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Unpacking Roku’s Purchase of Dataxu

Roku, the little streaming media player that could, made a major announcement today that they’d bought Dataxu, one of the last independent demand side platforms, allegedly paying $150M for the privilege. 

Here’s our TVREV take on what it means:

Top Line:  This will allow Roku to expand beyond the Roku OS (smart TVs and streaming devices) as they will be able to sell inventory on other services via Dataxu’s self-serve platform, which is a world increasingly made up of walled gardens — this is no small thing.

There are however, still a couple of unanswered questions:

1. What will Roku do with the non-TV part of Dataxu? Dataxu’s digital ad platform is still the largest part of their business. Will Roku attempt to spin it off or sell it to another company or will they make it a part of their platform, offering advertisers a way to use the self-service system to place ads on digital as well as TV?

This is important, because as my friend Frank Sinton, President and Founder of Beachfront Media, pointed out on an (unrelated) phone call today, “there is a conflict between the Roku and Dataxu businesses. Demand-side platforms like Dataxu work for ad buyers with a goal of driving prices down. Roku is in the business of increasing the yield of its inventory.”

So it will be interesting to see how that all shakes out and what Roku does with the digital business. (Our guess is they’ll keep it and use it to allow customers to plan and place ads cross-platform.)

2. What will major advertisers make of this expanded universe?  This is pressing question for the industry in general. At every “future of TV advertising’ type event, the topic comes up that the growth of OTT will greatly expand the number of national advertisers from the hundreds to the tens of thousands. 

In an email exchange today, Roku’s Scott Rosenberg, Senior Vice President and General Manager of Platform Business, told me that the “chance to make OTT more accessible to a broader spectrum of marketers” was one of the primary motivators of the deal.

And that’s a good thing—the ability to provide better targeting means that TV becomes more cost-effective and thus more brands will be able to take advantage of it.

The million dollar question though is how will national brands like Pepsi and Apple and GE react to having their multimillion dollar production budget commercials on next to smaller brands who’ve spent considerably less?

On the one hand, they’ve spent decades putting up with the local car dealer ads that show up during the two to three minutes an hour given over to MVPDs. On the other, there was the strong negative reaction big brands had to having their ads next to hair replacement salons and singles mixers on Facebook.

So there’s that, though we doubt that OTT’s new class of advertisers will sink to the level of banner ads for miracle hair growth formulas.

Our bet is that Roku and other platforms will solve this problem (if indeed it does arise) by creating a two-tier solution, where larger advertisers can elect to run ads on larger, more expensive platforms where the other advertisers in their pods are of a similar size. Or where they can have an entire pod to themselves by paying a little more to for it. 

In other words, they’ll figure it out.