Roku CEO Won’t Discuss Netflix Merger Rumors, Says All TV Advertising Is Moving to Streaming

Market speculation about a possible corporate merger involving erstwhile streaming video partners Roku and Netflix may continue to generate media buzz, but Roku CEO Anthony Wood is mum about the topic.

“In terms of Netflix, obviously I can’t comment on rumors,” Wood told CNBC’s Julia Boorstin June 22 from the Cannes Lions film festival in France.

It’s an interesting choice of words considering Wood wouldn’t dispell the scuttlebutt either. The executive was Netflix’s short-lived head of internet TV in the early 2000s as the by-mail DVD movie rental service was readying to launch the subscription streaming video (SVOD) industry.

Instead, Wood launched Roku with seed money from Netflix to manufacture streaming devices — including the “Netflix Player” in 2008 — that enable consumers to connect the television to the internet. Fast-forward to the present and the SVOD market — led by Netflix — is embracing advertising as the standalone subscription video business plateaus.

Roku, through its pioneering ad-supported The Roku Channel is now a major player in the AVOD and free ad-supported streaming TV market with more than 60 million active accounts. The Roku Channel was a top five channel on the Roku platform in the U.S. by reach and engagement through the most-recent fiscal quarter.

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For the first time, TV streaming devices surpassed legacy pay-TV devices (set-top devices and DVR) in weekly reach in the United States, with 65% of adults aged 18-49 streaming TV compared with 63% watching legacy pay-TV, according to Nielsen.

“Our ad business has been growing like gangbusters,” Wood told Boorstin.

Indeed, in Q1 the top 10 broadcast TV advertisers increased spend on Roku nearly 80% year-over-year, while spending 7% less on legacy pay-TV, according to Roku.

“All television is going to be streamed. That means all TV advertising is going to be streamed,” Wood said.

The executive contends the biggest impediment to growth for Roku — and all streamers — is that marketers’ mindsets are still used to spending dollars through legacy pay-TV.

“The economy is causing to marketers to think harder about how they spend their money, how they can be more efficient,” he said.

When asked how Netflix’s pending foray into ad-supported VOD could impact Roku, Wood deflected, saying that the evolution of TV has been driven by advertising.

“Ads are great because they bring down the cost for consumers,” he said. “We’ve been a big partner, we have a great relationship with Netflix for a long time. But we have great relationships with a lot of streaming content companies whether its Disney, YouTube or Hulu.”

Roku Mulling Manufacturing Its Own Televisions

Facing product shortages and escalating shipping costs, Roku reportedly is considering manufacturing its branded connected televisions in-house. Media reports cite an internal panel convened this month to investigate the possibility of circumventing Roku’s existing hardware manufacturers in China.

Roku is the No. 4 selling TV brand in the U.S., offering a line of Chinese-made high-definition models featuring the company’s internet-connected operating system. With Roku the largest maker of streaming media devices, its TVs amount to big-screen versions of its handheld retail products.

Speaking on the Feb. 17 fiscal call, founder/CEO Anthony Wood said he wouldn’t comment on media speculation but admitted that manufacturing challenges exist.

“What’s been happening in TVs is that there’s been a shortage of panels and it’s also been much more expensive to ship televisions,” Wood said. “It’s been more expensive to ship players as well, but TVs are bigger. And it impacts that more, so the result of all that is TV prices have gone up a lot for consumers, and that’s reduced demand for TVs.”

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Indeed, Roku saw streaming player sales revenue drop 9% in the fourth quarter (ended Dec. 31, 2021) to $161.7 million, from $178.7 million in the previous-year period. For the year, device revenue dipped 6% to $479.6 million, from $510.6 million in 2020.

The business unit also reported an operating loss exceeding $45 million, compared to operating profit of $4.6 million in the previous-year period. For the fiscal year, Roku reported an operating loss of $52.4 million versus operating profit of $43.6 million in 2020.

“Player margin was pressured … as we chose to prioritize account acquisitions and insulate consumers from higher costs,” Wood said. “We estimate that excluding the year-over-year impact of component and logistic cost increases on the player business, total gross margin would have been roughly 4 points higher for Q4.”

Regardless, Roku’s stock remains in a freefall, with shares down more than 25% in midday trading.

SVOD Pioneers Make ‘The Forbes 400’ List — in Surprising Order

The Forbes 400 recent list of the richest Americans in 2021 includes subscription streaming video pioneers Reed Hastings, co-founder/co-CEO of Netflix, and Roku founder/CEO Anthony Wood.

