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New Roku Channel Subscription Helps Unbundle Cable Programming

Rich Duprey, The Motley Fool

Roku (NASDAQ: ROKU) is reportedly ready to make its streaming service more cable-like, which isn't as bad as it sounds. Rather than having to download individual apps to see a particular channel like HBO Now or CBS All Access, viewers will be able to sign up for a video subscription service that will let them choose the channels they want and pay for it all in one place.

According to Variety, which first reported the development, the new Roku service is similar to how Amazon.com's (NASDAQ: AMZN) successful Channels subscription video marketplace operates, where people can subscribe to a particular channel through their FireTV device.

While Roku's current setup gives viewers access to a broad selection of channels, it's a rather cumbersome process. First you need to download individual apps to access the channels, and when you're watching programming on one channel and want to switch to another on a different channel, you have to close one app and launch another to do so. The new service brings it all together and manages the bundle of channels through one program guide.

Woman holding a PC looks at a wall of TV screens.

Image source: Getty Images.

Returning choice to viewers

While the service will be similar to Amazon's, it's actually a bigger challenge to the cable companies because it begins to really unbundle the TV-viewing experience. Viewers can pick and choose what programming they want to pay for. And because it is Roku that is doing this, it has the potential to really drive a wedge between the cable operators and those on the fence about cutting the cord.

Roku is the industry leader in streaming devices, with data from research firm Parks Associates estimating that Roku commands an industry-leading 37% of the market (Amazon is moving up quickly with 28%). Its ad-supported Roku Channel is one of the top 15 channels on Roku devices, and Roku-powered smart TVs now account for 25% of all smart TVs sold in the U.S. It added news from ABC, Cheddar, and others to the Roku Channel in April.

In short, for people cutting the cord to cable, or thinking about doing so, it is Roku that offers them the broadest selection of options on how to enhance their TV viewing experience. Making it more simple to consume subscription video more easily could help make the decision easier.

Cable TV has been successful because of its ease of use. There are multiple channels you can subscribe to and watch, and it's all handled seamlessly within the service. The streaming services are cheaper, but navigation is clunky. Bringing together the ease of use of cable, with the price and benefits of streaming on-demand programming, and doing it through the most prevalent devices on the market, sounds like a winning combination.

The future of television

Already, advertisers are switching their marketing dollars away from cable -- some $70 billion is spent on television advertising each year -- but as U.S. consumers shift their viewing habits to streaming, the dollars will follow. Roku's own advertising platform is benefiting from the switch, with revenues from ads and fees surpassing devices for the first time ever in the first quarter.

Cable is still able to reign supreme because it continues to attract the most eyeballs, but the field is changing, and Roku estimates that nearly half of its roughly 21 million active users have already cut the cord to cable, or were never tethered to it in the first place.

Right now, Amazon dominates the a la carte subscription medium with Amazon Channels reportedly delivering more than half of all a la carte subscription services. According to survey data from The Diffusion Group, the service drove 53% of all HBO subscriptions for people who don't receive it from their cable provider, and it accounted for 70% of Starz direct-to-consumer subscribers and 72% of Showtime direct-to-consumer subscriptions.

Integrating the streamlined viewing package into the Roku Channel would make the most sense, and it would elevate the value of the service even further, helping make it a whole new profit center.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.