Roku Lands Its First Cable Channel

Roku is expected to announce Tuesday an unlikely addition to its programming lineup: WealthTV. This will mark the first time a cable channel has joined the streaming device, which begs an obvious question: How is this even possible?

The dozens of brands already on Roku have one thing in common: they don’t have any deals in place with cable operators, who contractually insist on maintaining some degree of exclusivity. Otherwise the over-the-top TV revolution in which Roku has been a leading force would be much better able to compete with traditional multichannel services.

“We’re probably the only one in the industry who can do what we’re doing right now,” said Robert Herring, co-founder of WealthTV along with his son Charles Herring. “It’s going to be a chance to lead.”

“It’s the first domino to fall,” said Ed Lee, director of business development and content partnerships at Roku, who said other conversations were being held with other channels who he declined to specify.

For $2.99 per month, Roku users will be able to access both a replication of the 24/7 linear feed WealthTV offers to cable subscribers, as well as a VOD selection of its programs.

The loophole that WealthTV is slipping through is that it doesn’t have affiliate deals with either of the two biggest operators, Comcast (NSDQ: CMCSA) and Time Warner Cable (NYSE: TWC). They typically insist for an independent channel seeking linear carriage to sign a contractual clause known as an alternative distribution methods (ADM) clause and/or sometimes even sell some equity in the venture to the operator.

While WealthTV has deals with other prominent distributors including Charter Communications (NSDQ: CHTR) and Verizon Fios, its avoidance of the ADM clause has limited its footprint to just 11 million homes in the U.S. “Our agreements don’t include these clauses,” said Charles Herring. “Perhaps it has hurt us but it allows us to deploy where we choose.”

Since launching in 2004 with a programming lineup focused on luxury lifestyles, WealthTV has always taken its share of risks: It made the expensive decision to own all of its own programming and shoot it in HD, moves channels don’t typically make until years after launch. More recently, WealthTV became one of the first TV brands to distribute 3D content, which is being carried via Walmart-owned Vudu.

Not only is WealthTV the first cable channel Roku has added to its roster, but it will be among the first brands that will provide a linear feed to Roku, as well as include commercials. The latter capability is crucial to attracting programmers to a dual-revenue-stream opportunity, though dynamic ad insertion is not possible for video via Roku yet.

At the end of 2010, Roku disclosed that it had sold 1 million units and that its average subscriber was watching 11 hours per week, compared with the national average of 36 hours.