Rumors have been circulating that an acquisition may be in the works for Netflix to ease the transition to its ad-supported tier. Roku, the hardware and streaming provider, is one business analysts have regularly mentioned as a potential choice. Here’s why a partnership between Netflix and Roku would be pretty advantageous.
KNOWLEDGE OF ADVERTISING
On June 23rd, Netflix Co-CEO Ted Sarandos announced that the company would soon introduce an ad-supported tier at the Cannes Lions International Festival of Creativity.
Netflix is exploring new strategies to draw customers after losing 200,000 subscribers in the first quarter of 2022. Roku, which first debuted in 2008 as a joint venture with Netflix, provides a range of TV-related hardware, applications, and The Roku Channel, the company’s streaming service. Few businesses have the relative experience that Roku offers, so an ad-supported tier is a potentially profitable way to do this.
Over 100 channels and more than 100,000 movies and TV series are available on The Roku Channel, which is free and ad-supported. The platform income for Roku, which accounts for 82% of the company’s overall revenue and includes digital ad revenues from The Roku Channel, climbed by $1 billion (or 80%) between 2020 and 2021.
Netflix lacks the resources and background necessary at this point because it has long rejected the idea of advertising. However, given Roku’s success with advertising and the past strong ties between the two businesses, a reunion would be lucrative.
SWITCHING TO HARDWARE
Roku’s primary line of commerce was hardware for a long time before the Roku Channel was released. In collaboration with Netflix, Roku created its initial product to enable Netflix streaming for users. Even though that project was never completed, Roku has since had great success with its products. The company unveiled its tenth generation of gadgets in September 2021, including two Roku Streaming Sticks and the potent 4K streaming player Roku Ultra LT.
Roku’s expertise in hardware could aid Netflix in growing its gaming initiative. Initially focusing exclusively on mobile games, Netflix said in November 2021 that it would be introducing games to its subscription service. A foray into hardware, though, would give Netflix the chance to design a system that precisely complements its games and would enable it to produce more potent titles.
In contrast, Apple’s gaming sector has constantly expanded, and in September 2019, it added Apple Arcade to its subscription service. Many of the mobile games in the Arcade catalog can also be played on the company’s Apple TV streaming box. Sales of Apple’s streaming products, including the Apple TV, increased by 25% between 2020 and 2021, while those of its services, including Apple Arcade, increased by 27%.
With its recent forays into advertising and gaming, Netflix has demonstrated its dire need for a new source of income. Although Roku has no gaming experience, it possesses the hardware necessary to let Netflix enter the cutthroat business. The high-end Ultra streaming device from Roku competes with the Apple TV by providing similar features for less money. Netflix may be able to turn things around if it can capitalize on Roku’s market position.
WILL THE PURCHASE BE MADE?
Significant changes in Roku stock may indicate that something fascinating is happening within, even though it is still unclear which direction Netflix will take with advertising. Since Netflix intends to launch its ad-supported tier by the fourth quarter of 2022, investors may not have to wait long to learn about the company’s future intentions. Additionally, at the start of June, when employees could not sell their shares owing to a block, the speculation that Netflix would buy Roku started, driving up the price of the company’s stock.