In a surprise, Wood ranks 134th with the personal wealth of $6.9 billion. That is 54 spots ahead of Hastings, who charted with a personal wealth of $5.7 billion.

Anthony Wood

Netflix ended the most-recent fiscal period with $1.35 billion profit on revenue of $7.3 billion. Roku ended the period with a net loss of $97 million on revenue of $676 million.

While Amazon founder/chairman Jeff Bezos again leads the list (and world) of multi-billionaires with a personal worth of $201 billion, Hastings and Wood make the list due to their co-launch of a short-lived branded “Netflix player” set-top device manufactured by Roku.

Wood, who once worked at Netflix as VP of Internet TV, went on to market Roku to consumers as a means of connecting the Internet (and third-party streaming apps) through their television.

Reed Hastings

Hastings, along with co-CEO/chief content officer Ted Sarandos, and others, spearheaded the world’s largest SVOD platform with 210 million subscribers. Nearly a decade earlier, Hastings and Netflix co-founder Marc Randolph invented the by-mail DVD movie rental business — after successfully sending a music CD in a First Class envelope.

Hastings has long stated no desire to enter the consumer electronics business with branded a player similar to Apple TV or Amazon Fire TV. Wood, meanwhile, expanded Roku beyond streaming video to include a line of soundbars and televisions — the latter reportedly the fourth-largest selling brand in the U.S.

Wood has also driven the growth of ad-supported VOD through the 2017 launch of The Roku Channel, which is now delving into original programming, with more than 51 million average monthly users.

Notably, the executive considered incorporating a Blu-ray Disc drive in early Roku players, but dropped the idea due to unit size restrictions.

Roku CEO: AVOD Growth Drove Quibi Content Acquistion

When Roku in January announced it had acquired streaming rights to 75 original shows from the shuttered Quibi SVOD platform, little reason was given why the CE manufacturer coveted short-form scripted series, alternative and reality programming featuring Idris Elba, Kevin Hart, Liam Hemsworth, Anna Kendrick, Nicole Richie and Chrissy Teigen, among others. In addition to titles previously premiered on Quibi, more than a dozen new programs will make their debut on The Roku Channel.

Speaking on the Feb. 19 fiscal call, Roku founder/CEO Anthony Wood said the content acquisition underscored the burgeoning growth of ad-supported VOD. Wood said growth of The Roku Channel is twice as fast as the Roku platform, ending 2020 with 63 million monthly viewers.

Anthony Wood

“As our scale grows, we are looking, sourcing different types of content,” he said, alluding to the addition of 100 content channels to the streaming VOD platform in 2020.

“The Quibi deal fits into that, in a sense that it’s premium content that we think will appeal to Roku viewers,” Wood said. “It was a transaction where we acquired the global content rights on a cost-effective basis.”

The executive said AVOD helps content owners and publishers distribute their content in a cost-effective alternative manner to broadcast TV, which he said saw a 21% decline in primetime ratings last year, according to Nielsen.

When asked why an advertiser would market directly with Roku rather than an over-the-top video distributor like Peacock or Hulu, Scott Rosenberg, VP and GM of platform business, said it’s a matter of reaching target vs. large audiences.

“If you buy ‘The Office,’ you buy a specific show [and] you’re going to do that directly with the network,” he said. “But if you’re optimizing for reach and frequency and performance, investing with Roku is a key factor.”

“There is a lot of content out there, it’s available on a lot of different business models,” added Wood. “Content owners are looking for ways to monetize their content. We have multiple ways to do that.”

Roku Swings to Q3 Profit as Subs, Streaming Hours Increase

Roku continues to fire on all cylinders despite, and because of, the ongoing pandemic. The Los Gatos, Calif.-based streaming media software manufacturer and ad-supported VOD platform operator Nov. 5 reported third-quarter (ended Sept. 30) revenue of $452 million, up 73% year-over-year from $261.2 million a year ago.

Roku platform revenue increased 78% to $319 million, from $184.3 million. The company posted a profit of $12 million, compared with a $26.5 million loss during the previous-year period.

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The company added 2.9 million incremental active accounts in the quarter to reach 46 million. Streaming hours increased by 200 million hours over last quarter to 14.8 billion. The Roku Channel reached U.S. households with an estimated 54 million people.

“As the ongoing COVID-19 pandemic continued to accelerate the
shift of viewing away from traditional linear and pay TV, we continued to invest in competitive differentiation and execute well against our strategic plan,” founder/CEO Anthony Wood and CFO Steve Louden wrote in the shareholder letter.

