Roku's Bout With Google Not 'Just Another Carriage Dispute,' Says CFO

Roku’s dispute with Google over what it calls unfair terms (see 2104260060) for YouTube TV “has nothing to do with an economic deal,” said Roku Chief Financial Officer Steve Louden at a Monday investor conference. “I do get a lot of folks that say is this just another carriage dispute, and it’s very different,” he said.

Roku sent customers an email in April warning that “Google may take away your access to the YouTube TV channel,” saying recent negotiations “have broken down because Roku cannot accept Google’s unfair terms as we believe they could harm our users.” Louden said Monday that standard carriage disputes involve a content publisher and a platform trying to wrestle over points in an economic deal, but Roku is "not asking for any more money or any more value."

Roku is asking Google "to be reasonable in three key areas,” he said, including “not to manipulate search results on Roku,” not to require Roku to divulge personally identifiable information in consumer data “that we don’t provide to anybody,” and not to require things on the device side “that would increase our cost basis, erode our [bill of materials] cost advantage” from Google streaming products including Chromecast and Android TV. “These are three things we can’t tolerate.”

That Roku isn't asking for more economics or value, but asking Google to stop what it sees as a “total overreach,” is “pretty fair and reasonable,” said Louden. As a consumer-oriented company, Roku wants to offer “the most value and the most content out there and so hopefully we get to a good spot.” Google didn't comment.

On how ongoing media consolidation could affect content renewals, Louden acknowledged that players consolidate to “improve their position and their heft when they talk to other stakeholders." He said Roku plays a role of partner and competitor in the industry: “The best thing we can do, and what we've been very successful at, is growing our share and our relevance in the ecosystem.” Roku has No. 1 share in TV operating systems and last year was in 38% of smart TVs sold in the U.S. It’s getting more engagement from consumers and monetizing it through better economic deals, he said.

Commenting on Roku Originals, which launched last week as part of the ad-supported Roku Channel, Louden said the offering is being anchored by Quibi short-form content it bought in January (see 2101080028). Roku launched The Roku Channel over three years ago, realizing “free ad-supported TV had an important role in a lot of consumer streaming.” As a platform owner, Roku has data on who's watching, “so we can have good data around recommendation algorithms.”

As a result, Roku can “monetize better,” Louden said. The company can sell targeted premium ads, creating “a flywheel where we get more content onto The Roku Channel that drives more engagement,” and more engagement “drives ad inventory.” Advertisers are “increasingly following the viewers over to streaming,” and Roku can put increased ad revenue toward more content.

The Roku Channel allowed the company to go into content areas it couldn’t reach before, said Louden. It has more than 175 content licensing partnerships, primarily in a revenue share model with a 50-50 revenue split with the content publisher. Original content is “interesting to blend into the portfolio,” but free ad-supported doesn’t have to be original, he said: “It just needs to be interesting to whatever viewer we have.”

The This Old House business, which Roku bought in March (see 2103220008), made sense as a way to bring popular content into The Roku Channel, said Louden. This Old House and Ask This Old House are two of the top shows in the home improvement vertical, he said: “It makes more economic sense over time, given our scale, to bring some of that in house as well.”