I know some of you are in Roku. I have a Roku and so I am one of the 29 million “active accounts,” I suppose. But obviously I don’t pay them. I also don’t remember seeing many (any?) ads on the platform. And when I use Roku, I have never seen a “Roku” channel. I just use it to access “apps” like HBO, Netflix, or Amazon Prime. So when I log into those on my Roku, is Roku benefiting from that somehow? If so, how? I guess I’m just not understanding what ads Roku is selling.
Thanks,
Bear
know some of you are in Roku. I have a Roku and so I am one of the 29 million “active accounts,” I suppose. But obviously I don’t pay them. I also don’t remember seeing many (any?) ads on the platform. And when I use Roku, I have never seen a “Roku” channel. I just use it to access “apps” like HBO, Netflix, or Amazon Prime. So when I log into those on my Roku, is Roku benefiting from that somehow? If so, how? I guess I’m just not understanding what ads Roku is selling.
Thanks,
Bear
Bear,
I am in same camp. I get CTV and buy into the streaming movement for sure, but just not clear to me how ROKU is making money and what the longer-term drivers for revenue are for them.
I have a couple tvs with ROKU imbedded, and I also have a couple ROKU players.
If you go to your Home screen and search around, you should see one of the squares labeled simply “ROKU Channel”. This is basically ROKU’s collection of content that they are providing to users like us. I don’t know that they have any original content yet, but I believe that will be in the works.
I use my ROKU software to go to Hulu, Prime Video, Netflix, and most importantly for me was the Xfinity app (which is in beta). So now for Xfinity cable I only have 1 cable box, but can retrieve all my DVR’d shows and/or watch live tv via the Xfinity app on any of my other tvs.
Here is what I am not sure that Roku does or does not get paid on:
So, for me, without having done any deep due diligence on their business model, I only see ROKU making money for a long time based on their ad revenue for their ROKU Channel. But it is a lot harder to say “we are going to provide original content” than it is to actually produce good original content.
Original content isn’t like making a pizza. You need good writing, talent, directors, etc… Netflix has just enough shows that I keep them around. Hulu has a handful I like, but not enough for me to just let my membership run…I start/stop it often. Same with CBS for Star Trek Discovery or HBO for Game of Thrones. Will just cancel when the show I want to watch is over.
This speaks to Jeff Green’s assertion, which I agree with, in that all/most streaming channels will offer a free or low-fee tier, because we won’t all want to pay for 10-15-20 subscriptions…at that point, cable tv will start looking nostalgically like a great idea.
You don’t cancel ROKU…you have it free. Give them an edge there. So they need ad revenue to survive.
I get their hot growth, but I think it will taper off dramatically, unless they somehow become the AMC-quality-content of the streaming world. Given that Disney has the strongest content brands, and ATT will take HBO along for the ride in their new service, ROKU is entering a very crowded field for “original content”.
Happy to have my facts corrected by those that understand the biz model better!
Dreamer
Bear,
I might repeat some of what Dreamer said, but my takeaway:
They may or may not ever be able to monetize that data with you, but they can do so in other ways, by using AI/ML to learn about habits and patterns people like you have – and use that to offer better ads to those that are viewing ad-supported things.
My 2 cents,
Brian
Hi everyone,
I’ve been following for a couple of years and wanted to start trying to give back to the discussion. Thank you so much to everyone that makes this place as special as it is!
Here is an article that best explains all 10 aspects of ROKUs platform revenue:
https://www.emarketer.com/content/10-ways-roku-is-growing-it…
These 3 below seem to be the most significant today:
Selling publishers’ inventory: When people watch ad-supported publishers on Roku, the platform gets access to sell some of the publisher’s inventory in exchange for the extended audience reach it provides. Roku has found this to be a more reliable strategy than asking publishers for a cut every time an ad runs on the platform.
Subscriptions: Roku gets paid when it drives subscriptions to video services. For example, if a viewer subscribes to a paid service like Netflix via Roku, then Roku gets a piece of that revenue.
Note - this reminds me of the App Store play which seems to be playing out great for Apple. This is is great recurring revenue!
The big macro theme that is exciting is pretty similar to TTD. TV ad dollars will keep shifting over to CTV due to better data, conversion tracking, targeting, etc.