Roku Says Pandemic ‘May Accelerate’ Platform Growth

Nothing like a global pandemic to invigorate business — and costs.

Streaming media device pioneer Roku May 7 said most business-wide metrics surged during-and-after the first quarter, ended March 31. Active accounts grew about 38% to 39.8 million compared to the previous-year period at 29.8 million accounts — driven by 70% year-over-year increase in new accounts.

Streaming hours rose by about 80% year-over-year, driven by an increase in streaming hours per account of approximately 30%. The company said pandemic-associated stay-at-home orders and increased unemployment appear to have accelerated the shift from linear TV viewing to streaming during the past few weeks.

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Roku cited Nielsen data indicating primetime linear viewing among adults 18-34 from March 16 to April 19 decreased 18% year-over-year, with about 50% of TV content consumption streamed.

In a shareholder letter, founder/CEO Anthony Wood and CFO Steve Louden said player sales increased 25% year-over-year. Roku TV models now account for more than one in three smart TVs sold in the U.S. and more 25% of smart TVs sold in Canada. Streaming hours increased by 1.6 billion hours to a record 13.2 billion.

“[We] have benefited from a surge in OTT usage,” Wood and Louden wrote. “Current events have increased overall demand for both players and Roku TV models around the world.”

Yet while net revenue grew 55% to $321 million, and platform revenue increased 73% to $233 million, costs ballooned 76% to $196 million, driven in parts by sales and marketing. Net loss skyrocketed more than 500% to $55 million from $10 million.

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Wood and Louden said Roku is working with retail partners and TV brands to plan for the rest of the year — given the possibility of restrictions or changes in consumer shopping patterns during traditionally strong sales periods such as Back-to-School, Black Friday and Christmas.

“Over the longer term, not only do we believe that the trends that we expect to define the streaming decade will remain intact, but changes brought on by the COVID-19 pandemic may even accelerate Roku’s path to greater platform scale,” they wrote.

Roku CEO Takes Credit for Disney Reaching 26.5 Million Streaming Subs

Disney said it generated 10 million Disney+ subscribers in the first 24 hours of launching — largely through its app. How it reached 26.5 million subs just six weeks later, well, Roku would like to take some credit for that milestone.

Speaking on a Feb. 13 earnings call, Roku founder/CEO Anthony Wood told analysts that with the company’s signature streaming media device ranked No. 1 (by Parks Associates) in the domestic market, having access to the Disney+ app on its platform help jump start subscriptions.

“One of the things Disney did, is they really lean into the tools that we have available on our platform,” Wood said. “And when companies do that, I mean, we’ve built a lot of great ways to sign up subscribers. So, I think we were an important part of them reaching that milestone.”

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Wood, who contends half of all domestic pay-TV subs will cut the cord by 2024, doesn’t see linear TV distributors such as Comcast entering the over-the-top video market as a threat.

“We have the Xfinity app on Roku,” he said. “And I have it on my Roku, and that’s what I use to watch TV sometimes. [But] we just don’t see competing with traditional cable distributors, it’s a big part of our [OTT] competitive dynamic.”

Wood said the pending rollout of the Peacock streaming service by NBC Universal would likely give Roku an additional third-party app to market — although no official agreement has been reached.

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Roku monetizes its platform on a revenue-sharing basis for third-party SVOD services and splits ad-revenue for AVOD platforms. The company said it made $23.14 per user in 2019 — up $5.19 per user in 2018.

“We’re an essential partner for any streaming services trying to build a national audience in United States,” he said. “So, I think it would be natural to assume that there will be some sort of [Peacock] deal down the road.”

 

Roku Ups Loss, Stock Tumbles

Roku, which co-created the subscription streaming video market with Netflix, Nov. 6 reported a third-quarter (ended Sept. 30) net loss of $25.1 million, widened 164% from a net loss of $9.5 million during the previous-year period.

The company attributed the red ink to increased spending on marketing aimed at attracting user/subscribers.

Revenue increased more than 50% to $261 million from $173.4 million last year. Notable drivers included platform revenue, which increased 79% to $179.3 million compared to $100.1 million last year.

Platform revenue includes The Roku Channel featuring ad-supported programming.

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Roku said active accounts increased by more than 1.7 million to 32.3 million, while streaming hours increased 0.9 billion hours to 10.3 billion. Average revenue per user (ARPU) reached $22.58, up 30% year-over-year. Roku’s monetized video ad impressions more than doubled from the previous-year period. Player revenue increased 11% to $81.6 million from $73.3 million last year.

