1. Wall Street Mistakenly Gangs Up On Roku
The thing about investors is they don’t always get the nuances of the television industry. Hence they sent shares tumbling after what was, to our eyes, a very positive Roku earnings report earlier this week.
Why It Matters
What tripped Wall Street up was lower profits from Roku’s devices, which they were selling at a deep discount. (There were also some chips that needed to be flown in rather than shipped in, which also didn’t help matters.)
If Roku were a hardware company, device profitability would be an issue, but they’ve clearly stated that they see themselves as an advertising company and that part of the business is booming: Roku reported that Average Revenue Per User (ARPU) increased 48% last year and that more than two-thirds of said ARPU came from advertising.
The shrinking profit margins on devices is part of a clever plan to grow their footprint: Roku has a sizable lead over Amazon Fire TV and Google Chromecast and a very sizable lead over Apple TV. By lowering prices on their devices at a time when Connected TV (CTV, aka OTT) adoption is growing in leaps and bounds, Roku is able to widen their lead among connected devices in terms of platform adoption, and create the sort of sizable market advertisers are interested in. The plan seems to be working too: Roku’s number of active accounts grew by 44% in 2017.
And not to put all their eggs in one basket, Roku also controls about 20% of the smart TV market.
All they’re doing is creating the proverbial “facts on the ground” by making sure they have the largest user base. They get that whoever controls the CTV interface is going to be the winner, that while Hulu may have the resources to staff its own unique ad sales team, most of the smaller OTT channels do not, and that creates a huge opportunity for Roku and its ad sales team.
Similarly, Roku’s plan to have its platform power smart TVs makes a whole lot of sense to us. One of the biggest mistakes smart TV manufacturers made was to not make their platforms interoperable. Had they done so—if Netflix, Amazon, Hulu, Crackle, CrunchyRoll et al could have each built a single app that worked across all smart TVs, smart TVs might actually have won, nipping the whole connected device market in the bud. They didn’t though, and what resulted was a mishmash of unconnected systems with tiny user bases. Having the Roku OS on board allows advertisers to participate in the Roku ad ecosystem directly from smart TVs, which further increases the size of the audience Roku is able to reach. Having the Roku OS also gives a level of respectability to previously unknown Chinese brands like Hisense, brands consumers might otherwise have been hesitant to buy.
What You Need To Do About It
If you’re an MVPD or network, take a look at what Roku is doing with one-to-one (aka addressable) advertising and how they’re using their own ACR (Automated Content Recognition) software to power that. Keep an eye out for their upcoming Alexa-like voice activated software for the OS (we’ll have an opinion on that when it launches and we can see it but it’s certainly an interesting and on-the-money idea.)
If you’re an advertiser with some experimental budget and you’ve never tried addressable before, Roku provides a very solid platform for you to test it out with consumers you’re likely not reaching elsewhere. Just tell them TV[R]EV sent you.
And if you’re looking for a stock tip, buy Roku.
2. Fox To Launch SVOD “Opinion” Channel
Fox News announced that it would be launching its own subscription service, Fox Nation, later this year. The service is billed as an “over-the-top opinion platform” (pun clearly not intended) and will not include any content from the main Fox News Channel.
Since that point seems to have gotten lost in our social media, we’ll repeat it: Fox Nation is an “opinion platform” with original Hannity type shows, along with “exclusive events” and library content from Fox News opinion shows. It will not stream any actual Fox News content, least of all live Fox News channel content.
Why It Matters
In many way Fox Nation sounds very similar to ESPN Plus, the new service Disney is launching this year too. In order to ensure that the popular main channel isn’t cannibalized, both Fox and Disney are creating what feels in many ways like the “deeper dive experiences” imagined by second screen apps back in the day—the target for both apps is superfans, people who can’t get enough of the main channel and want even more of the extras.
That’s a much smaller audience than putting the main channel on SVOD, but it’s a passionate one, and it opens up a second revenue stream as superfans will undoubtedly continue to subscribe to both.
It will be interesting to see how both platforms do. Both appeal to older audiences who traditionally have not been early adopters. But superfans may prove to be the exception to that rule, as the value of the content and the ability to participate in what promises, in both cases, to be a more interactive forum with likeminded people, may help them overcome their nascent technophobia.
What You Need To Do About It
If you’re a network, you’ll want to watch closely to see how both these platforms are doing once they launch: if they’re successful, they may herald a new era of superfan-centric apps. If not, it was certainly a noble experiment.
If you’re an advertiser, you’ll have to sit and wait. No news yet on whether the new services will be ad free or if they’ll adopt a two-tier model, a la Hulu and CBS All Access, where you can pay a little more to avoid ads. It seems like it would be a good option to go that route—super fans might not mind ads if they think the advertisers/sponsors are supporting their causes, and it’s a great way for brands to reach a very passionate audience.
We’ll know soon enough.