long as they’ve already downloaded the YouTube TV app on their Roku device.
But they can’t download the YouTube TV app to Roku again if they’ve deleted it, or if they want to put it on a new Roku device. And new YouTube TV subscribers won’t be able to download and use the app on a Roku device ecosystem that touts an industry-leading 52 million active users worldwide.
For now, this dispute is confined to just YouTube TV, Google’s $65-a-month, 85+ channel virtual MVPD service, for which Roku’s app support contract just ended. Roku’s deal to support the broader YouTube app doesn’t expire until the end of 2021.
Conversely, Google still has a deal in place to support FAST service The Roku Channel on the Android mobile platform.
Of course, it’s all related, and this dispute between San Jose-based Roku (market cap: $44.2 billion) and nearby Silicon Valley rival Google (market cap: $1.6 trillion) could get uglier fast.
What Google is saying:
In its initial statements, Google pointed to Roku’s growing track record of distribution disputes. WarnerMedia couldn’t get support for its HBO Max app on Roku until five months after the service launched, and Roku removed Charter Communications’ Spectrum TV app from its Channel Store in December and still hasn’t put it back.
“Roku often engages in these types of tactics in their negotiations,” Google said.
Later, in a blog post published after Roku removed the YouTube TV app from its Channel Store, Google said that “our initial conversations started with Roku simply to renew the current terms of their ongoing deal with YouTube TV, which has been in place for several years. Our offer to Roku was simple and still stands: renew the YouTube TV deal under the existing reasonable terms.”
But the impasse is apparently bigger than YouTube TV.
Here’s what Roku is saying:
“We are disappointed that Google has allowed our agreement for the distribution of YouTube TV to expire,” Roku said in a statement sent to its YouTube TV-subscribing customers. "Roku has not asked for one dollar of additional financial consideration from Google to renew YouTube TV.
“We have only asked Google for four simple commitments,” Roku added. “First, not to manipulate consumer search results. Second, not to require access to data not available to anyone else. Third, not to leverage their YouTube monopoly to force Roku to accept hardware requirements that would increase consumer costs. Fourth, not to act in a discriminatory and anticompetitive manner against Roku.”
What’s really going on?
The first two asks reportedly relate to Google's push to manipulate program search results on the Roku platform, as well as its efforts to collect data on YouTube app usage that Roku doesn't offer its other app partners.
But according to Protocol, at the heart of the conflict is Google’s desire to proliferate AV1, an open video codec that delivers superior 4K videos at lower bitrates.
Wide-scale hardware support for AV1 is part of Google’s larger plan to migrate the broader YouTube platform to a 4K/HDR future. Google has already begun mandating third-party makers of Android TV-based OTT devices that they build in support for AV1 into future Android TV-based product offerings.
But here's the conflict: Roku sees its ability to proliferate its operating system on less expensive IP hardware as a “structural advantage.”
Apple TV, Amazon Fire TV and Android TV are, at their cores, “designed for very high powered chips—the fastest chips out there. The memory footprint increases pretty much every year and as a result, its way cheaper to build a Roku player and a Roku TV,” Roku CFO Steve Louden said in an interview conducted in September.
Roku has quickly proliferated its OS through OEM relationships with smart TV makers such as China’s TCL and Hisense, which have managed to undercut pricier smart TV products from Korean market leading incumbents such as Samsung and LG. According to Louden, Roku has given its smart TV OEM partners “a big gift of a cheaper-to-build TV that's basically designed very well and wins a lot of awards for its functionality, its value.”
(Notably, when a recent Next TV article pushed back on the possible qualitative deficiencies of some of those lower-cost smart TVs, a Roku rep told us, “This reads like a love letter to Google.”)
In any event, suffice it to say that forcing its OEM partners in the global smart TV market to upgrade their products to include AV1 support doesn’t seem to be in Roku’s business plan.
In the YouTube TV negotiations, Roku was reportedly pushing for a clause that would exempt it from supporting AV1 in any future renewal of the broader YouTube app.
What’s at stake?
If the two sides can’t work this out, not only would Google lose support for the second most popular vMVPD app on the most popular connected TV app in the U.S., Roku could soon lose access to what could soon be, on a revenue basis, the biggest video platform in the world, YouTube, which will likely generate more money in ad sales this year than Netflix does in subscriptions.
Roku, meanwhile, could also see its efforts hindered to further proliferate its ad-supported programming service, The Roku Channel, beyond its own platform. Roku recently announced a deal to expand The Roku Channel to Amazon Fire TV, but it’s not yet supported on Android TV. (It’s unclear when Roku’s deal for Android mobile expires.)
Perhaps more consequential to Roku, it could further incentivize Google--a company with a long history of being too distracted to focus on the video business--to dial in and invest heavily in proliferating Android TV and the new software layer that’s usurping it as the brand name, Google TV.
Google already seems interested in gaining a global foothold in a connected TV OS business dominated by Roku, Amazon, Samsung and LG. If Roku threatens a YouTube business that was mentioned no less than 56 times during Alphabet’s Q1 earnings call, it could reap the whirlwind.
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