Roku (ROKU - Free Report) recently announced inking an agreement with media giant Comcast’s (CMCSA - Free Report) NBC Universal to give Roku users access to the Peacock app, the ad-supported streaming service, per a Bloomberg report. NBC Universal and Roku have been locked in negotiations for months.
Amid the negotiations, NBC Universal’s deal with Roku over the distribution of its TV everywhere apps, which allows pay TV subscribers to stream the programming that they subscribe to via their cable bills, expired in September. The deal will keep NBC News, NBC Sports, E!, Bravo and the rest of NBCUniversal's apps on Roku.
In addition, Roku and NBCUniversal have renewed their agreement to keep 46 NBCU broadcast and cable apps on the Roku Channel. The companies did not disclose the financial terms of the new deal.
Increasing Conflict Over Ad Inventory
In exchange for hosting an app with advertising, Roku typically takes 30% of the ad inventory to sell on its own. NBC Universal wanted Peacock to be distributed on Roku without giving up a share of the advertising inventory on the service while Roku was seeking compensation.
As part of the agreement, NBC Universal will keep the number of commercials on Peacock under five minutes per hour, leaving little airtime to share with Roku.
The standoffs have been a sign of how Roku, which has about 43 million active users, is flexing its muscles as the largest platform in the United States for aggregating streaming services.
Roku and Amazon (AMZN - Free Report) together control about 70% of the U.S. streaming-device market, limiting the growth of any video apps that are not available on their distribution platforms.
Markedly, AT&T (T - Free Report) and Roku have hit a deadlock over WarnerMedia’s HBO Max streaming service. With Peacock finally on Roku, it can be expected that AT&T and Roku will soon find a deal that works for them and bring HBO Max to Roku customers.
Notably, Peacock, which has 15 million user signups since its July launch and HBO Max, have both been kept off Amazon’s Fire TV.
Roku’s Efforts to Attract Ad Revenues
Even amid the pandemic, Roku generated $244.8 million in second-quarter platform revenues, which include ads and licensing fees, against only $111.3 million from device sales.
However, the company witnessed an increase in video ad campaign cancellations or delayed starts, primarily from categories including travel, quick-serve restaurants, theatrical and automotive among others that were severely hit by stay-at-home policies.
Nonetheless, Roku kicked off its new OneView ad platform in June, with launch partners, Drizly, Experian, Intuit TurboTax and Lexus. The ad platform is designed to help advertisers use TV identity data to create ads across OTT, desktop and mobile from a single hub.
Moreover, Roku launched a shopper data program in June that is designed to improve targeting and measurement of TV advertising for CPG marketers. Kroger Precision Marketing (KPM), the large grocery store chain's media advertising business arm, will bring such consumer data to Roku's shopper data program that will help CPG marketers better target ads that run on Roku's platform and tie ad exposure to online and in-store sales.
Markedly, the live content on Roku Channel is free to view in exchange for eight minutes of advertising time per hour. Roku sells the ad spots on an ad-spot bidding platform built around assets from ad specialist Dataxu, which Roku acquired for $150 million last fall.
As of the end of second-quarter 2020, this Zacks Rank #3 (Hold) company streamed 14.6 billion hours. In addition to new account growth, existing Roku users added almost three million new Roku streaming devices to their accounts during the quarter.
Roku described itself as the #1 U.S. streaming TV platform by hours streamed according to Kantar, and the largest licensed TV operating system in North America.
We believe that Roku’s growing efforts to attract advertisers to its platform will drive top-line growth in the near term.
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