Roku Turns a Corner

In a Bellwether moment with respect to which part of its business will be the major breadwinner, online video platform company Roku said revenue at its fast-growing Platforms unit has eclipsed Player-related revenues for the first time.

That milestone, achieved in the first quarter of 2018, is a significant one for Roku’s long-term prospects and for a company that is most well-known for its wide range of internet-connected streaming players and sticks.

Q1 2018 revenues at Roku’s Platforms division, which includes advertising, subscription revenue sharing and licensing fees from TV makers, jumped 106% to $75.1 million, while Player-related revenues dropped 3%, to $61.5 million.

Total net revenues rose 36% to $136.6 million, with the average revenue per unit climbing 50%, to $15.07. Advertising and content distribution were the two largest contributors to ARPU growth in Q1.

The small drop in player revenues was due in part to a “deliberate mix shift” to lower-priced Roku Express and Streaming Sticks, along with lower average sales prices on its high-end Ultra model, Steve Louden, Roku’s chief financial officer, said on last week’s Q1 call. He noted that Player unit sales were actually up 5% year-over-year, while average selling price dropped 7%.

Also up were Roku’s “active” accounts — those that engaged with its streaming platform in a given month. Those surged 47%, to 20.8 million, in Q1. Streaming hours on Roku’s platform, meanwhile, reached 5.1 billion in Q1, up 56% versus the year-ago period.

Active, Not Connected

Roku said roughly half of its base of active users have cut the cord or have never had a traditional pay TV subscription. Roku, of course, plays both sides of the fence, as it is also a key destination for streaming apps developed by cable operators and other traditional pay TV providers.

In its letter to investors, Roku stated a belief that “virtually every TV OEM [original equipment manufacturer] will eventually need to license a TV OS,” a trend that would bode well for the company’s Roku TV licensing strategy. Two notable exceptions continue to be Samsung (Tizen) and LG Electronics (webOS), which make their own smart TV operating systems.

Roku’s focus on the smart-TV market comes as it faces more competition in that area from Google’s Android TV and Amazon’s Fire TV platforms. Vewd, the company formerly known as Opera TV, is also making a stronger play in this arena.

Roku’s TV partners include Funai Electric (Sanyo, Magnavox and Philips), RCA, TCL, Element Electronics, Hitachi America, Sharp and Hisense. Roku estimates that one in four smart TVs sold in the U.S. in Q1 ran its platform, up from one in five last year, and that it expects to grow the retail distribution of Roku TV models this year.

Roku has also done work with Best Buy and its in-house brand, Insignia, though that relationship appears to be fleeting after the retailer struck up an exclusive arrangement with Amazon/Fire TV in April.

Anthony Wood, Roku’s chairman and CEO, sidestepped questions about the change in Roku’s relationship with Best Buy, noting only that the Roku TV business is “positioned extremely well and it’s getting stronger.” At the same time, he said Roku expects Best Buy, Walmart and other major retailers to sell more Roku TV models in 2018 than they sold last year.

“What’s really happening here is that TVs are switching from these homegrown smart-TV platforms to [OS licensing] … so Roku’s scale is coming,” Wood said, while also acknowledging that Roku won’t be the only winner in this trend, giving the nod to rivals such as Google and Amazon. “But Roku is by far the biggest.”

And Roku’s aims also extend beyond its own software/ streaming platform. Notably, The Roku Channel, its ad-based aggregation offering of movies and TV shows, will be available on Samsung smart TVs that run Tizen. The Roku Channel is currently a top 15 “channel” on the company’s own platform.

“We’re also looking [at] other platforms we could potentially distribute The Roku Channel on,” Wood said.

“The Roku Channel is already contributing significantly to our inventory mix in the audience that we sell to advertisers,” Scott Rosenberg, general manager of Roku’s Platforms business, said.