Roku’s Platform Business Will Make Up Two-Thirds Of Revenue In 2020

Roku’s platform business is growing like a weed.

Platform revenues, which include ad sales, increased 78% year over year in 2019 to $740 million, the company said Thursday in its Q4 2019 earnings report. Platform revenue accounted for 63% of Roku’s total annual revenue, which grew 52% year over year to $1.1 billion.

In Q4, Roku’s average revenue per user rose 29% year over year to $23.14.

“Our mix of revenue will continue to move toward the faster growing platform segment,” said outgoing chief financial officer Steve Louden on Roku's earnings call with investors. “We are not optimizing for player gross profit as an important driver of account growth.”

Video ads impressions monetized on Roku doubled again in 2019 as AVOD viewing continues to grow on the platform. Much of that growth comes from The Roku Channel, Roku’s owned-and-operated ad-supported app, which reached 56 million viewers in 2019. Seventy percent of Roku viewers watch ad-supported content on the platform.

But Roku is also using The Roku Channel as a test bed for new ad formats. The platform tested an ad unit with Energizer, for example, which allows users to watch an extended ad in exchange for uninterrupted viewing. The Roku Channel will continue to be an investment focus area in 2020.

“A big part of our focus is improving the capabilities of The Roku Channel by making it more integrated with our platform and [using] things like machine learning,” Roku CEO Anthony Wood said on the earnings call.

Since one out of every three smart TVs sold in the United States in 2019 has Roku software, advertisers include it in their upfront buys, with most major agencies in multiple years of renewal. Overall, streaming hours on the platform increased by 170% in 2019.

Advertisers are particularly keen on Roku’s ability to deliver and guarantee incremental reach by using ACR data to find streaming audiences that are difficult to reach on linear.

“About half our user base doesn’t have a pay-TV package in their home,” said Scott Rosenberg, SVP and GM of Roku’s platform business. “The other half tend to be very light linear TV viewers. We’ve been able to show advertisers that the vast majority of users they reach when they buy ads from Roku cannot be reached on linear.”

Dataxu, how are you?

Three months after closing the DSP dataxu sale, Roku has mostly integrated its team and advertisers are using the platform across its own and third-party supply.

DTC brand ThirdLove, for example, used dataxu to buy media on Roku and retarget consumers on mobile and desktop, which produced a 319% increase in conversion rate, Rosenberg said.

Roku has also released new features through dataxu, such as the ability to add Roku’s data and IDs when buying media through dataxu’s platform, and leveraging dataxu’s machine learning to execute cross-platform buys. It’s also added new customers in the DTC, mid-market and local verticals as it makes TV inventory available in a self-serve fashion.

“There’s a whole compelling road map of things we’re doing together,” Rosenberg said. “Brands who have been digital-only can now participate in TV because it’s a digital medium.”

Going forward, Roku will not break out dataxu’s business as it is integrated more fully into Roku's ad stack.

New carriage deals

Investors were curious about how Roku’s relationship with content owners will fare in light of the carriage dispute it had with Fox before the Super Bowl. Will the dynamic be the same as pay TV, where content owners and distributors haggle over the amount they can claim from a consumer’s cable bill?

Not quite, Wood argued, because Roku renews thousands of deals a year with content owners, and the streaming business has a friendlier dynamic.

“We’ve invested a lot in building our platform, aggregating a large audience, developing tools partners can use to reach that audience, sell subscriptions and reduce churn,” he said. “We’re trying to help build them streaming businesses, and we succeed when our partners succeed.”

Investors also wanted more detail on how deals get brokered between Roku and content owners. Without breaking out details, Louden said they are generally rev-share deals but can also include minimum-spend guarantees or promotions.

“It really just depends in terms of the different elements," Louden said. "The value we ascribe to these elements are performance obligations put against these revenue streams.”

 

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