The rise and rise of Roku can be encapsulated best not by centering on another set of impressive financial results, but on the size of the conglomerate that the streaming device company is willing to challenge head-on.
Last September, many overlooked the significance of Roku standing up to NBCUniversal and the might of Comcast’s lawyers in a move that ultimately put an end to a distribution blackout that was in danger of escalating to the detriment of millions of consumers. Some eight months later, Roku is showing similar determination against the monopolistic practices of Google, having recently slammed Google’s distribution terms as “predatory, anti-competitive and discriminatory”.
Unless resolved, it could see access to YouTube TV vanish from Roku devices, which we believe would be more detrimental to Google than Roku, given Roku’s superior app accessibility options over the connected TV competition. This story has since taken another plot twist, with Google installing a back door to YouTube TV via the main YouTube app on the Roku platform. Roku is not best pleased by Google’s sneaky practices, describing the move as “the clear conduct of an unchecked monopolist bent on crushing fair competition and harming consumer choice.”
Supposedly, poor old Google just wants to ensure a “consistent and high-quality YouTube experience” via the demanding technical specifications laid out to Roku in an attempt to give YouTube TV an unfair advantage over other services within the platform, with Google fishing for priority status features.
Roku’s rant continued, “Roku has not asked for one additional dollar in financial value from YouTube TV. We have simply asked Google to stop anticompetitive behavior of manipulating user search results to its unique financial benefit and to stop demanding access to sensitive data that no other partner on our platform receives today. In response, Google has continued its practice of blatantly leveraging its YouTube monopoly to force an independent company into an agreement that is both bad for consumers and bad for fair competition.”
Roku does indeed hold most of the bargaining chips, but Google has played its ultimate trump here – because there is no way Roku would dare to remove the main YouTube application from its devices. That would be platform suicide, although it would be one hell of a statement if Roku did temporarily block YouTube until an agreement was made.
While mud-slinging and negotiations between Roku and Google continue, Roku’s fearlessness in the face of giants again underscores how this is much more than a hardware company – one that has epitomized the streaming industry during the pandemic months in a fantastic example for any technology start-up.
Interestingly, Faultline even got the exclusive opportunity to speak with someone on Roku’s legal team recently, where we discussed the patent infringement allegations against Universal Electronics, and more.
Roku’s recent litigation spree reminds us of TiVo, as a company that earned its stripes in hardware before beefing up into a powerhouse feared the world over, although the patent portfolio of the two are hardly comparable.
Looking back on the past year, Roku’s OneView ad platform has helped drive the company’s overall secular shift to streaming – by connecting brands and performance advertisers with target audiences. The Roku Channel has continued to perform strongly, providing easy access to content which attracts viewers and therefore brings in ad spend, in turn enabling reinvestment in more content – in a cycle coined the Roku Channel Flywheel (image below).
With respect to AVoD, this Flywheel is reportedly enabling Roku to be more creative and expansive in sourcing content, where it expects content investments to be proportionate to the scale and growth trajectory of The Roku Channel.
Roku is also emphasizing how advertisers can reach audiences on The Roku Channel that have become unreachable on traditional TV, citing that 85% of the 18 to 49 year-old US demographic on The Roku Channel was unduplicated on traditional TV.
As a result, Roku’s media and entertainment advertising sector (including what Roku has traditionally referred to as its audience development business) grew faster than the overall Roku platform in the first quarter of 2021, although the company does not break out exact figures. Revenue is split between Platform (up 101% year on year to $466.5 million) and Player (up 22% year on year to $107.7 million).
Roku’s recent acquisition of Nielsen assets was a major statement of intent for its ad tech business, integrating video automatic content recognition and dynamic ad insertion technologies with the intention of accelerating the launch of an end-to-end linear ad replacement product in partnership with programmers. There has been no word on when this new ACR/DAI feature will become available.
Roku registered 53.6 million active accounts at the close of Q1 2021, gaining 2.4 million in the quarter and 13.8 million from Q1 2020. Meanwhile, viewing time ballooned by 49% year on year to 18.3 billion hours.
As for profitability, Roku’s Platform business made huge gains of 139% year on year to $311.9 million gross profit for Q1, while the Player division saw gross profit rise 42% to $14.8 million.
Tougher competition is projected by Roku in the Platform business during the second half of the year after lapping up robust revenue growth in the first half. The Player segment is projected to experience headwinds in Q2 and Q3 in particular, before levelling out in Q4.