Is Netflix Really Buying Roku, Standardization Was The Word At The Stream TV Show
1. Is Netflix Really Buying Roku?
So there are all sorts of rumors this week that Netflix is looking to buy Roku, rumors persistent enough to send Roku’s moribund stock price skyrocketing.
If your perfectly rational reaction to this is “WTF??? Why???`` it seems the most commonly asserted rationale is that buying Roku would give Netflix a large and relatively turnkey ad operation.
Though, as many have pointed out, there are far cheaper ways to achieve that goal.
There is also, as my friend Rich Greenfield pointed out, the not insubstantial matter that a Netflix-owned Roku would be in the uncomfortable position of having to sell sizable chunks of its main competitors’ inventory.
And it would not be Netflix-Roku that was uncomfortable.
Why It Matters
Every so often unsubstantiated rumors float to the top of the news cycle because there’s nothing else going on. ( I will admit that my first thought on seeing this bit of news was “Oh, good, at least I have something to write about for Week In Review.)
Or, it’s because the rumor is a bit of wish fulfillment for people who have invested much thought and energy into predicting that both companies (Roku in particular) would be involved in some sort of merger deal.
Regardless, Greenfield’s point, which was the second thing I thought of upon hearing the news, pretty much cuts to the crux of the matter: Roku makes money by selling a not-insubstantial (15%-20%) portion of ad inventory for all of Netflix’s key rivals, meaning that a merger would be something said rivals would not be happy about.
There are other issues too. While a merger with the very global Netflix could conceivably change that, the fact remains that Roku’s success has largely been U.S.-based. The company is still struggling to make a mark in Europe, where both Google and Amazon seem to have woken up and it’s unclear how a Netflix merger would improve Roku’s prospects there.
There’s a school of thought in the UX community that says that Roku’s iPhone-like design was ideal for a time when there were a limited number of streaming services and people generally turned to streaming devices to watch a specific show and so Roku’s tile-like layout made it easy to go “Amazon->Mozart In The Jungle->Episode 4” in an easy and direct manner.
But nowadays when there are a wealth of options on streaming and people often don’t know what they want to watch, the more expansive interfaces found on Amazon and on the various smart TV OEMs, create a superior experience as they allow for both recommendations and serendipity.
So there’s that too.
Are there scenarios where this marriage could work?
There’s the most obvious one, where they try to structure the business to resemble the relationship between Comcast (a distributor) and NBCU (a programer), where NBCU’s competitors still work with Comcast and the two are more or less run as separate companies.
But that deal was done before streaming and it’s unclear whether it was a smart move in the long term, given all the regulatory hassles Comcast has had to deal with. Plus NBCU’s competitors are well-established companies who don’t live in fear that NBCU will put them out of business.
Then there’s the people factor.
Scott Rosenberg, who birthed and grew Roku’s ad business is leaving the company to do his own thing, and unless the deal includes Rosenberg staying on, it’s a sizable leap of faith to think that Roku would be able to recreate that magic for Netflix without him.
Finally the deal does nothing to solve Netflix’s biggest problem right now, which is that by cranking out 150+ shows a year in an attempt to jumpstart its library, it’s created the unfortunate impression that much of what is on the service sucks at a time when its many competitors are creating the opposite impression.
Adding The Roku Channel’s library would give them more library content, the Quibi library, and the opportunity to run a whole bunch of linear channels, but is unlikely to get dissatisfied customers to keep paying $15.49/month.
Meaning churn will still be real.
What You Need To Do About It
If you are Netflix, get your house in order in terms of content. While many of these new series may check boxes in terms of reaching specific target audiences, the reality is that TV is more art than science and so the broader audience perception and cultural impact of your shows still matters.
A lot.
There’s a way to reach a broader audience while not alienating your more influential early adopter audience, and solving for that would seem to be Job One, as it will reduce churn and help you fight off competitors like HBO and Apple who are emerging from their pandemic programming slump.
If you are Roku, there’s a better buyer out there and while it must be maddening to see Wall Street completely misunderstand your business model and why it’s so successful, don’t give up hope. A smart TV OEM (in both senses of the word) could do worse than buying you to be their operating system. (Cough, Sony, cough.)
If you are a faithful reader of this column and new details come out about why this deal actually does make a lot of sense, well, I’ve been wrong before.
You see there was this time back in around 1992, and….
2. Standardization Was The Word At The Stream TV Show
The Stream TV Show was held this week out in Denver. It's one of my favorite events because it brings together the people buying and selling the shows with the people buying and selling the ads (along with all the tech partners who support them.)
It even featured our very first TVREV event, a two-hour workshop on the FASTs which drew in over 200 people live and just as many on demand.
But self-promotion aside, the key theme of the show, one which came up in just about every panel and keynote was the need for standardization in every area of the streaming ecosystem: advertising, measurement, metadata, discovery, recommendations, user experience and interface.
Remedying that will be a tall order, but the clear consensus was that the lack of standardization is a huge impediment to growth for both SVOD and FAST services and results in frustrated advertisers and frustrated consumers, never a good combination.
Why It Matters
The pre-streaming television landscape was not all that complex.
Which is not to say it never had been—multiple speakers noted the similarities between today’s out of control ecosystem and the early days of cable back in the 80s. These same speakers further noted that it was the adoption of standards back then that helped the industry to grow and thrive.
The #1 problem today is the existence of multiple walled gardens which makes it all but impossible to create pretty much anything from an advertising plan to a recommendation engine that spans the full range of providers.
Walled gardens can work when there are just one or two of them. (Think Google and Facebook.)
But when you’ve got a dozen or more walled gardens, no one wins because no one controls enough market share to win.
And therein lies the problem: everyone seems to think that their particular walled garden will magically get enough market share to win out, only the reality is that there are just too many players for that to happen and trying to outlast each other is not a good strategy.
Think of all the opportunities the MVPDs wasted back in the day by not finding a way to work together, measurement opportunities in particular.
Exactly.
What You Need To Do About It
If you’re the industry, do some homework in order to understand how standards came to be adopted back in the day. Remember too, to paraphrase Ben Franklin, “we must all hang together or we shall all hang separately” and that there is plenty of market share (and money) to go around.
If you’re Netflix, HBO and Disney, you may well have the power to force the industry to adopt standards across the board and if you have ever considered using your growing power in the space to do so, now would be a very good time.
If you’re everyone else in the industry, remember that at the end of the day consumers are independent beings and if you keep serving them the same ads over and over or making it impossible for them to find the shows they want to watch, they’ll just walk away.
