What we learned from the Roku IPO filing: It needs ads

OS ANGELES — Streaming TV has so far served to make just Netflix and a handful of others very rich.

The Roku player, originally designed to bring Netflix into living rooms without waiting for DVDs to arrive, would like to join the cash party. But in its $100 million Friday IPO filing, it revealed losses, a customer base of around 15 million, and hope that advertising and a cut of subscriptions would turn it into a profitable business.

The company reported revenue of $399 million in 2016 and a loss of $42.3 million.

The Roku streaming box plugs into the TV to bring the world of Internet entertainment into the living room, and competes with Amazon, Google and Apple. It also licenses its technology to TV brands like TCL. Roku has been one of the benefactors of the "cutting the cord" movement, where people ditch their cable subscriptions to instead just watch on-demand.

The biggest surprise in the filing concerns what we watch on Roku, which says it has over 5,000 different channels available for viewing.

Five of the top channels watched on the Roku device represent 69% of viewing for the first six months of the year, while the most popular channel, Netflix, represented 30% of all viewing.

Yet the biggest audiences for streaming on Roku produce little, if any, in revenue.

We do not expect revenue from Netflix to be material to our operating results for the foreseeable future,” Roku said. For the No. 2 channel, "We receive no revenue from YouTube."

It's left to second tier streaming channels for Roku to hopefully see profits.

Jan Dawson, an analyst with Jackdaw Research, says Netflix probably paid Roku to be on the device back when it started, but that over time, those terms clearly changed, as Roku needed the No. 1 video streaming platform more than Netflix needed it.

Roku, which established to sell streaming players in 2008, leads the streaming box segment, but only with a slight edge over rivals Amazon and Google, with Apple and the pricier Apple TV a distant 4th.

Market research company eMarketer recently did a study of the field, and found Roku with 23% of the market, followed by Google at 22%, Amazon with 21.3% and then way behind, by Apple TV, with 12%.

The reason Roku and Google are ahead is pretty simple: Cost. You can buy a starter Roku express stick for $29.99, and work your way up to $129.99 for the top of the line Ultra product, which streams in 4K and has a fancy remote.

The Google Chromecast streaming stick sells for $35, but it’s not as easy to use as Roku, which uses a channel based TV menu, like we’re used to.

Beyond the ads, seen on Roku’s home page and in channel viewings, the big bet is getting a piece of subscriptions, via channels like CBS All Access and Hulu, says Peter Csathy, chairman of CreatTV, a San Diego based consultancy.

If they can get a piece of subscriptions, that’s an interesting story,” he says. “They’re the leading player in streaming now, so they’re in a good position.”

In the filing, Roku said that TV streaming’s disruptive content distribution model is shifting billions of dollars of economic value.

"Over time, I believe that streaming will allow consumers on-demand access to every movie and TV show ever made as well as brand new categories of short form videos and specialty content," said Roku founder Anthony Wood.

The filing disclosed that Wood, a long-time tech investor who came up with the idea for the DVR, a short-lived product called Replay TV, was paid $785,000 last year. The company more generously paid his Chief Technology Officer Steve Louden $1 million, and $1.2 million to general manager Chas Smith.

This article duplicated from: USAToday

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