Roku Inc., the maker of set-top boxes that connect TVs to the Web, will build its software directly into sets from Chinese manufacturers TCL Corp. (000100) and Hisense Electric Co. (600060), helping to raise their visibility with U.S. consumers.
At the annual Consumer Electronics Show this week in Las Vegas, the companies plan to show six models featuring Roku’s user screen, streaming and billing software, Chief Executive Officer Anthony Wood said in an interview. The Saratoga, California-based company is in talks with other TV manufacturers, he said without naming any.
“It takes them out of the service and software business,” Wood said. “It’s a win-win because they try to make their money on hardware and we make our money on the service revenue.”
The deal to integrate directly into TVs marks a first for Roku, whose devices sell for as much as $99 and deliver Web-based programs from networks, online services such as Netflix Inc. (NFLX:US) and pay-per-view outlets. The company competes with Apple Inc. and Google Inc. (GOOG:US), as well as console makers Microsoft Corp. and Sony Corp. (6758) Roku receives revenue from hardware sales, ads and a fee split with content providers.
The partnerships with Hisense and TCL increase pressure on Japanese and Korean television makers Sony Corp. (SNE:US), Samsung Electronics Co. and Sharp Corp. (6753), which tout their own advanced Web-streaming software to set them apart from lower-priced Chinese sets. TCL, China’s biggest flat-panel television maker, and Hisense offer products that often sell for 35 percent less than leading brands in the U.S.
Chinese manufacturers are also trying to take advantage of a technology transition in which so-called 4K ultra high definition TVs are becoming the new global display standard. The sets have double the horizontal resolution of previous models, at almost 4,000 pixels.
Samsung, Sony and other TV manufacturers are pouring research and development into larger screen sizes, complex image processing and the ability to update premium models as standards continue to evolve.
“This thing is roaring out of control in China,” Paul Gray, director of European TV research at DisplaySearch, said by telephone. “In the end, people watch programs or movies; they don’t watch televisions, and that’s what the Chinese manufacturers are figuring out as they go after the American market.”
The TCL and Hisense TVs will be co-branded with Roku and offer users more than 31,000 movies and 1,200 channels of programming, including Amazon Instant Video, technology, fitness and foreign-language shows, Wood said.
The partnerships expand Roku’s efforts to add features as it battles Apple, its biggest competitor, and Google, which sells the $35 Chromecast devices that connect TVs to YouTube, Netflix and other video services.
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