Roku Teases Its Ad-Centric Future

Which companies are the most significant to the future of the video advertising business? The obvious names come from the world of content (Disney, YouTube) or ad tech, but one company has quietly carved out a niche all its own, and is seeing streaming video ad growth that would make many other video companies red with envy: Roku.

It was only last year that the company, which launched with a focus on connected TV devices, saw its platform revenue (which includes advertising) overtake its hardware revenue. Now the company has more ambitious plans.

For starters, the company doubled its monetized ad inventory last year, and Roku CEO Anthony Wood told investors last week that the company intends to double it again this year.

In its latest letter to shareholders, released last week, Roku executives outlined four key areas of investment for the company, and all related to advertising in some way.

On the advertising side, Roku plans to bolster its programmatic and self-serve capabilities. The company plans to expand the reach of The Roku Channel, as well as the content available through the channel.



Roku also plans to expand the licensing of its OS to TV set makers, allowing for wider availability. Finally, the company is planning an international expansion, bringing its products and platform to new countries and territories. 

Roku’s strength lies in its place as a platform. Even if you only want to watch Netflix, or the ad-free tier of Hulu, Roku can serve you ads on the home screen before you enter the app. The company shares ad revenue with many of its apps (including some streaming bundle providers) and in The Roku Channel it owns its inventory.

Roku’s platform chief Scott Rosenberg outlined to investors last week how the company approaches deals with advertisers. He said they begin by outlining what percentage of the people they are trying to reach have cut or trimmed the cord.

“Multiple third parties will tell you that well more than 10% of TV viewing is happening in OTT, and yet nowhere near 10% of TV ad budgets are yet spent in OTT,” Rosenberg said. “Said another way, if you are a brand that is still spending 100% of your budget in linear, you're wasting more than 10% of your budget.”

Indeed, the current state of OTT video is not that different from the state of mobile just a few years ago.

“In the mobile market, viewers shifted to mobile devices from desktop well ahead of advertisers. It took a few years, but advertiser spend on mobile eventually caught up with mobile viewer share,” the Roku investor letter reads. “In the TV streaming world, viewer share is well ahead of TV ad budget share, but the rapid growth of our Platform revenue suggests advertisers are starting to respond. This anticipated spending pattern shift, combined with substantial growth in our ad inventory and audience reach, should drive sustained, rapid advertising growth.”

So as the streaming video business evolves and the winners take shape, it seems increasingly likely that content companies, ad-tech firms, and technology giants will be in the winners circle. But don’t bet against the little OTT platform company that could.

3 comments about "Roku Teases Its Ad-Centric Future".
Check to receive email when comments are posted.
  1. Douglas Ferguson from College of Charleston, February 26, 2019 at 9:55 a.m.

    Viewers just love ads, don't they? How does Netflix even survive without them?

  2. Ed Papazian from Media Dynamics Inc, February 26, 2019 at 4:06 p.m.

    An interesting question, Douglas. I believe that it's only a matter of time before Netflix finds the burden of its huge and growing debt to much to handle. Solution: sell out to an antity like Amazon and let them figure it out or launch an ad-supported platform and rake in billions of ad dollars.

  3. Benny Radjasa from Armonix Digital, Inc. replied, February 26, 2019 at 7:43 p.m.

    Roku own and operated channel is free to access.  They do place ads of partner channels if these partner consigned ad spots to Roku.  Netflix cost $, cost / benefit, so thats the bottom line.  I supposed any channel can be made ad free with paid subscription.

Next story loading loading..