How Roku’s Open-Platform Approach Fuels A $100M Media And Ads Business

Roku generated nearly $400 million in 2016 revenue, mostly from standard hardware sales around its devices.

But $100 million of its revenue was attributed to Roku’s media licensing and advertising businesses, which are expected to be its biggest growth drivers.

The real MVP of Roku’s media and licensing segment may be the set-top box manufacturer’s open-source operating system. The platform provides a competitive edge in discussions with networks and video services dabbling in over-the-top TV.

Because Roku built a universal ad framework, the company claims it can reduce overhead and improve consistency for app developers across all Roku devices.

“We see ourselves as Switzerland in this space, not like some of our retailer competitors like Apple or Amazon,” said Scott Rosenberg, VP of advertising and audience development for Roku. “We don’t generally compete with our content providers, so that makes us a natural distribution partner for these services. We are, at our core, an operating system play.”

Roku was early to embed major measurement services like Nielsen in its OS.

It also strived to be interoperable with publishers and developers’ existing tools. For instance, it supports FreeWheel, DoubleClick and other ad servers, as well as a range of interactive video ad servers, including BrightLine and Innovid.

Roku also licenses its technology and operating system to TV manufacturers or telcos/MVPDs like Telstra and the UK’s Sky or helps them build their own branded players or OTT video distribution operations.

Its lens into how consumers view TV across apps gives Roku a bird’s-eye view of how publishers can best monetize users. Roku launched a publisher program in October to help publishers create apps for Roku’s OS or monetize their OTT inventory through a managed service.

“We can, with increasing fidelity, predict who’s likely to subscribe to an SVOD service on our platform,” Rosenberg said. “That way, we can be smarter about how we promote HBO, Showtime or Sling to that next viewer and our data science team works on predictive modeling to improve a publisher’s yield.”

Although Roku, in theory, would compete with traditional cable companies that distribute video via their own set-top boxes, Rosenberg claims MVPDs like Comcast and Spectrum are more likely to be partners for Roku.

Comcast, for instance, recently rolled out an Xfinity TV app on Roku for cable subscribers.

“We’re an operating system with a very large install base, so we’re a natural place for those distributors to go conquest users,” he said. “Increasingly, we’re also working with content partners who have both a linear and on-demand presence, to determine how to drive on-demand and live tune-in.”

To support its growing OTT ads business, the Los Gatos, Calif.-based Roku is relocating its New York office to a larger space this month to accommodate more rapid growth.

Roku’s New York-based ads division (it also stations salespeople in LA) in particular is on the upswing with a sales and ad operations staff that doubled in size to 40 in 2016.

Roku’s total headcount in New York is expected to reach 100 people, including research, product and data engineering roles, in 2017.

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