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3 Ways Roku Is Winning as Streaming Booms

By Adam Levy – Apr 5, 2020 at 11:25AM

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The company is facilitating the stay-at-home entertainment economy.

Time spent streaming video is booming as people practice social distancing in an effort to contain the spread of the novel coronavirus. One of the biggest beneficiaries of the new stay-at-home economy could be Roku (ROKU -0.76%), which operates the most popular connected-TV platform in the United States.

Roku's making the most of the opportunity and capitalizing on the increased demand for streaming. The actions it's taking today will reverberate well after the threat of coronavirus has dissipated. Here are three winning moves from Roku.

The Roku Home Together logo and a Roku remote.

Image source: Roku.

Extended free trials

Roku has partnered with several premium streaming services to offer 30-day free trials. Instead of downloading and subscribing through individual apps, however, users will find the extended trial offers in The Roku Channel.

Roku introduced premium subscriptions in The Roku Channel at the start of last year, and they represent a shift in economics for the company. Roku pays a wholesale price to content providers, and it handles the billing, customer management, and content delivery. That's much different than Roku simply taking a commission for each new subscription sold in stand-alone apps.

Selling premium subscriptions in The Roku Channel also gives the company a much deeper understanding of customer behavior. Roku can see what its users are watching and use that data to make suggestions for other content to watch, increasing engagement.

Offering extended free trials while it has a content-hungry audience is a smart move that should pay dividends long term. At the very least, it'll increase awareness of premium subscriptions in The Roku Channel. It's likely some free trial users will stay signed up, and Roku will be able to collect data on its users' viewing habits to inform future promotions and content purchases.

Helping users fill in the subscription gaps

Evidence suggests consumers are streaming more and signing up for new subscriptions while they stay at home, but there's still a lot of room for ad-supported streaming video. That's an area where Roku offers a lot of options. Its channel store features more channels than its biggest competitors.

Additionally, the ad-supported content featured in The Roku Channel highlights some of the most in-demand content right now. The company offers several live news streams in The Roku Channel, and it's seen an increase in engagement in news content in the last few weeks.

News in The Roku Channel is a big opportunity for the company. In individual apps, Roku typically takes about 30% of the ad inventory, and it keeps all of the revenue from those ad sales. In The Roku Channel, the streaming platform takes 100% control over the ad inventory, and it splits the revenue with its content partners. That can result in greater ad revenue for both parties, because The Roku Channel offers greater exposure. With the growing interest in live news, that likely means Roku has seen another big uptick in ad impressions. Management said monetized ad impressions more than doubled last year.

Helping advertisers fix their ads

One of the industries hit hardest by the response to the novel coronavirus is advertising. Live sports is a major draw for audiences and advertisers, and that inventory evaporated practically overnight. Meanwhile, film studios are shut down, so marketing agencies can't easily produce new content with updated messaging that might resonate more with people staying at home.

Roku has been quick to provide solutions for marketers. For example, it offers interactive pop-up overlays. "So, hypothetically, if it were a restaurant ad that showed people enjoying it, you could do an interactive overlay that said, 'Here's a link to a home delivery service' or something that bridges your creative ad," Roku Chief Marketing Officer Matthew Anderson told The Wall Street Journal.

Coming up with solutions for advertisers now could translate into a higher percentage of ad budgets in the future when ad spend ramps back up. In the meantime, Roku won't be lacking demand given the increased ad-supported viewership it's likely experiencing. And while average ad prices might be lower right now, it'll help bolster those ad prices if Roku can help advertisers produce relatively strong returns on investment compared to other digital advertising tech companies.

While Roku's revenue will see a dip -- along with other businesses that rely primarily on advertising -- it should come back strong. Not only will the moves it's making now support long-term revenue growth, but it should also see a nice boost to its wholesale premium subscription business.

Adam Levy has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Roku. The Motley Fool has a disclosure policy.

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