As an e-commerce business owner, it seems pretty clear that once you scale up in Facebook/Google/Youtube, CTV is the next big opportunity.
Currently not invested, but on my short list.
I can’t disagree with anything stated thus far. However, I will point out the CEO specifically stated on the call: “And then in terms of licensing original content we have no plans to license original content. In TRC our focus is on adding more content categories deepening our content categories adding live content adding different business models like premium subscription as well as free content. And the big advantage we have with TRC is that we control our platform so we can integrate it into our user interface we can make it front and centre. We can have a single bill we can do great targeting. We can make it the best a great aggregation point for content and that really helps brings viewers to content and content to viewers.”
I view the Roku Channel as more of an aggregating platform that puts content all in one place and allows Roku to generate ad impressions and/or partner fees. (I don’t use the service, so someone please correct me if I have this wrong). It does appear to be working though as far as bringing a captive set of eyeballs to those partners who choose to put content on the channel:
“Ralph, it was a great quarter for The Roku Channel. We continue to see nice growth. As you pointed out notably premium subscription has also seen great growth. We have got over 30 partners now in the Platform. We launched HBO in time for the Game of Thrones season premiere. Our view of The Roku Channel and its opportunity is that there is both great opportunity in AVOD and ad supported programming. We are still early days, but have added lots content over the last 18 to 24 months of TRC. And then on premiums subscription, while it’s early days we think the value proposition for consumers of one bill, one login combined recommendations across these services as well as the value proposition for content owners to more quickly acquire subs and retain them through an easier-to-use interface is strong. So, in general, we are very excited about the continued growth and opportunity for The Roku Channel. Today, it’s a top 5 channel in terms of reach and just as a reminder it’s under 2 years old.”
Total disclaimer that I’ve added a starter position in the company based mostly on the growth of their higher-margin platform revenues. The above is a rough interpretation of one of the avenues they are leveraging to turn that platform into revenues.
The key is access to the inventory of the various channels. Correct me if I’m wrong, but in regards to CTV of OTT devices (i.e. not mobile), ROKU is exactly where TTD would like to be. As a user, I go through roku to access my netflix, amazon, now tv, and in the future disney, plus occasionally youtube and other channels. They know what I watch. With that data, they may best be able to know what ads would suit me. Now, apart from knowing what TV shows and movies I like, I’m not sure what else they can figure out. But in regards to ads, I do get display ads for certain movies to rent/buy on my roku homepage. So there’s at least that!
A cut of subscription. I know Netflix is trying to cut them out of this. I forgot how, but maybe something like a discount if people subscribe directly with them instead of through Roku.
The Roku channel…
So on that list, #1 is the key to Roku.
As for losing traction as the OS for smartTVs. It’s an absolute pain to create your own. Maybe Samsung will be a success story, but they’re probably the only TV manufacturer really capable and large enough to make it worth their while. But by and large, TVs are commodities. Why spend money creating an OS when you can just slot in a free one? And why go for anyone else apart from the biggest, most well-known, with the largest app and channel eco-system so you can advertise that your TV has a gazillion apps and channels.
Another key part of ROKU is the ability for anyone to have a ROKU channel. That’s why there are literally hundreds, if not thousands. Probably mostly rubbish, but each has their Niche. Very similar to a youtube channel, but now you’re on TV. TV has a different charm compared to it compared with putting a video up on youtube. You may monetise your channel, ROKU will help you fill your channel with ‘quality ads’, and take 40% of the ad revenue. Wow!
Read about it here.
https://blog.roku.com/developer/direct-publisher-monetizatio…
Looks like Bear and I started threads on ROKU at the same time, so I will bring my question onto this thread so we only have one to follow.
Is it likely ROKU will continue to be the OS supplier to smart TV manufacturers?
I think the ROKU investment thesis is based on them being the default OS supplier to the manufacturers. This is their main competitive advantage for getting into homes. They have 1/3 the market now.
I think ROKU’s advantage of being an independent platform will shrink over time. The Amazon/google/apple battle appears to be over (from a sharing of app perspective). They will play nice with each other going forward, because it expands their market and hurts independent platforms, and because if they don’t it’s more examples of them being monopolies, which they don’t want with continued calls to break them up.
I don’t think the ROKU channel is the answer for them, in fact, if I see that they are going to develop their own content for the channel I would not be interested in them.
