Roku Content Investment to Mirror Growth of Ad-Supported Channel: CFO
Roku will continue to invest “proportionally” in content with the scale and growth of The Roku Channel, which doubled in viewership in Q1 vs. the year-ago quarter, said Chief Financial Officer Steve Louden on a Monday investor call. Viewership on the channel grew twice as fast as the overall platform, he said.
Roku’s position as platform owner gives it an advantage because of the company’s “first-party relationship” with customers, Louden said, saying its data set and recommendation algorithms can be “very finely tuned.” That helps Roku monetize “since we know who’s watching,” he said, an advantage over an advertising-supported video-on-demand service that doesn’t have the same data. That makes Roku more effective at premium ad targeting, which feeds its flywheel approach where more content drives more engagement, which drives more ad inventory, he said.
Many advertisers are allocating more of their budget mixes to streaming at a faster rate than pre-pandemic, correlating with the rise in over-the-top viewing, Louden said. A third or more TV viewing is now happening on streaming devices, he said. The traditional advertising upfront process lagged that pace until COVID-19 hit last year when advertisers didn’t want to lock up their budgets six to 12 months in advance “with a lot of strings attached,” he said. “So they pulled back to have more flexibility.” They also wanted to see more definitive analyses on the return on investment of marketing dollars, which he called an advantage for Roku.
But ad budgets in the streaming world remain “well behind the viewership,” he said: “If we believe all TV will be streaming, which we do, then the corollary to that is that all TV advertising needs to be streamed.” Average revenue per user is “increasing nicely” but is still in “early innings,” he said.
On Roku’s April purchase of Nielsen’s video automatic content recognition technology (see 2104160009), Louden said having ACR data under its control was important long term “so we can sell ACR audience guarantees.” An advertiser with a combination linear/streaming ad combo is “only going to pay on Roku for the households that did not see that on linear,” he said. He referenced “very cool capabilities around the ACR footprint that we thought it was important to bring in house” due to the company’s growing scale.
New growth drivers are legacy media companies, some that were late to get into streaming, Louden said. As more content becomes available, “that tends to drive engagement and interest in Roku,” he said. The “backbone” of Roku revenue will continue to be general content licensing and revenue sharing, but with more “data and scale” the company has the opportunity “to also improve the cost structure of things in certain cases.”
Commenting on Roku’s international business, Louden called streaming a global opportunity, saying the company has made good progress in Canada and Mexico in active accounts, which “speaks to our playbook” of having a purpose-built operating system that leads to lower bill-of-goods costs. “We’re experts in free, ad-supported TV,” said the executive, saying much of the rest of the world is accustomed to free TV vs. U.S. cord cutters who have exited pay TV for OTT video.