Roku Gets Analysts' Nod Over Netflix, As It Faces Off With Big Media Companies

Roku Inc. may not be the largest tech operator out there, but it’s flexing its muscles with big media companies as its streaming gatekeeper power grows — and winning the confidence of some Wall Street analysts.

Yesterday, after analyzing the results of Nielsen’s latest Total Audience Report, Needham analysts Laura Martin and Dan Medina gave an “underperform” rating to Netflix while concluding that Roku is the “winning aggregator” in the domestic streaming wars.

The analysts believe that Netflix is at a increasing disadvantage as a subscription-based video-on-demand (SVOD) service, because there is significantly greater demand for Roku and other free, advertising-supported AVODs. The latter will continue to siphon off SVOD customers, they predict.

The Nielsen data show 84% of OTT households indicating that cost is the most important factor in choosing an SVOD service, and 42% saying they’ve cancelled an SVOD because they weren’t using it enough to justify the cost.

Nearly half (47%) of Nielsen respondents said they would subscribe to additional SVODs to have access to more content.

But Needham’s research indicates that while 62% of U.S. homes subscribe to more than one SVOD, just 10% subscribe to four or more — likely indicating that most are substituting one for another rather than opting to pay for more than two or three, noted Martin and Medina.

Given that Netflix is higher-priced ($8.99 per month for basic, up to $15.99 for premium) than competitors including Disney+ ($6.99), Apple TV+ ($4.99) and the upcoming Peacock streamer ($4.99 with ads, $9.99 without, for those who aren’t Comcast/Cox cable users), it could lose as viewers have more options, they believe.

Meanwhile, Roku’s recent high-profile battle with Fox — in which it removed access to Fox OTT through its devices two days before the Super Bowl (though the two came to an agreement hours before the game) — is just the tip of the proverbial iceberg, reports The Information.

While Roku’s $16-billion market capitalization is dwarfed by the tech giants’, “it has nearly 40% of the market for streaming devices, making it the leading way many households stream video onto their TV sets,” points out the tech publication.

“Entertainment executives say that Roku frequently tries to flex that power to extract more money from entertainment companies whose apps are carried on Roku devices — with mixed results so far.”

These negotiations — which have resulted in near-suspensions from Roku devices for other TV apps, including NBCUniversal’s and AMC Networks’ — have become “increasingly intense” as Roku seeks to boost its advertising business, says the report.

Roku is pushing for rights to sell entertainment companies’ OTT ad inventory — and with Fox, reportedly also tried to secure content integration for its AVOD Roku Channel.

“I don’t think Roku holds all the keys, but my sense is they are saying we can do better in selling ads than you can,” observed Doug Knopper, co-founder and former co-CEO of Comcast’s FreeWheel video ad platform. “As a result, they are going for a bigger piece of the pie.”

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