They get a piece of the subscription if someone starts a Netflix account thru ROKU. Is this a one time fee, or do they get small piece each month?
Jim
Jim
Another key part of ROKU is the ability for anyone to have a ROKU channel. That’s why there are literally hundreds, if not thousands. Probably mostly rubbish, but each has their Niche. Very similar to a youtube channel, but now you’re on TV. TV has a different charm compared to it compared with putting a video up on youtube. You may monetise your channel, ROKU will help you fill your channel with ‘quality ads’, and take 40% of the ad revenue. Wow!
Read about it here.
https://blog.roku.com/developer/direct-publisher-monetizatio……
This is early innings, but I find this interesting.
My kids (GenZ) don’t watch tv. Stranger Things on Netflix and then maybe some traditions like we watch stuff when we order pizza (also Netflix…so far we give no one any ad rev).
GenZ loves YouTube and Tik Tok and anything that is “short form” video. Often this is viewed on mobile, and not tv. Meg Whitman left HPE to join Jeffrey Katzenberg in creating a business dedicated to making high-quality short-form content: https://www.quibi.com/
Not sure any of this will all tie together, but my point is that if Roku adds a “short-form video” optionality to their bus model, that would be pretty smart.
As for being an “aggregator” I agree, but I can already do that thru Amazon Prime Video, and when I turned HBO back on for Game of Thrones recently, I did it via Amazon, on my Roku software. I don’t think Roku gets a cut of that, since Amazon is already getting a cut from HBO for the subscription going thru them.
Apple TV will also be an aggregator as well as hub for their own Original content.
Dreamer
Fieldy,
This seems totally huge:
1. Selling publishers’ inventory: When people watch ad-supported publishers on Roku, the platform gets access to sell some of the publisher’s inventory in exchange for the extended audience reach it provides. Roku has found this to be a more reliable strategy than asking publishers for a cut every time an ad runs on the platform.
“Rather than ask partners for a share of their ad sales, which is very hard to police and enforce, what we’ll say is, ‘We just want access to a piece of the inventory that we can sell,’” Rosenberg said. “That was a critical fork in the road because it gave us the agency to go sell that product with all the capability that we thought was possible.”
Thank you so much for linking to that article.
I still don’t understand the ins and outs of this industry. Are AppleTV, Amazon Fire and Google Chromecast still a thing? Is Roku just winning anyway? Why/how?
But color me interested.
Bear
I think Dreamer had a good observation and potential head wind for ROKU, kids tend to watch more on handheld devices and computers vs TV’s.
This would be bad for ROKU, since it needs video being consumed on a TV.
I found this article:
https://www.vox.com/2018/3/7/17094610/netflix-70-percent-tv-…
It’s a year old, but looks like 70% of netflix is being consumed on the TV.
Only 25% of netflix subscriptions originate from a TV OS, but after 6 months 70% of the shows are watched on the TV.
Doesn’t appear to be a big concern yet.
Jim
Hi Bear,
You probably already know all this but here’s a brief but scatty history.
First you had normal terrestrial TV with the antennas and static.
Then came cable and its gazillion channels.
Then with the internet and streaming, you had AppleTV, Amazon’s Firestick and Google chromecast. With a cheap $30 usb stick, you turn your dumb TV monitor into something that can stream youtube. Great! But then these guys started putting out better and better content (Netflix, Amazon…etc).
They also locked each other out from each others hardware. E.g. you couldn’t stream youtube on a firestick. You couldn’t watch Amazon Prime on a google chromecast. This allowed Roku to appear on scene and be the neutral platform.
Wait a minute, you mean I get all this functionality on my huge 50" TV by buying a really tiny, cheap device? I mean, everyone’s going to want/need this device aren’t they? It’s so small, why can’t they just fit it inside the TV?
Good question. That’s what they did. I haven’t checked, but I’m sure if you went to your local Best Buy and checked out the cheapest TV, it will be a smartTV, you’ll be able to watch Netflix, you’ll be able to cast videos from your smartphone onto it via wifi, without buying anything extra.
Are AppleTV, Firestick, Chromecast still a thing? Yes, because there are still a lot of legacy TVs out there. But the hardware side of these devices are not going to have a bright future. They’ll be moving to software. So the AppleTV APP, is a thing, which you can get on ROKU.
