This was a big week for Roku, which timed the official relaunch of its ad buying platform, now called OneView, to its Q1 earnings results.
There was a lot to say, starting with notably strong financial and user growth performance… despite, and because of, the extraordinary impacts of the coronavirus outbreak.
But the overriding messages were 1) the company’s certainty that the pandemic will result in a significant, and permanent, acceleration of the decline of traditional TV and ascension of OTT; and 2) its determination to be the lead player in that soon-to-be-dominant OTT advertising marketplace.
The context: Roku added 2.9 million active accounts in the period, ending the quarter with 39.8 million. In April, accounts passed 40 million, thanks to 38% year-over-year growth driven by a 70% YoY increase in new accounts. Roku users’ streaming hours saw 49% YoY growth in the quarter, hitting 13.2 billion. In April, streaming hours leapt 80% YoY, reflecting a 30% increase per account.
Platform segment revenue, which includes advertising, was up 73% YoY, to $232.6 million, and represented 73% of total revenue — despite advertising cancellations, which peaked in late March but began to slow in mid April. Those were offset to a degree by ad dollars shifting from traditional TV to OTT due to the suspension of major sports and entertainment events. And the company is offering an upbeat advertising outlook for the year.
"We anticipate that our ad business will continue to grow substantially on a year-over-year basis, albeit at a slower pace and lower gross profit than we originally expected for the year,” CFO Steve Louden said during the earnings call. “We believe the behavioral changes by TV ad buyers are likely positive for us in the longer term -- and that with more time spent at home, and many households curtailing spending in light of economic hardships, cord-cutting and the shift to streaming will continue to accelerate.”
The economic fallout from the pandemic has also accelerated consumers’ adoption of free TV and streaming services, “which is an area that Roku leads in,” noted founder/CEO Anthony Wood.
“Especially now, free resonates,” agreed Scott Rosenberg, senior vice president and general manager, platform business. One indicator: The Roku Channel’s YoY streaming hours rose by 100% in the quarter.
While Roku isn’t immune to the overall downturn in advertising, it is “much better positioned” than linear television, argued Rosenberg. He pointed out that prime-time linear consumption was down 18% YoY from mid-March to late April, and half of viewing time among adults under 35 in the past month had been through OTT and streaming.
“Right there, in a microcosm, you can see a significant shift in consumer habits,” he said. “Disruption of the order that we're seeing here, we believe, is going to force marketers to reassess their assumptions about how to invest in linear and [recognize] the growing relative audience of OTT relative to linear.”
The upfronts will be disrupted by more than online presentations borne of social distancing, he said. “Programming production is paused, a lot of fall programming will not be available. And many folks are talking about shifting the traditional TV upfront to a calendar year, which [is] basically a quarter shift out of the big investment decisions that brands typically make in the upfront… Ultimately, the money will move out of the upfront into scatter, and especially into OTT as an alternative.
"So we plan to continue to… be aggressive [in the upfront], and we think our offer is especially strong. The stats and the shift in consumer behavior during COVID speak to just how important it is for marketers to move money to reach consumers who are no longer reachable through linear television.”
In fact, Roku believes that the disruption of linear will parallel the blow dealt to print advertising by the Great Recession. While print had been ceding audience and advertising to digital for years, “it took the 2008 recession to really reset the investment levels in print,” Rosenberg said. “And those levels never really came back.”
Spending in linear will come back, but not to previous levels, he said. “Even in sports, we think that this disruption will force a reassessment broadly by marketers.”
The hub of Roku’s advertising strategy — the OneView buying platform — is designed to deliver programmatic performance measurement for streaming and OTT campaigns, with the ability to buy against guaranteed outcomes.
It combines Roku’s first-party data from 39 million U.S. households with the identity and attribution capabilities of Dataxu, the demand-side platform that Roku acquired last fall. One critical advantage is the integration of Dataxu’s deterministic device graph — the ability to use mobile and other cookie-less IDs.
“We’ve tightly integrated the [Dataxu] capability into our ad stack,” Rosenberg said in the earnings call. “We've integrated our first-party identity info, our targeting data, our Roku media and measurement capabilities… It's going to allow advertisers to reach four out of five U.S. households across Roku Media, other OTT platforms, desktop and mobile.
“And it's equipped with fundamental capabilities that we think strongly differentiate it relative to other DSPs: namely, that identity and data info, at scale, with a first-party consumer relationship. That equips us to help advertisers reach more users and more inventory, do better measurement and optimization.”
The offering is broadening Roku’s client base beyond Fortune 500 advertisers by attracting performance accounts like Giant Eagle and Drizly.
The goal for OneView is “not just to sell them media, but sell them a platform that helps them invest in OTT and all media more effectively,” Rosenberg said — or as he put it more bluntly in OneView’s launched announcement, “to help advertisers and content partners invest for a world where all TV is streamed.”