Thursday, June 24, 2010, 8:14 AM ET|Posted by Will RichmondClearleap, a web-based TV technology platform, and Roku, maker of the popular digital video player, are announcing a partnership this morning that blurs the boundaries between traditional and broadband-centric video distribution. The partnership enables incumbent Pay-TV providers to deliver premium content, including their own video-on-demand (VOD) libraries, plus supplemental online video, to their customers via Roku boxes. As a result, instead of Roku being thought of as one of the "over-the-top" disruptors of the existing video ecosystem, the Clearleap deal will help it - and other connected devices to follow - potentially find a role working with Pay-TV providers to extend their services.
For industry analysts like me, the deal is a bit of a mind-bender; when I got a sneak preview of the implementation at the Cable Show in LA last month I had to ask more than once about the context and motivations of the parties involved. I refreshed my understanding earlier this week in phone calls with Braxton Jarratt, Clearleap's CEO and co-founder, and Jim Funk, Roku's VP of Business Development.
Braxton explained that several of Clearleap's cable operator customers have acknowledged the expanding role of online video viewership (e.g. Netflix, YouTube, Amazon, MLB, etc.) via connected devices and are growing concerned that they pose a double negative: diminishing the importance of operators' own video services while also generating additional network traffic, but no incremental revenue upside (assuming the broadband user stays beneath their data cap and doesn't need to upgrade their service tier).
Currently, Clearleap's Universal Video Platform for content management and service delivery has been integrated into 6 of the top 10 U.S. cable operators' video delivery centers (or "headends" in cable-speak), with content delivered from the cloud to existing set-top boxes. The Roku deal means that for the first time Clearleap will enable premium content delivery through its customers' broadband infrastructure to a connected IP device.
The partnership underscores what Braxton said are cable operators' search for more flexible and capital-efficient set-top box approaches. Jim Funk added that he sees multiple deployment scenarios; the cable operator might lease the Roku box or the consumer may purchase it. Either way, Roku's relatively low cost makes it attractive for connecting second and third room TVs in the home and/or deploying VOD into greenfield settings. The UI for how cable services would appear alongside existing Roku channels would depend on who paid for the Roku box, the consumer or the operator.
An important nuance to the deal is that it effectively provides cable operators an IP-based alternative to their existing VOD infrastructure. Clearleap can process transactions incurred through the Roku box and have them added to the subscriber's cable bill. It can also detect a subscriber's service tier and authorize access to premium VOD like HBO, Starz or Epix.
All of this is significant because today's VOD implementations are widely considered sub-optimal due to their clunky navigation and inflexible monetization. With alternatives for movie and TV program downloads and rentals spreading like wildfire all around cable operators, it is imperative that they upgrade their VOD value propositions to effectively compete with web-based options. Roku's impressive new Netflix UI is an indication of how much cable operators could benefit from UI flexibility its legacy set-tops can't offer.
At a broader level, the Clearleap-Roku partnership creates an unexpected new twist on the open/Internet vs. closed/traditional video distribution narrative. Many in the media have fallen in love with the prospect of open/Internet delivery driving massive "cord-cutting," citing anecdotal instances as evidence of a still-unsubstantiated trend. Though I'm a cord-cutting skeptic, at least in the short term, the lagging pace of TV Everywhere rollouts has left me wondering if cable operators really have the chops to meet consumers' anywhere/anytime viewing preferences that Netflix, for example, has exploited masterfully. Therefore it is preliminarily encouraging to hear Braxton relate that one cable operator is already testing the Roku-based delivery model, with an initial commercial deployment set for later this year. Other operators should be taking heed, and be ready to follow quickly.
The Clearleap-Roku deal, combined with yesterday's news that thePlatform is supporting multiple connected IP devices, plus the recently-unveiled Google TV - which aims to enhance the incumbent ecosystem - are all early evidence that the future of video distribution may be more about the Internet co-existing with, rather than undermining, Pay-TV incumbents. It is still very early days however, and the Clearleap-Roku deal shows us that there will be plenty of surprises as the market evolves.
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