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Roku's UK expansion pits it against country's TV gatekeepers

Roku Inc.'s plans to power every TV in the world will soon be put to the test in the United Kingdom — a fragmented streaming market that experts say is ripe for disruption.

Already home to its streaming sticks, the country is set to become the first outside of North America to stock TVs preloaded with Roku software. The company is partnering with Chinese manufacturer Hisense Electric Co. Ltd. to launch high-definition TVs in the U.K. this fall, Roku CEO Andrew Wood announced at the IFA tech conference in Berlin Sept. 7.

Smart TVs allow customers to watch free and paid video content via the internet. Roku software hosts apps including Netflix and Amazon Prime Video, and the company makes money from driving subscriptions to these services and through targeted advertising.

Over the coming months, Roku will likely borrow from its U.S. playbook and build scale in the U.K. by partnering with further lower-end TV makers, said Rishi Kaul, Ovum consumer technology and media technology analyst.

Ultimately, this could see it reach 50% of U.K. smart TV households, said Toby Holleran, an analyst at Ampere Analysis, which specializes in media, content and telecommunications.

Standing in its way are the U.K.'s TV "gatekeepers" who are chasing the same digital advertising revenue as Roku, according to Caspar Stewart, a broadcast analyst at Enders Analysis. They include pay TV providers Sky Ltd and Virgin Media, entrenched smart TV makers like Samsung Electronics Co. Ltd., and TV software rivals such as Google LLC and Amazon.com Inc.

Roku may have ceded ground to competitors by leaving it until now to launch its smart TVs in the U.K., Stewart said.

Almost half of U.K. households already own a smart TV, with 44% using them to watch subscription video-on-demand content in the first three months of 2019, up from 33% in the first quarter of 2017, according to U.K. media regulator Ofcom. SVODs are also seeing their overall viewing hours increase in the U.K. at the expense of live TV.

Despite its late start, Roku could take advantage of this increase, analysts said. Its budget smart TVs already pack popular streaming services and it has confirmed the addition of Disney+ and Apple TV+. Roku's broader mission of simplifying the online TV experience will also hold universal appeal for consumers navigating a cluttered streaming market, analysts said.

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It faces an upward climb. Roku's streaming sticks, which can be inserted into TVs to install its platform, has brought it a mere 2% market share in the U.K., according to Strategy Analytics.

The rest is split between its rivals, including Samsung (14%) and LG Electronics Inc. (7.5%); Google's Android TV operating system, found on Sony Corp.'s smart TVs, and Chromecast streaming sticks (11%); and Amazon's Fire TV media players (6.5%).

That leaves the 42% of the U.K. connected TV sector where lower-cost television brands, like those Roku typically partners with in the U.S., dwell.

Roku could also look to partner with retailer-owned or licensed brands such as JVC and Logik (sold exclusively in electronics store Currys PC World), Technika (supermarket chain Tesco PLC's own brand), and Alba and Bush (owned by Argos' parent, Sainsbury's Ltd).

It has struck similar TV and device partnerships with Walmart Inc. in Canada and the U.S. And rival Amazon is also targeting retailer-owned TV brands in the U.K. and Europe.

The unavailability of Roku TVs internationally has left it with just 5.7% of the worldwide smart TV software market, according to Kagan. With CEO Wood describing the U.K. launch as the "first stage" of its expansion, this could be set to change.

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