Roku is standing firm when it comes to negotiating the deal terms that would add WarnerMedia's HBO Max and NBCU's Peacock to its streaming platform, as reported by Variety. Roku's standard terms for partner channels include 20% of subscription fees and 30% of ad inventory, which has driven away Peacock, as it is currently airing fewer than five minutes of ads per hour. Meanwhile, WarnerMedia has been looking to retire the HBO service now sold through Roku to promote HBO Max, which Roku has turned down singularly.
"Our platform is open to these services on very reasonable terms," Roku founder and CEO Anthony Wood told Variety, adding that Roku openly shares its standard distribution agreement for content suppliers, and the terms of that agreement "haven't changed over the years." Roku comes from high ground when it comes to negotiations, ending the year with 52 million users and about 40% penetration of all U.S. broadband households, Wall Street analyst Mark Zgutowicz of Rosenblatt Securities told the magazine.
That gives Roku more than two times the number of Comcast's residential TV subscribers, which tallied 19.5 million at the end of June 2020. "We're in a new world here," Zgutowicz said. "What you're seeing Roku become is more than just an aggregation platform. They look closer to a gatekeeper, like cable TV companies used to be."
Wood added of negotiations with HBO Max and Peacock, "All of their main competitors are available on the Roku platform. Fair and reasonable content distribution deals are how we finance the low-cost, easy-to-use Roku platform that consumers use to access these services on their TVs." Wood also spoke on the issue of keeping HBO on The Roku Channel, saying the convenience is a big bonus for consumers, and the integrated-programming model results in higher content viewing on Roku compared with separate apps, "which benefits us and our content partners economically."
While Roku made a name for itself as a seller of hardware such as streaming sticks and streaming players, it makes most of its money via its platform business, with half of its sales being comprised of ad and subscription revenue. For the most recent quarter, that platform accounted for 69% of Roku's overall revenue. "In the early days, hardware margins helped finance the company," continued Wood. "These days, our gross profit is dominated by our platform business. Our platform revenue is what allows us to provide such innovative products to consumers at such a low cost."