Media Experts React To Emerging Rumors of A Netflix-Roku Merger

SUMMARY:

• Netflix is considering buying streaming device company Roku, according to reports.
• Roku’s video advertising marketplace garnered some $647m in revenue during the first quarter alone.
• Experts argue that such a deal would create the kind of vertical integration needed for both companies to win.
• Netflix’s market value tanks in light of declining subscription rates.
• Analysts see a Netflix-Roku deal as an ideal solution as the tide rises on advertising video on-demand (AVOD) and free ad-supported TV.

As Netflix’s market value plummets due to declining subscription rates, the streaming company is turning to advertising to boost revenue. Now, there is growing speculation within Roku that Netflix may acquire the streaming device manufacturer to aid in its mission to build out an ad-supported business. Industry leaders make their predictions for the future of Netflix.

According to reports from multple sources, Netflix is considering acquiring the streaming device company Roku.

Rumors have circulated in recent weeks following Roku’s unexpected closure of its trading window — the period during which employees are permitted to trade vested company stock. Companies usually make this move ahead of major news to prevent insider trading.

Following the reports of its potential acquisition by Netflix, Roku’s stock increased by 13%.

As Netflix considers an ad-based business model in the face of declining subscriber numbers, experts believe that the streaming giant would benefit from acquiring Roku, arguing that such a deal would create the kind of vertical integration required for both companies to win in the increasingly competitive media streaming industry. Within the first quarter of this year, Roku’s video advertising marketplace had generated $647 million in revenue.

According to Ashwin Navin, CEO and founder at television performance marketing platform Samba TV, bringing the two prodducts together “could be a strong force multiplier for both,” especially given their intertwined history and “cultural synergies.”

Other experts see a Netflix-Roku partnership as an ideal solution as the tide rises on ad-supported video on-demand (AVOD) and free ad-supported television (FAST) models. “Netflix buying Roku makes sense because it will give Netflix another revenue stream in a growing area of streaming,” says Nicole Sangari, Kantar’s vice-president of entertainment on demand, Worldpanel Division. “We know that [ad-supported TV] is now driving the majority of the growth in streaming.”

Meanwhile, she also recognises Streaming Video On-Demand (or SVOD) models — particularly Netflix subscriptions — are declining. “[These trends indicate that] ad-supported initiatives make sense for them as they expand.” They’ve covered all of their bases by introducing an AVOD tier within Netflix and owning Roku as a separate platform.”

Sangari is intrigued by the prospect of Netflix-Roku integration. She, for one, believes that if the deal goes through, the organisations will not be completely merged and will continue to operate as separate entities under unified leadership — “otherwise, that would be defeat the purpose of strategically investing in an existing free ad-supported TV product.”

Other industry leaders, on the other hand, are sceptical that the news is more than a rumour — or that such a deal would truly benefit Netflix and Roku. “The deal could happen, but it’s not necessarily a perfect fit,” says Tal Chalozin, chief technology officer and cofounder of adtech firm Innovid. “Netflix built its success on being device agnostic; acquiring a device-based business appears to contradict that [mission].”

Nonetheless, Chalozin acknowledges that Roku possesses “the infrastructure Netflix will require for its ad-supported business.”

Sara Adler, the head of TV at performance branding agency Within, also points out that a Netflix-Roku agreement might harm the media industry by consolidating Netflix’s streaming dominance. “The industry doesn’t need another walled garden representing both sides of the equation,” she claims. “Netflix would be a publisher who also represented the buy side if this merger went through. It would be difficult for them not to prioritize their catalog over those of their other streaming partners, such as Disney, HBO Max, and others. I don’t think that would pique the industry’s interest.”

It remains to be seen whether a settlement will be reached.