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Does Roku Need Disney More Than Disney Needs Roku?

By Rick Munarriz – Apr 17, 2018 at 9:06AM

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ESPN Plus is now available on Roku devices and smart TVs, but the game will be harder to win than just that.

Roku (ROKU -1.66%) is hoping to give cord-cutters hungry for live sports a bigger taste of the top dog in sports programming. The streaming-media pioneer is announcing the availability of Disney's (DIS -2.60%) ESPN Plus, the premium on-demand platform for content not available on ESPN's linear or digital network offerings. 

The Monday afternoon announcement is sending Roku shares initially higher, but one can argue that Disney has just as much to gain, here. A lot is riding on the success of ESPN Plus at its modest price point of $4.99 a month or $49.99 a year. The media behemoth plans to offer a similar direct-to-consumer service for its much larger catalog of Disney content next year. If ESPN Plus flops, it will populate doubt in the minds of investors about its chances for success come 2019. Roku can use the publicity and likely referral revenue by being an early adopter of ESPN Plus, but Disney's long-term success may also be hanging in the balance, here.  

ESPN offered on the Roku TV platform.

Image source: Roku.

Playing the game 

Roku stock has been falling out of favor recently. The shares have surrendered 36% of their value so far in 2018 through Monday's close. Thankfully for Roku, the platform's popularity is going the other way. Roku continues to increase its audience through the sale of economical streaming devices as well as getting its operating system into more smart televisions. Earlier this month, it introduced Sanyo as the tenth brand to lean on Roku TV as its online operating system. 

Roku begins this year with 19.3 million active users, up 44% over the past year. Compounding Roku's growing installed base, average revenue per user has increased 48% over the past year. Roku is offering ESPN Plus with a seven-day free trial, and if users stick around and start paying, Roku will make some money off of the transaction. 

This isn't necessarily a slam-dunk for Disney. Roku's success stems largely from its platform-agnostic ways. Roku offers thousands of programming options, as it's not trying to steer users to its proprietary service the way the tech giants it competes with do. ESPN Plus can get lost in there, even with its niche-dominant brand. Some have criticized the content of ESPN Plus, since it doesn't offer the live programming currently beaming through ESPN's premium channels. You will have to pay a lot more than $4.99 a month for that. The redesigned ESPN app splits its content into ad-supported free streams, ESPN Plus, and the more popular live content from its channels that it only makes available to cable and satellite television ESPN subscribers. It should be a different story with next year's Disney-branded service, as the House of Mouse will have more flexibility with content on that front.

Roku needs to woo investors back to its growth story. Disney needs to prove that it can thrive as a streaming service provider. It will take more than this deal for each company to get what it wants.

Rick Munarriz owns shares of Roku, Inc and Walt Disney. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool has a disclosure policy.

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