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If Google Doesn’t Buy Roku, Someone Else Will

Roku Acquisition Rumors
Cheyne Gateley/Variety Intelligence Platform

Roku has investor attention once more.

Stock rose by 12% Tuesday, from $107.49 a share to $120.81, and stayed around this mark when the markets opened Wednesday. Fueled by speculation via a tweet from former Goldman Sachs portfolio manager Will Meade that an acquisition looked possible based on market activity, the stock caught fire as investors rushed to potentially capitalize.

VIP believes that there is a strong likelihood that Roku, an independent company with a strong market share in the emerging connected device market, will be acquired by a bigger company at some point. Although the company has a significant proportion of in-home connected devices, most of its profit is generated via its Roku Channel. 

This provides multiple revenue streams: Roku takes a cut from any SVOD subscription sold on it, gets a share of advertising revenue from livestreams watched on apps like FOX NOW (taking the inventory that MVPDs would traditionally be allocated in ad breaks), and have their own AVOD and free ad-supported TV (FAST) libraries available in the Roku Channel, which also generate ad revenue.

Google was the rumored potential acquirer for Roku, based upon the internet giant’s lack of a dominant connected device product and the potential that would have to tap a growing source of advertising revenue. It appears to be a solid fit, and a cheaper way to get a solid chunk of an established market than growing from the ground up. 

But Google is not the only company that Roku could fill a hole for.

Amazon has clear intentions to have a strong presence in the connected device market. Currently, Fire TV ranks third according to Parks Associates (see chart) in terms of having the most commonly used device (i.e. one that can generate the most revenue), behind Samsung and Roku. The important thing to consider for future growth in connected devices is that it is most likely to come from new entrants in the arena than in users used to a particular brand and operating system. Thus, snapping up one of its biggest competitors would net Amazon an established user base, and boost its market share to the largest device operator.

Samsung is another tech company that should consider Roku. In the U.S., Samsung has the greatest share of most-used connected devices, owing to the widespread adoption of its smart TVs. With its TV Plus FAST service, Samsung is already demonstrating an intent to take advantage of the new revenue streams, but that’s only available on Samsung devices. Roku Channel is available across smart TVs and devices, and would grant Samsung wider audience access.

The availability of Roku, either as an app or as an operating system, is also why several traditional media companies should consider adding Roku to their portfolios. It’s been well documented that AT&T’s HBO Max isn’t currently available on Roku, as the companies can’t agree on terms for including the new SVOD. But this isn’t the reason why we’re suggesting AT&T as a potential bidder on Roku. 

Media rivals Comcast, ViacomCBS and Fox have recently snatched up the majority of independent FAST market entrants. Roku represents one of the last opportunities to get in on this revenue stream. It also offers those with existing AVOD services (Vudu and Xumo, Pluto TV, and Tubi respectively) the chance to boost their current offerings, as well as an ability to move into the subscription revenue stream. For companies with MVPD divisions, and shrinking customer bases, moving to where consumers are spending their money would be a savvy move.

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