“We continue to execute well against our long-term strategic plan as the TV market shifts to streaming,” founder/CEO Anthony Wood and CFO Steve Louden wrote in the shareholder letter.

The executives said Roku’s “business momentum” makes the platform an essential partner for content publishers and advertisers.

“This is evident in the launch of major new streaming services on our platform and by the growth in the number of advertisers who work with Roku,” they wrote.

“We expect platform revenue to represent roughly two-thirds of total revenue including approximately $13 million in revenue from Dataxu,” Wood and Louden wrote.

The company also revised its fiscal 2019 outlook downward, reflecting continued investment in the business as well as an approximate $5 million hit to Q4 pre-tax earnings related to Dataxu-acquisition-related expenses.

Last month,Roku acquired Boston-based Dataxu, an online video ad platform for $150 million in cash and stock.

Wall Street wasn’t impressed, sending Roku shares down more than 14% in after-market trading.

Roku Selling 1 Million Shares for $80+ Million

Streaming media pioneer Roku May 16 announced it is offering 1 million shares of common stock through Morgan Stanley.

The offering is expected to generate more than $80 million in funds the Los Gatos, Calif.-based company said it would use for working capital and general corporate purposes.

Founder/CEO Anthony Wood May 15 appeared on CNBC’s “Mad Money” with Jim Cramer to explaining how Roku — since launching with Netflix in 2008 — has brought streaming video in the living room through a user-friendly interface and low-cost hardware.

Roku CEO Anthony Wood

“Our goal is to build scale of our active accounts by licensing our technology to third-party TV manufacturers and advertising,” Wood said. “We help a lot of new streaming services build audiences for their platforms.”

Indeed, Roku has almost 30 million registered subscribers accessing proprietary and third-party content, including Netflix, Hulu, Amazon Prime Video and pending Disney+ and Apple TV+ services.

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“Streaming video is very popular right now,” Wood said. “We had almost 3 million people cut the [pay-TV ] cord last year, more than 1 million in the quarter alone. So there’s a lot of momentum right now.”

Wood was asked if big media companies such as Comcast (parent of “Mad Money” creator NBC Universal), which are launching their own over-the-top video platforms, have become “frenemies” with Roku.

“Media companies are partnering with us, not destroying us,” Wood said. “Back when we launched Roku, it was just Netflix and most media companies were trying to avoid streaming. Now they realize it’s the future and they’re heavily invested.”

He said Comcast advertises on the platform and the Xfinity TV app is on the platform, in addition to NBC content.

“Content is what drives streaming,” Wood said. “We have built a purposeful operating system for the TV. It’s designed for the business model TV.”

Roku CEO: We Are the No. 1 Smart TV Operating System in the U.S.

Roku said 33% of all Internet-connected “smart” televisions sold domestically in the first quarter (ended March 31) featured its branded operating system. That’s up from 25% of all TVs sold in 2018.

“In less than five years, the Roku TV has gone from a disruptive idea to the market leader,” founder/CEO Anthony Wood said on the fiscal call. “We have taken the leads from Samsung and are now the number one smart TV OS in the country.”

Anthony Wood

Wood attributed Roku’s transition from streaming media device manufacturer to ad-supported VOD distributor to ongoing consumer moves away from linear TV toward over-the-top video — and the CE industry’s sluggish efforts to develop “homegrown” software OS platforms in televisions.

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“We really think in almost all cases those [OS] solutions are probably uncompetitive and that we will just continue to see gains and share of licensed OS [platforms],” Wood said. “So there is a lot of room to grow. It’s a big opportunity.”

Meanwhile, Roku continues to drive an expanding AVOD market through its branded Roku channel. The AVOD market gained momentum following Viacom’s acquisition of Pluto TV, Comcast’s planned launch of AVOD distribution, Shout! Factory’s Shout TV, Sony Crackle and San Francisco-based Tubi, among others.

“We are excited about the increased investment and focus by major media companies on bringing free content over-the-top,” said Scott Rosenberg, GM, platform business. “When they do this, they ultimately accelerate the consumer move into OTT and expand the economic pie for all of us. We share in their success.”

Indeed, Roku said user accounts increased 40% to 29.1 million from 20.8 million last year. Consumer streaming hours increased 74% to 8.9 billion hours compared to 5.1 billion hours in the previous-year period.

“The most exciting thing about the Viacom/Pluto tie-up is the fact that Viacom is taking content that was previously only available through pay-TV subscriptions and making it available free through AVOD services,” he said. “That not only will that drive viewing on the platform, I think it will also help accelerate the shift of ad dollars over to streaming.”