Send me real-time posts from this site at my email

Roku Just Made Another Big Investment in Its International Growth

Roku (NASDAQ: ROKU) has made some big international pushes over the last couple of years. Management made international expansion one of its key priorities for 2019 but warned investors that international account growth and meaningful monetization likely won't show up until 2020.

Well, 2020 is here, and Roku is making another big investment in Europe: It's expanding The Roku Channel to the U.K. The free, ad-supported streaming service is now available on Roku's devices as well as Sky Q set-top boxes.

The launch of The Roku Channel in the U.K. is a sign that Roku's built a big enough user base in the country to start monetizing it in earnest. The Roku Channel is a big revenue driver for the company in the United States.

Image source: Roku.

The economics of The Roku Channel

There are several different ways Roku makes money in The Roku Channel.

  • Licensed content. Roku buys the rights to stream specific titles from film and television studios, and it keeps 100% of ad revenue generated from views.
  • Partner content. Roku partners with content providers to display and recommend titles in The Roku Channel. It pays nothing upfront, sells all the ad inventory, but splits revenue with the partners, usually 50/50.
  • Premium content. Roku sells premium subscriptions through The Roku Channel, handling billing and content delivery. Roku pays a wholesale price to the content provider and keeps 100% of subscription revenue above that price. Note that premium subscriptions in The Roku Channel are only available in the U.S. version.

Building the U.K. version of The Roku Channel isn't a small investment. While Roku already has systems set up for delivering video and selling ads in the U.S., Roku still has to establish content licenses and partners in the U.K.

But the fact that Roku is willing to make that investment now indicates that it's ready to turn the corner on monetizing its U.K. audience. That suggests two things. First, the audience is sizable enough that it makes sense to invest in content. Second, ad sales are strong enough in the country that it can support additional inventory from cannibalizing partners' ad sales.

While the U.K. is still a relatively small market for Roku compared to its well-established presence in the U.S., the move to monetize the audience more proactively is a sign that Roku's progressing well in the market. Investors should see average revenue per user shift higher as Roku improves its international monetization.

The Roku Channel to drive account growth

It's worth noting Roku's decision to partner with Sky, which is owned by Comcast (NASDAQ: CMCSA), to distribute The Roku Channel. While Roku hasn't kept The Roku Channel exclusive to its streaming devices in the U.S., it hasn't managed to partner with any pay-TV companies for a spot on their set-top boxes. Comcast has notably partnered with several streaming services for spots on its X1 platform. That said, it's much more common for Europeans to subscribe to and stream over-the-top services through their cable provider's set-top box.

However, Roku's decision to partner with Sky is clever. It's a way to establish its brand among cable subscribers, who may become cord-cutters in the future. The shift to streaming from pay-TV isn't as prevalent in Europe as it is in the U.S., but it's starting to gain steam. In fact, the U.K. is leading the trend in Europe.

If Roku can establish its brand in the country through its streaming service, it may be able to compete better with Amazon (NASDAQ: AMZN) and its Fire TV platform. Amazon is outperforming Roku in international markets, where Roku doesn't benefit from a first-mover advantage like it does in the U.S. One of Amazon's key strengths is its well-known brand and massive retail presence. Roku has worked with retail and manufacturing partners to shore up the gap between itself and Amazon in retail, but it still needs to work on establishing its brand.

Roku's investment in the Roku Channel and partnership with Sky is a good indication things are going well for Roku in the U.K. Investors should look for further expansion of the free streaming service in other European and Latin American markets over the next year to indicate further international growth.

10 stocks we like better than Roku
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Roku wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of March 18, 2020

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Adam Levy owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon and Roku. The Motley Fool recommends Comcast and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.


Popular posts

Welcome! Is it your First time here?

What are you looking for? Select your points of interest to improve your first-time experience:

Apply & Continue