Device-as-Distribution Channel Strategy
Can Roku Make it Work?
With its roots in streaming device manufacturing, is it wise for Roku to get into the originals business and compete against experienced content players such as Disney, Netflix, Paramount, WarnerMedia, and fellow device-makers Amazon and Apple?
Founded in 2002, Roku is one of the largest manufacturers and distributors of streaming devices. In 2017, Roku launched the Roku Channel, an ad-supported streaming channel, airing movie content and TV shows from many of the major studios for free. After its 2021 purchase of roughly 75 original content projects from the now-defunct Quibi, the Roku Channel rebranded itself as Roku Originals. More recently, Roku purchased the rights to PBS’ This Old House and the international drama Cypher, and last week Roku announced a deal to develop a streaming movie for Zoey’s Extraordinary Playlist, a series that was canceled by NBC after two seasons.
Roku released 30 original Quibi titles on May 20th, and during the first 2-week streaming period on Roku Originals, more people streamed the rebranded Quibi content than did so during the entirety of Quibi’s existence. Additionally, the two-month period from 5/20 to 7/28, the top five streamed TV programs on Roku were all Roku Originals. More than one in three users of the Roku Channel streamed a Roku Original series, averaging over nine streaming episodes. On August 13th, Roku announced an additional 23 originals to premiere. According to Nielsen, the Roku Channel was the No. 6 streaming channel by household reach trailing only Disney+, Hulu, Amazon, YouTube, and Netflix.
In early August 2021, Roku announced its Q2 results beating Wall Street expectations. Revenue grew 81% year-over-year to $645 million and operating income reached $69.1 million, compared with a loss of $42.2 million in the prior-year quarter. Revenue (primarily ad revenue) jumped 117% to $532 million, reflecting growth in the AVOD sector, spurred by the arrival of new ad-supported services, including Peacock, Discovery+, and HBO Max with ads. All wasn’t perfect though, as overall streaming and active accounts increased by a meager 1.5 million to 55.1 million, and streaming hours decreased by one billion hours from the first quarter.
Will Roku Originals be Successful?
Roku Originals is pursuing a strategically sound strategy.
- Unlike its deeper-pocketed rivals, Roku Originals will not aggressively deficit spend for original content. Its announced strategy is to sign programming deals that are more cost efficient, and to budget only to the level of what the ad marketplace will support.
- Roku is making its shows available for free on multiple devices, as opposed to being accessible via an SVOD service a la Amazon Prime Video and Apple TV+, two hardware-as-a-service competitors.
- When Roku Originals launched in May, it aired 30 shows at once. In August, an additional 23 were made available, enabling Roku subscribers to sample a broad selection right away.
- Quibi content was (1) only available on mobile devices, (2) cost $5.00 per month, and (3) it was unable to achieve the level of buzz necessary for success. Roku Originals is (1) immediately available to over 50 million active accounts on CTVs and other devices, (2) free to view, and (3) not dependent on generating a buzz to build a viewing audience.
- Given the growth in media tribalism and thinning third-party content, competing without original content presents a significant risk of audience deterioration.
- Finally, buying out undervalued programming with an intrinsic, loyal audience is smart strategy.
Are there any downsides to Roku’s original’s strategy? Not really. As long as Roku stays in its lane on its content side and continues to maintain its leadership position on the device side, the future is bright. Yes, there is always the risk that its deeper-pocketed competition (e.g., Amazon and Apple) can outbid, or out maneuver Roku for original content. As long as Roku’s original shows are free to view, however, the threat is minimal.
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A 20-year veteran media executive, Rob Silvershein’s success in today’s competitive media environment is a direct result of his unique experiences spanning traditional, emerging, and startup media platforms. He is an accomplished strategist and spends most of his time advising media companies on how to structure themselves for long term success. He currently lives in Manhattan Beach, CA.