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It’s Companies Like Roku That Most Benefit From Streaming’s Ads Pivot

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Companies that bring streamers into homes, such as Roku, will not only get ad revenue and user data, but leverage in future negotiations

Netflix and Disney+’s move into the advertising-based video on demand (AVOD) business may actually wind up ceding power to another segment of the streaming industry. The platforms that house and distribute these streamers — such as Roku, Samsung TVs, Google TVs and Amazon Fire devices — will not only gain revenue and precious viewership data, but a long-term leverage in future negotiations with the streamer.

“AVOD and FAST [free ad-supported streaming TV] will eventually generate tens of billions in revenue annually in the US,” said Jon Cohen, SVP of Frequency, a provider of ad-supported content packaging distribution. “But the new gatekeepers are the platforms themselves.”

Digital video advertising spending is expected to reach nearly $50 billion this year and account for more than 55% of total global ad spending in 2022.

Roku, Google, Amazon and other distribution platforms receive a percentage of the ad revenue generated by the individual streaming service apps housed within their devices, as well as hosting their own advertising directly. So for every dollar Hulu or Peacock earns for an ad, the companies are kicking up a percentage to the Rokus and Amazon Fires of the world.

On top of that, these internet connected platforms also receive precious targeting data to further enhance their own ad model’s efficiency, accuracy and profitability. So not only are individual streamers pouring money into the coffers of these companies via a percentage of the ad revenue, they’re actively improving a potential competitor’s capabilities to understand its user base — which increases the leverage the distributor platforms hold when negotiating with individual streamers .

When reflecting on Disney’s past content-licensing relationship with Netflix, former CEO Bob Iger said, “We are basically selling nuclear weapons technology to a third-world country, and now they are using it against us.” That dynamic isn’t entirely dissimilar to what’s now taking place one level above, with streaming services clawing for prime position on Roku remotes and in the Smart TV placement pecking order.

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There’s not much streamers can do to reduce the imbalance of power. Smart TVs and over-the-top (OTT) providers reach such a massive number of viewers that streamers have little choice but to work with them lest they miss out on huge swaths of potential customers.

As of May 2022, 65% of American households have an internet-enabled Smart TV, nearly 55% of American households have an internet-capable device, and more than 87% of American households have an OTT device, according to Nielsen data provided to TheWrap. In other words, the majority of the US is using these distribution platforms in one form or another.

And that reach isn’t showing any signs of slowing down. In January, Amazon said it had sold more than 150 million Fire TV streaming devices worldwide. Android TV and Google TV have sold more than 110 million devices combined. Roku boasts more than 60 million active US accounts as of the end of last year.

These devices have become imperative for streaming services to gain access to these sizable customer bases. As a result, streamers vs. platform conflicts have become increasingly heated and competitive in recent years. Disney+ and Amazon Fire were locked in a standoff over ad revenue prior to the streamer’s launch in 2019; HBO Max was dinged in its early days thanks to its absence from Roku; and Peacock’s struggled to hit subscriber goals by debuting without carriage deals for Roku and Amazon Fire.

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In fact, these devices were pivotal in building the success of Netflix, which mandated compatibility with every connected device (Smart TV, streaming box, video game consoles, etc.) so it wouldn’t be shut out of any digital ecosystem. That strategy of letting “1,000 flowers bloom gave them a massive market presence,” Ian Greenblatt, JD Power’s managing director & GM, tech/media/telecom Intelligence, told TheWrap.

Going beyond AVOD and examining the digital media space overall, consumers want solutions that offer simplicity, which aggregating platforms can provide with countless apps and services situated in one streamlined system.

There’s a reason why Comcast and Walmart partnered last year to sell a new line of Smart TVs and why Roku has now struck an e-commerce partnership with the superstore that allows users to go directly from a product advertisement to checkout. Controlling the online living room experience from top-to-bottom this way across consumer needs — or winning the “operating system wars,” as Cohen described it — is an ambition that no single streamer can achieve just yet.

With their new AVOD tiers, Disney+ and Netflix hope to boost subscriptions and provide a new source of revenue through advertising, which would actually boost the leverage these distribution platforms hold when it comes to renegotiating ad-revenue splits and the exchange of juicy user data. Generally, this is a symbiotic relationship. Realistically, the connected devices are the big winners.

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