Experts debate what a Netflix acquisition of Roku could mean for the industry

Netflix is viewing advertising as the next growth lever and a key part of building a sustainable business model. This is a core muscle and strength of Roku. Roku is the most popular smart TV operating system, so it gets Netflix additional market share in a relevant space. Additionally, that means even better data and strength in the audience signals for both advertising platforms. Roku already has a massive CTV ads network, so it could be looking to leverage some of its experience and tech in getting its own ads network spun up. Tech stocks have been hammered this year. Roku is down 70% in the last year. It could be an opportunistic time to buy if [Netflix has] a long-term view and bullishness.

Daniel Brackett, chief technology officer, Extreme Reach

The potential acquisition of Roku by Netflix will result in a formidable platform for premium streaming content. The combination of Netflix’s audience scale, content production and data, with Roku’s vast footprint of streaming devices and connected TVs (CTVs), will result in an end-to-end streaming media platform that rivals the largest of the existing tech platforms and media companies.

The incorporation of ad-supported packages into this will present advertisers with a powerful way to reach and target a large audience with a premium advertising message, effectively bringing the power of technology and data together with the quality, experience and scale of TV.

Aziz Rahimtoola, chief executive officer, Sabio Holdings

This is a validation of the advertising video on-demand (AVOD) business model. Netflix’s ability to bring a new level of great content to consumers in an ad-supported way is good for consumers, content creators and also analytics providers.

Some less-obvious advantages for Netflix and its would-be media buyers

Hunter Terry, vice-president of solutions consulting and CTV commercial lead, Lotame

There are a few pieces to bear in mind that make this deal more interesting for Netflix [than the obvious ability to break into the ad game]: primarily Roku-enabled smart TV partnerships and the OneView demand-side platform. Roku doesn’t earn any direct revenue from smart TV sales, so it’s easy to gloss over. But smart TVs are leading the charge in terms of what’s driving connected television growth (others being set-top boxes, streaming sticks and gaming consoles), and Roku happens to have the most market share in terms of smart TV operating systems.

All of those Roku TV users give Roku immense downstream revenue for ad-related content. And because the Roku-enabled TVs drive users to the Roku homepage – its own content – it doesn’t need to split revenue with other content owners like it would in the Roku channel itself. Keep in mind that by not being the manufacturer but instead partnering with manufacturers, it’s much easier to spread itself around the globe where the smart TV markets are still in their infancy. Outside the US, you hear two names: LG and Samsung. Roku is on the precipice of being the third name on that list in markets outside of North America. It has the means to do it and Netflix would be able to further that development with its revenue and manufacturer network.

As a DSP, OneView would be the future means of monetizing this ad-supported content. Most smart TV players such as Samsung, LG, Amazon and Vizio are looking to bring their own data in-house. If you want their prized viewership segments you have to pay for it on their own content. Roku has had OneView but has not modified it all that much in the years since. Tying in Netflix content, on Roku-enabled smart TVs, with Roku’s ad model, the OneView platform would be a leading platform for marketers looking to do any CTV advertising.

It’s synergy upon synergy. The market says it makes no sense, but it couldn’t be further from the truth, if it can be done correctly. And adtech has proven time and again that many companies are not up to the challenge. Just in the last few months, think of Verizon’s sale of Yahoo to Apollo or AT&T’s sale of Xandr to Microsoft. A flailing Netflix has the opportunity to avoid that list of failures if it can execute.

Vikrant Mathur, co-founder, Future Today

Roku’s tech can meet Netflix’s scale. Netflix will need adtech that can manage all demand for optimal monetization that limits inefficiencies and intermediary fees in the supply chain and can scale its AVOD audience. Roku has spent years investing in its in-house tech stack, which would help Netflix’s ad business hit the ground running. In addition, Netflix would inherit Roku’s existing and sizable ad business, which gives Netflix immediate scale as it tries to enter this marketplace.

Plus, Roku’s in-house tech will help Netflix uphold its standards for data privacy. Netflix has historically been very protective of the user data it holds, including viewers’ consumption habits. The most effective long-term strategy to avoid data poaching and to uphold data privacy consistently with government regulations, industry protocol and audience expectations is for Netflix to bring its adtech functions under its own roof. But if the company were to build out its own infrastructure, the process would take major capital investment and years to get up-and-running. Netflix needs solutions more urgently. Plugging into Roku’s existing ad infrastructure would solve that problem.

