By integrating Netflix’s content with Roku’s ad platform, a partnership, according to Business Insider, might deliver “synergy atop synergy.”
The connected TV (CTV) environment is in upheaval, despite its evolution into a prominent ad channel, as several important firms deal with slowing growth and the continuous proliferation of streaming services. According to a Business Insider article, staff at Roku are contemplating the potential of being acquired by Netflix.
The reports surface just weeks after Netflix — which lost subscribers for the first time in over a decade in Q1 and had its stock plummet as a result — said that it will allow advertisers to advertise on its platform before the end of the year. Roku’s stock, on the other hand, has lost about 80% of its value since July 2021, as revenue growth has halted due to decreasing demand for its services and devices. A merger could help both firms meet the evolving demands of the CTV market.
“Netflix’s acquisition of Roku would tick all the boxes for both sides, ensuring a long-term, profitable future.” In emailed remarks, Vikrant Mathur, co-founder of ad-supported streaming business Future Today, said, “There’s mutual gain and support in such an arrangement, which is exactly what Netflix needs to consider as it advances toward an ad-supported model.”
“Netflix and Roku both know where they want to take their business in the future, and they know they need to get there rapidly to stay competitive,” he added.
While introducing advertising would provide Netflix with a much-needed source of new revenue, it would also necessitate the company quickly expanding its ad-tech infrastructure, addressing the targeting, measurement, attribution, and identity resolution capabilities that are standard for digital ad platforms. Netflix’s ad stack could be built on Roku’s OneView ad platform, which it introduced in 2020 after acquiring demand-side platform Dataxu.
In an emailed statement, Matt Spiegel, executive vice president of TransUnion’s media and entertainment vertical, said, “Roku… operates a well-built ad tech stack that is focused on the streaming video ecosystem and would provide Netflix with many of the needed parts for their planned advertising business.”
Roku’s competitive advantage in the CTV arena would be bolstered by a Netflix deal. While it continues to be the most popular CTV platform in the United States, with more than half of all CTV users, it faces competition from smart TV manufacturers such as Samsung, LG, Amazon, and Vizio, who all have their own ad platforms, according to eMarketer. In emailed comments, Hunter Terry, vice president of solutions consulting and CTV commercial lead at Lotame, explained that merging with Netflix’s content offering and industry ties might provide “synergy upon synergy.”
“By combining Netflix content with Roku-enabled smart TVs and Roku’s advertising approach, the OneView platform would be a top platform for marketers wishing to do any CTV advertising,” Terry added.
Netflix has long preferred its device-agnostic existence, according to some experts and critics of a Netflix-Roku tie-up. Netflix spun off Roku as a project when CEO Reed Hastings realized that having its own device would limit the company’s ability to license its platform to other devices. However, adverts now account for the majority of Roku’s revenue, with platform revenue expanding 39 percent to $646 million in Q1 2022 vs player sales decreasing 19 percent to $86 million.
Roku’s shift in focus towards its ad platform and content offerings, such as its ad-supported video on demand (AVOD) platform The Roku Channel, could be aided by an acquisition. Plus, it’s not unheard of for a corporation to operate both devices and streaming platforms: Amazon’s Fire TVs, Prime Video, and Freevee (the recently rebranded AVOD service IMDb TV) have all coexisted. And, as with its embracing of advertisements, Netflix appears to be more amenable to adjusting its business model as growth slows.
“The market thinks it doesn’t make sense,” Lotame’s Terry said of a hypothetical Netflix-Roku merger. “But it couldn’t be further from the truth… if it can be done well.” “Ad tech has demonstrated time and time again that many corporations are not up to the challenge,” he says, citing Verizon’s and AT&T’s struggles in selling Yahoo and Xandr, respectively. “If Netflix can execute, it has a chance to escape joining that list of failures.”
