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Roku’s Big Week: We're Not in Switzerland Anymore

Quibi original series 'The Most Dangerous Game'
The Emmy-nominated 'Most Dangerous Game' was among the better known Quibi shows acquired by Roku. (Image credit: Roku)

Roku capped a remarkable week Friday, announcing that it would acquire the library of failed startup Quibi just days after touting a new world-leading benchmark for platform users, and two days of record share prices.  Roku also announced last week that its operating system surpassed Samsung’s as the top smart TV OS in the U.S. and Canada.

Out of all that news, the Quibi deal is the biggest. 

Roku acquires not just its first library of original content, but also a new library of giant competitors, on top of the many it already has accreted in its core businesses. 

Also read: Roku CFO Louden: We Are Not Like a Cable Company

The acquisition price, reportedly less than $100 million for an estimated 75 episodic series, marks Roku’s first foray into owning content. Heretofore in Roku’s 12-year history, it’s thrived on being the pioneering hardware maker that reliably, simply and cheaply distributes everyone else’s shows. 

More recently, most of its profits have come from the free, ad-supported Roku Channel, its agglomeration of thousands of hours of live, linear and on-demand programming culled from all those partners. 

Together, those two sectors have helped build a sturdy company with a market capitalization of nearly $51 billion. They’ve also meant the company faces a prodigious array of competitors in both hardware and distribution of ad-supported content. 

On the streaming device/interface side, Roku competes with Alphabet’s Google TV/Android TV, Amazon’s Fire TV, Apple TV, and the proprietary streaming interfaces of Samsung and Vizio, among others. And in the free, ad-supported video universe, the competition includes not just Amazon’s IMDb TV, but also Fox’s Tubi, ViacomCBS’ Pluto TV, and Comcast’s Xumo and the free tier of Peacock, among others. 

In baseball terms, that lineup is a Murderer’s Row. Now, Roku is jumping into the owned-content business, adding another set of giant competitors, just about all of whom already are on the Roku platform and contribute content (however willingly, given the extended carriage fights this past year with NBCU’s Peacock and AT&T’s HBO Now).

Investors certainly seemed to appreciate the Quibi deal and the week’s other news, including its latest household penetration rates and streaming watch times, which were company records. On Thursday, Needham analyst Laura Martin upgraded the stock’s target price from $315 to $400, and shares jumped nearly 11%. 

Then on Friday, five days after first reports of Quibi talks, Roku confirmed the deal, sending shares up another 5.2%, briefly topping $401 before settling at $399.13.

It’s impossible to know if other content deals are to come for Roku. But others in streaming-video business—their ranks include Apple, Disney, Amazon, Alphabet, Comcast, and AT&T—have had to dig much into their very thick wallets to keep up with competitors and attract viewers.

Netflix, the biggest of them all, spent an estimated $19 billion on its shows in 2020. Disney said in a pivotal December investor conference that it plans to spend $8 billion a year on streaming content, with 80% of its upcoming100 original series and features headed to streaming first. 

So, if Roku plans to more fully get into the content wars, it’ll need to spend considerably more than the relative bargain it paid for Quibi’s library. It’s also worth wondering how many different stables of giant competitor/partners Roku can take on and still succeed. 

To some extent, Roku has benefited from its status as a streaming “Switzerland,” an independent seller of streaming sticks, dongles and pucks that provide access to hundreds of companies’ apps. 

That business has built slowly, culminating in the announcement this week that the company’s products now reach 51.2 million households, most in the United States, and narrowly ahead of Amazon’s Fire platform, which just announced it’s in 50 million households worldwide.

That market penetration is admirable, but again begs a question of where Roku goes from here, and against whom. 

The company isn’t nearly as strong overseas as in the United States. Overseas, the lineup of players includes not just formidable domestic challengers such as Alphabet, Amazon, Apple, Comcast (its X-1 box and Sky acquisition, but Samsung and numerous  low-end Chinese firms. 

Can Roku depend on its U.S. success to reliably translate off shore, where much of its future growth likely must come? Debatable. 

For now, perhaps the best thing Roku and its investors can do is treasure the extraordinary first week of January 2021, while figuring out how to succeed around the rest of the globe among an even bigger group of globe-girdling Goliaths.