At the same time, a vertically-integrated content and ad platform would help both Netflix and Roku better compete with Amazon. Netflix has the content in order. Roku’s platform would immediately give Netflix a foothold in the device market and the distribution that it needs to go head-to-head with Amazon. Roku would provide Netflix with a ready-to-go ad sales team. And of course Roku brings the necessary tech stack. With those assets, a combined Netflix-Roku entity would enter the same heavy-hitting league as Amazon overnight.

Netflix would provide Roku not only the content production capabilities, but also the off-platform distribution that it wants for The Roku Channel (TRC). Roku has been bulking up on original content for TRC, which also involves the 2021 purchase of the Quibi library. Being acquired by Netflix would be an immediate content windfall for Roku. Not only would Netflix provide its voluminous original content library; it would also provide access to an in-house production studio that could start developing content specifically for TRC. An alliance with Netflix helps Roku with its international aspirations too, which demand content localized for any of its target international markets.

Inevitable challenges on the horizon

Matt Spiegel, executive vice-president of media and entertainment, TransUnion

The potential acquisition of Roku by Netflix will result in a formidable platform for premium streaming content. The combination of Netflix’s audience scale, content production and data, with Roku’s vast footprint of streaming devices and CTVs, will result in an end-to-end streaming media platform that rivals the largest of the existing tech platforms and media companies.

The incorporation of ad-supported packages into this will present advertisers with a powerful way to reach and target a large audience with a premium advertising message, effectively bringing the power of technology and data together with the quality, experience and scale of TV.

Ian Trider, vice-president of real-time bidding platform operations, Basis Technologies

Roku has a lot of valuable assets, from scaled direct and programmatic sales and ad operations teams, a demand-side platform (DSP) and proprietary data from the Roku platform that it could apply to ad campaigns on Netflix – in addition to the Netflix data. With this, it certainly could be a great way for Netflix to kickstart its ads endeavor. However, Netflix will also need to consider the conflicts that might arise – as an example, Roku takes a share of inventory to sell for many channels on its platform. With Roku under the Netflix umbrella, broadcasters and advertising video on-demand (AVOD) services may not be pleased given that Netflix is competing with them.

Anna Otieno, head of research, strategy and insights, New Engen

Roku currently offers over 30,000 apps. This means a significant shift in what viewers would be able to access after an acquisition. Apps are its thing. And no doubt, certain apps would no longer be available to viewers under Netflix.

Plus, Roku is seen as neutral – particularly in its partnerships. So some existing partners – perhaps many – may leave entirely, which would be a loss for that huge chunk of customers that were drawn to Roku for its neutrality and options in the first place.

A ripple effect in the streaming industry

Mike Woosley, chief operating officer, Lotame

If the rumors are true, and Netflix aims to acquire Roku, the deal feels like a home run. As a strict financial thesis, the deal is not a disaster. While Netflix has lost about two-thirds of its value this year and Roku has only lost half, at current levels, owning Roku will create about 14% dilution for Netflix shareholders in exchange for 10% more revenue. While Netflix will likely have to pay a premium to control Roku over current trades, I’d expect a deal to ultimately close beneath $130 per share – not a train wreck for an asset that’s strategic.

And it’s certainly strategic. Roku has evolved from a commodity software play to a digital media mover with finesse. Last year its platform business – which encompasses advertising, promotion and subscription rev shares – grew to 87% of sales. It has proven it can do it. Meanwhile, Netflix is at an inflection point. Its content acquisition costs have continued to spiral upward, its subscriptions shrank last quarter for the first time in a decade, viewers are finally showing fatigue at Netflix’s increasingly perishable content strategy and consumers have grown weary of the proliferation of streaming opportunities. Even the company’s dogmatic leadership acknowledged the need to foist an ad-supported model on consumers, and that isn’t easy.

If building an ad-supported platform play is hard, and building an ad-supported platform is necessary – and Roku has proven its mettle – this feels like a must-have. Now, even Roku’s acquisition of the content library from Quibi – Meg Whitman’s failed phone media play – makes a little retro-sense. Netflix certainly knows what to do with good content. The only open question surrounds all those distribution and subscription partnerships. Roku’s early hardware business made it the front door of the streaming universe, with lots of market power and all the attendant drama industry watchers expect. For example, YouTube TV went dark on Roku earlier this year over a contract dispute, though it’s back now. Netflix’s acquisition of Roku will set off a Game of Thrones-type cascade of intrigues as all the major streaming players – Amazon, Parmount+, Hulu and others – try to position, reposition, establish alternatives and hedge their options in a realignment that will span hardware, software and all of digital media.

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