So does Roku choose what ads I would see while watching YouTube or Twitch and get a cut of that? Or is it just some of the smaller publishers?
Personally if I am paying for HBO or Netflix I wouldn’t want to see ads. I haven’t used a Roku in years (I have mostly FireTVs and Chromecasts). In the link it says they show ads on the platform which would annoy me. I can’t imagine ever choosing a smart TV based on having Roku built in. The Smart TV functions are way down the list (size, price, reliability, video quality, inputs and outputs, then maybe features like the operating system). It’s not like a phone or computer where you interact with the operating system all the time. With TV, the amount of time spent in the software should be minimal and have as few distractions as possible.
I still don’t understand the ins and outs of this industry. Are AppleTV, Amazon Fire and Google Chromecast still a thing? Is Roku just winning anyway? Why/how?
I just recently bought a new Apple TV to go with my new Samsung Q60 television. My prior television was a 720p version, and my old Apple TV did not do the 4K and the HDR stuff. So I got both. And why I did so might be a bit puzzling, actually.
Most smart televisions will let me log into Netflix, Hulu, Amazon Prime, plus a variety of channel apps. We make extensive use of the Nick Jr, Disney, and PBS apps, for example. We also own iTunes content, plus rent from them when we can’t find it on Netflix to watch. The odd part here is that the latest Samsung televisions will (soon, maybe even now) talk directly to iTunes and let us view anything we have purchased, or rent anything we want, from Apple directly from our television. No need for an Apple TV anymore.
But I bought it because we are addicted to the simplicity of the Apple TV. We simply like it better than the Roku. And forget about any proprietary offering from the TV vendors – consumer electronic makers STILL cannot make quality software to save their life.
Having said that, having Roku embedded directly into the television was a fantastic idea. The guy who decided to do this was smart. One less thing to buy, one less remote (or not dealing with smart remotes). But, if Apple decided to give away TV-OS to Samsung, Sony, etc. and basically have Apple TV embedded directly into the television set watch out. I don’t foresee this happening, not at all. This would be un-Apple. But if they did…
Bill Jurasz
I don’t think you can buy a TV now that is not a smart TV. So the ROKU devise will be going away, or becoming much less important. Their future is getting embedded into the TV’s, and being the OS for the smart TV’s.
They are doing a good job of this so far.
If I am a smart TV manufacturer, I know this, and instead of paying ROKU to be the OS on my TV, I’m having ROKU pay me. Or I’m talking to Amazon or apple or google to pay me.
ROKU’s biggest threat.
Maybe their OS is so good the TV’s will still want ROKU in them. It needs to be.
Jim
Is Roku capable of being the OS for the Smart TV going forward?
The ‘guide’ was a big win for TV when channels proliferated. At current state, surfing each library to find a specific show now seems like a big pain…
Example of Roku’s display ads are like this:
https://www.google.com/search?biw=1920&bih=937&tbm=i…
On the right, the box to watch Brave on Amazon Prime. That’s an add.
On my roku there’s an add to rent or buy GLASS from the sky store.
That box there is pretty much the only box I ever see. Sometimes it gets my attention with something I want to watch.
Publishers are basically paying ROKU to help direct traffic to them. Similar to sellers on amazon, paying amazon to list their item above others. I have no idea how much roku gets from this, but I can’t imagine it’s a significant amount in the grand scheme of things.
How much inventory is ROKU selling?
…when those apps, when that content comes to Roku, we participate in the economics of that content. So, in general, we are excited about it. And as a platform, we add tremendous value to their efforts on the Roku platform, both in terms of being able to market and grow their audience on Roku, as well as help them monetize through ad sales and data relationships.
So, in general, we’re excited to see that. And our focus as a company is in moving people out of linear TV into OTT and we view these services as helping accelerate that trend. We are as you point out in your second question very focused in helping TV advertisers reallocate their TV spending, but that’s not the end of the opportunity for us. There are a lot of digital video dollars spent throughout the ecosystem that often are also looking for a better home whether because it’s longform, its premium content, it’s in the living room, it’s brand safe.
