Deeper Dive—Roku poised for long-term benefits from Peacock deal

Roku
(Roku)

Roku finally landed Peacock, NBCUniversal’s new ad-supported streaming service, and now the company has positioned itself for some potential long-term gains.

After confirming an agreement late last week, Roku and NBCUniversal made it official Monday. Roku saw some immediate effects like a big stock price jump and possible new strategic advantages in its HBO Max negotiations and its connected TV market share competition with Amazon – which still doesn’t have Peacock or HBO Max. Roku also got to keep all the authenticated NBCU apps, which were in danger of being pulled from the platform.

Comcast/NBCUniversal did alright, too. Peacock greatly expanded its connected TV distribution footprint via Roku’s 43 million active accounts, which will grow both its user base and advertising revenue.

For Roku, the distribution deal will also bring many more positives down the road, according to a new research note from MoffettNathanson.

Continued user growth

Media analyst Michael Nathanson said the Peacock deal removes any concern regarding stalled user growth for Roku in its absence. While he said Peacock alone isn’t likely to impact much meaningful user growth, the deal kept all of the NBCU authenticated apps, which represent four of the top 50 apps on Roku, according to the firm’s research.

“Losing apps like NBC, NBC News and NBC Sports especially during such an important time for news and sports would certainly have been noticeable. However with this Peacock deal, Comcast is keeping its authenticated apps on the service, which, to us, is the more important factor when it comes to Roku’s user growth trajectory,” Nathanson wrote.

MoffettNathanson estimates that Roku’s domestic monthly active accounts will total 60 million and represent approximately 48% of U.S. broadband households, both by 2024.

A bigger piece of the growing AVOD pie

MoffettNathanson predicts the domestic AVOD market will grow to $14 billion by 2024 and that Peacock be the second largest ad-supported streaming service with $2 billion in ad revenue within five years. While Roku may have only received a 15% share of Peacock’s ad inventory on the platform – instead of the 30% cut it often gets from other partners – it will still add up to a significant influx.

MoffettNathanson assumed that 40% of usage on Peacock will come through Roku by 2024 and that will amount to about $940 million in advertising spend on Peacock through Roku devices. At 15%, that means about $140 million in net revenue for Roku. Though all the ad slots on Peacock are currently occupied by the service’s 10 advertising launch partners and there’s potential for Peacock to steal viewers away from Roku Channel, the firm suggested that a rising tide for Peacock may lift all AVOD boats.

“…Adding Peacock may help change consumer behavior to be more accepting of AVOD services in general, which may fuel user growth for the category including Roku Channel longer team,” Nathanson wrote.

Needham agreed that Roku will see an ad revenue tailwind thanks to Peacock, which "could add up to 5%-10% to Roku's pre-Peacock ad revenues in 2021, at 50-70% gross margins."

Content for the Roku Channel

NBCU has Peacock, WarnerMedia has HBO Max (going ad-supported in 2021), ViacomCBS has Pluto TV, Fox has Tubi and Comcast has Xumo, which is to say all the major media companies have their own AVOD and FAST services to support. MoffettNathanson said that they are all aware of the risks involved with licensing content to third parties for short-term gains.

“Nevertheless, Roku plays an important gatekeeper role to a large and fast-growing user base that services need to reach to achieve scale,” wrote Nathanson. “Roku’s deal with Peacock will give it access to older library series/films that are similar in quality to the current content on the Roku Channel. So, this should help remove the concern that Roku won’t have access to any NBCUniversal content, and likely paves the way for similar content deals with WarnerMedia as part of an HBO Max carriage agreement.”

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