How a Plastic Stick Holds Power over the Largest Studios in Hollywood
By: Oliver J. Montgomery
Tags: Roku, Hollywood, Disney, Streaming, Hbo Max

How a Plastic Stick Holds Power over the Largest Studios in Hollywood

The entire world has switched to streaming. The most talked about and highly praised shows aren’t even accessible on cable. When it comes to that, the average person is usually focused on what apps to download and shows to watch… but what about the platform you are using itself? As entertainment giants like Disney, Netflix, and NBCUniversal all spend billions on their own streaming services, none of them actually have a way of getting their content in front of viewers. That’s where streaming device Roku comes in, think of them as a gatekeeper to everyones eyes… that’s a lot of power.

Roku has established themselves as the #1 streaming platform in the United States, with about 52 million users and roughly 40% penetration into all US broadband households, they are the top force in the streaming device space. Their growth has been fueled even further by the pandemic, where streaming, as we all know, has really become the only option for entertainment. According to Roku’s shareholder reports, streaming hours in Q2 2020 were recorded at 14.6 billion hours — up from 8.8 billion hours just one year earlier. This shows in their eye-popping stock performance as well, currently trading at roughly $330 per share (reported on 12/11/20)— up 467% since their low in March.

Roku has intelligently positioned themselves to be a dominate and lasting platform, so that every major entertainment studio has to bow down and kiss the ring.

Roku CEO Anthony Wood with his arcade game collection (photographed by Ryan Young)

Roku is a platform that monetizes entertainment companies streaming applications. They are pretty much the app store for your TV. They don’t mess around with original content — yet. They have nailed the engineering in their devices to create a perfect user interface anyone can use and love, thats their thing.

The way deals are structured with Roku and entertainment companies varies, but the standard terms for partner channels include 20% of subscription fees and 30% of ad inventory. Not bad. The continuation of growth for Roku is highly probable as well. As more studios release and then fight for their streaming services to become number one, the competition only increases Roku’s revenue — it is not cheap to be a front page advertisement on the Roku home screen or have a branded button on every remote.

As an example of their power, just this year, AT&T’s WarnerMedia released the new HBO streaming service: HBO Max. Roku and WarnerMedia were unable to come to terms and the service has yet to be added on Roku’s platform. Out of frustration from failed negotiations, AT&T CEO John Stankey publicly called out all major streaming device makers (Apple, Amazon, and Roku) at the WSJ Live Tech event for creating what he called “bottlenecks” that stop innovation in entertainment, he stated that these companies have “market power above and beyond what’s reasonable for innovation”.

Without HBO Max having been on Roku, their launch has been an utter failure, resulting in a quick reshuffle of the WarnerMedia management team. On the other hand, Disney worked smoothly with Roku for their launch of Disney+. In an interview with IndieWire, Tedd Cittadine, Roku’s head of content distribution, says that Disney is an example of “companies that get it… When they launched Disney+, they took over the entire home screen and our UI back in November — it was all branded Disney+”. The partnership between the two companies created great success for Disney+, where over 60 million subscribers signed up in just the first ten months. Comparing the launch of the Roku-less HBO Max versus Disney+ proves how crucial creating a partnership with the device owning companies is today. So for now and the foreseeable future, Roku remains firmly ensconced upon the Iron Throne.

UPDATE (12/17/20): Roku and WarnerMedia reached a deal on Wednesday for HBO Max to be added on Roku Thursday. This comes just in time before the debut of Warner Bros’ highly anticipated “Wonder Woman 1984”, which will be available on HBO Max to stream on Christmas day — as well as the 17 more films to come in 2021. WarnerMedia shocked the industry when they announced that Warner Bros’ full 2021 film slate will stream on HBO Max the same day the movies hit theaters. News of the agreement sent Roku’s stock soaring, it hit $352.12 (+11.7%) in Thursday early morning trading before winding back down to its close of $329.48 — likely due to profit taking. The agreement raises expectations for a strong future in Roku performance.