And so that is also part of our ad strategy is to be engaged with direct-to-consumer brands, digital-first brands, helping bring them to the Roku platform and invest. At the end of the day, our strength, our power as a platform comes from our first-party relationship with customers from control of the OS and the ad stack from our broad reach across the ad ecosystem. And so again back to your first question, we view those capabilities as helping us to participate and benefit from all this increased activity in AVOD OTT.
That’s from the Roku CC. It’s what TTD is trying to do with CTV!
IRDoc, just to clarify. ROKU does not add additional ads to your viewing content. Netflix, for the time being, never has any ads, so you would not have any if you accessed it via ROKU. ROKU just has access to inventory to sell. I.E. on the hulu channel, on an episode of Seinfeld, HULU might allocate 20 seconds in the middle of an episode for an ad. Roku wants that space to sell, so using data and mumbo jumbo science, it finds someone who would most benefit from placing an advert and filling those 20 seconds, who would thus pay more for that slot than anyone else. Everyone wins, Roku takes a cut. Just like TTD
As to who’s platform/AI is better, Roku or TTD, who knows. But ROKU has the platform and thus data to work with, which gives them an edge.
As for not caring what smartTV OS is in your TV, yes that is a good point. Noone really cares at the moment. We’re in the early stages. But they have the momentum here and are clearly dominating the market. From 1/5 TVs, 1 in 4, to now 1 in 3.
Bear,
I don’t know all the ins-and-outs of Apple TV, although I am a user. I have tried Roku, but like Apple TV better, perhaps because I was familiar with it. The nice thing about Apple TV is that I pay only one bill through iTunes. Regardless of what I watch (Other than Amazon Prime). iTunes makes a charge to my charge card. Easy-Peazy.
I don’t recall if Roku offers something similar.
Gordon
As for not caring what smartTV OS is in your TV, yes that is a good point. Noone really cares at the moment. We’re in the early stages. But they have the momentum here and are clearly dominating the market. From 1/5 TVs, 1 in 4, to now 1 in 3.
I wonder if as someone else mentioned they will need to start paying to have their software on TVs. I thought TiVo would be the platform of the future as they were the first (as far as I know) to really provide a great interface for TV back before guides were a thing. I still long for the days of the TiVo interface but for several years now have just dealt with whatever software is used on each cable box since it got too complicated keeping up with TiVo boxes, cable cards, etc. Obviously Roku can learn from TiVo’s mistakes and not worry so much about making money from licensing software, but I haven’t seen that Roku is significantly better than my TV’s built in software (the only one I use regularly is on a Vizio), FireTV, Apple TV, or whatever Google will want to device with Android.
They get a piece of the subscription if someone starts a Netflix account thru ROKU. Is this a one time fee, or do they get small piece each month
–
Unless something changed in the last few months, Roku does not receive any ongoing revenue share from nflx subscriptions. I believe they receive a one time rev share for nflx. This is only the case for nflx. Roku receives ongoing rev share for all other subscriptions started thru Roku for the life of the subscription. Their OS is indeed their competitive advantage imo. When you fire up that new TV powered by roku you are immediately prompted to sign up for this and that subscription service or upsell. Roku receives rev share for anything you sign up for. Most people already have a nflx sub so nflx will never be a big driver for Roku, whereas anyone who signs up for HBO or any other service is also unknowingly paying Roku every month in perpetuity. Together with OS licensing and advertising, these upsell and subscription rev shares are the main drivers for Roku (advertising being the biggest driver).
Roku provides a lifeline to the legacy providers (both hardwear and content). They basically have to pay these licensing and rev share fees to reach a huge segment of the population and remain relevant, and the evidence suggests this competitive advantage is becoming a stronger not weaker. Roku may be developing a bit of a moat in this sense and I personally don’t worry much about Google, Amazon, or Apple because Roku is simply a better product and it’s their singular focus to stay the best. Sort of like Jeff Green says the entire purpose of TTD is Google’s 42nd top priority. Roku has one goal - make the best TV experience, period. Meanwhile they have a special relationship with nflx (CEO founder Anthony Wood created and operated Roku while working at nflx working closely with Reed Hastings to develop many early aspects of the nflx model).
I am long roku.
PS head over to Amazon and shop around for a new TV. You should find that beautiful Amazon’s Choice button sitting right on top of the TCL Roku TV with 4.5 stars and about 10,000 reviews (not that Amazon reviews can be trusted anymore but with high volume branded products I am more keen to believe).