ROKU - for platform

This is what I wrote for me when I was trying to understand Roku and how it makes money.

If I and any other cord cutters have decided to move my entertainment to streaming, I have to decide which platform should I use to stream my content. Let’s understand how the content is going to be streamed. Through applications. Now one can decide to install the application on smart TVs but the OS is very clunky. Remote is not very user friendly but the worst part is that the processors in smart TV are too weak. So ok if smart TVs will not cut it than what are my choices. I can opt for streaming sticks or boxes. Amazon has been providing streaming stick as well as google (call it a dongle) or if I have a little extra money I can splurge to buy amazon TV or Apple TV. However there is a 3rd choice Roku which has been providing OTT content probably before Amazon, google or Apple started. However, Amazon and apple (add google for kicks) were able to make it more mainstream. So the popularity increase multifold and that helped more content produced and delivered for OTT platform.

Even though streaming video over the top is now a reality let’s consider the platforms. Amazon fire sticks I have tested and they basically suck. They are extremely slow and clunky devices. Have not tested google dongle but there was a major fight between google and amazon where they each disallowed apps from the other company on their hardware dongle. If I had google, I would be out of luck and will not be able to use Prime membership on my google dongle and so goes for amazon stick which basically made youtube TV and youtube off limits for the users for Fire stick. On top of that, their ability to get user data raised a lot of privacy concerns. Apple until now did not enter streaming business so it was on par with Roku in terms of independent platform. However, since they have now entered streaming platform, they are now competing with not only google and amazon but also Disney, Netflix, and any other content provider for user eye balls. So at this point Roku seems to be the only independent OTT TV provider. It also helps ROKU that their OS is also very user friendly and most customers like the simplicity of navigating using ROKU OS. So much so that the new TVs are coming with Roku os preloaded. This allows the users to not buy a separate stick and still use their favorite OS/user interface. All these new TV buyers if they want to utilize Roku OS have to sign into Roku platform. So Roku still controls the user data. It’s the first party data and so there is less of privacy concern since users have direct agreements with Roku. So Roku has all the user data about streaming on its platform. You hopefully see where it’s going, Advertisements.

Also, since Roku has so many subscribers, it’s in the best interest of the content providers to provide their content on the Roku platform. As they say you fish where the fish is. And since it’s independent and not fighting with the content providers for user eyeballs it seem as a more trustworthy partner. Some credit Disney+ huge initial success to Roku. Thats huge. Can you imagine content providers shutting Roku out of streaming its content. Probably not at this point. Of course within bounds though. So Roku seems like a better choice from consumer standpoint at the same time its better for content distributors as well. I say win-win.

Now the question comes, how does ROKU makes money?
Platform services. All the companies that want to provide content to Roku subscribers basically Roku is giving them virtual real estate on its platform. Roku charges them platform fee or you can call it a subscription fee to be able to serve their content utilizing Roku platform. Here the content providers mentioned above like Netflix or amazon prime or youtube tv Apple TV are not the only content providers. But all the TV broadcasters who also want to not fall behind in the connected TV market have also developed their apps to provide their own content. Roku gets the piece of the subscription charged by these content providers. So as long as the user is streaming through Roku platform the content that it subscribed it will continue to get some money. Its about 1.50 per month for a customer per subscription

The second and growing market for Roku is advertising. Roku has made some content free on its platform. It gets to place ads strategically whenever user is watching any of these free channels. Also Roku makes deals with platforms that are ad supported and buys ad inventory on their content where it has some percentage of ad space. DataXu acquisition now starts to make sense.

So those are the two primary and growing means for Roku to make money. The hardware is literally given away for free. So the bigger the ecosystem, they are trying to branch out internationally, the more critical Roku becomes as partner for the content distributors.

Hope it’s helpful to some.



thank you for detail write up Ruhaan.

I had not seen $1.5 per subscriber number before, that’s very helpful.
Do you know if that’s what they get from everyone of paid channels or is that average number? How about Disney+, what does Roku get from them? In what circumstances (i.e only if subscribed sign up via Roku or even otherwise)?

I think people have hard time getting ROKU’s business and strategy…
Partly because Roku does not articulate it or split out their platform revenue into different components.

However, if you observe, it looks like they are taking best of strategies from both Apple and Google and implementing it on a stronger, bigger market / platform. And it is simple to understand:

  1. Roku is becoming “app-store” for TV, getting a cut from subscription revenue. I am sure the $1.5 above may be average or even on the higher side, I am sure NFLX or Amazon prime doesnt pay them as much as smaller, newer channels pay. And thats ok.

Remember, when Apple came up with iphone, they enabled google map, facebook and few other apps from the beginning… and then paid apps started… and today appstore is flagship, high margin money maker for Apple. And ofcourse Google android and Amazon copied app store but Apple really successfully monetized it for phone.

This is what Roku is replicating for TV.

  1. CTV advertisement: just like Google took over classifieds advertising business from newspapers and built ad empire on the back of other people’s (whole internet) content, ROKU is building its CTV ad empire business on other people’s video content…
    After youtube, this is the best strategy one can find to take advantage of advertisement on tv…
    In many ways this is better than youtube strategy as Roku channels are professionally created content.

It is one of the most explosive strategy one can find… and this is the time for it.
With acceleration of CTV post Covid-19 era, lack of live sports and concerts for next few months, large number of people unemployed YET getting some financial support from government…all of these factors should drive explosive growth for ROKU.

Some people worry about ad budget constrained - and thats true… but look at where the cut is coming from… with sports and live entertainment gone, most of the highly priced ad spend gone dead with that. Of the remaining ad budget, there will be propensity to spend that on traceable, higher RoI, better measurement medium like CTV… overall ad revenue for ROKU should increase despite reduction ad spend at macro level.

To me, in short term, ROKU may be a roller coaster… in long term (2 to 4 years) ROKU is a rocket… either way fasten your seat belts!!


I think I read it on Seeking alpha. Here is the link:…

Its been put behind the paywall so I do not have access to verify.

  • Ruhaan

Hi Nilvest,

So I agree 1.50 per month for a customer per subscription seems like a lot especially considering Disney+ is only 5.99 per month per sub. I am not sure if its the average or at the high end. But as you said, it may be Tier based pricing and as the number of subscriber go up, price per sub may come down or something similar.