Please ensure Javascript is enabled for purposes of website accessibility

How Roku Finally Got a Deal Done for Peacock

By Adam Levy – Sep 23, 2020 at 10:30AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A long period of holding out and several other factors favored Roku in negotiations.

Two months after its initial launch, Comcast's (CMCSA 1.54%) Peacock is finally available on Roku (ROKU 3.98%) devices. The deal came shortly after Comcast's NBCUniversal threatened to remove all of its TV Everywhere apps from Roku's channel store, sparking a new round of negotiations. 

But don't think Comcast had the upper hand just because it was able to leverage its other streaming apps. The market clearly believes Roku got the better end of the deal, sending shares 17% higher after the announcement. Furthermore, the deal provides even more leverage in its ongoing negotiations with AT&T (T 0.44%) over HBO Max distribution.

Peacock homescreen displayed on a Roku device.

Image source: Roku.

Three factors favoring Roku

There are a few factors that favored Roku in its negotiations.

First, distribution is a bigger challenge for Comcast than marketing and content. CEO Brian Roberts shared Peacock had over 15 million sign-ups within two months of launching the service. And while that number's better than management was expecting, the challenge is engaging those consumers.

A lot of people will sign up for a streaming service on their phone or desktop, but the vast majority of streaming is done on TV sets. Comcast offers the Peacock app on its X1 set-top box for cable customers and Flex streaming box for broadband-only subscribers. And Comcast says Peacock is the second-most-popular app on Flex. But there are only 2 million households with a Flex device. That compares to 43 million active accounts for Roku.

Comcast has generated a lot of interest in Peacock, but it hasn't shared any details on how much consumers are watching. Roku is a key factor in driving engagement.

Second, more apps in negotiations gives Roku more ways to win. The expiration of Roku's previous deal with Comcast for its TV Everywhere was no doubt a catalyst to get a deal done. Roku hasn't been afraid to take a hard line with media companies in the past when renewing TV Everywhere contracts, and it likely came to Comcast with a boilerplate initial offer for renewal.

But Roku may have been willing to show some flexibility in its negotiations on the TV Everywhere apps in order to gain access to Peacock. Greater ad-shares from TV Everywhere could offset lower ad-share on Peacock, and vice versa.

Finally, premium video ad inventory, like that found on Peacock, is more valuable in the hands of Roku than Comcast. Though Comcast has a seasoned ad sales team and promising ad technology, Roku's one of the top sources for connected TV advertising, particularly on its own platform. 

It usually makes sense for marketers to buy ads displayed on Roku devices through Roku's ad platform, even when Roku doesn't have direct control over the ad inventory. That's because Roku has a more complete picture of the audience. There's no reason to think that wouldn't be the case with Peacock ad inventory, which means Roku ought to be able to command a premium versus Comcast for the same ad inventory.

Getting HBO Max on Roku

With Peacock on board, HBO Max may not be too far behind. Negotiations with HBO Max are more complicated compared to Peacock because of its existing distribution agreement for HBO, which allows Roku to sell premium subscriptions in The Roku Channel. AT&T has shifted away from that type of distribution in its agreements with other distributors.

Beyond that, however, HBO Max distribution will look a lot like Peacock. AT&T plans to launch an ad-supported version of the service next year, and Roku undoubtedly wants a piece of that premium ad inventory. Using the Peacock agreement as a framework for what's possible, Roku can come to the table with a clearer understanding of what it can get from AT&T. And if AT&T wants to end its distribution through The Roku Channel, it'll likely have to cede greater revenue and ad share (possibly in WarnerMedia's TV Everywhere apps) or share more of its data with Roku in order to do so.

Having an agreement in place to distribute Peacock also puts the pressure on AT&T to get a deal done, as it's now the only major streaming service without a direct presence on Roku devices. That can play to Roku's advantage.

Roku's deal to distribute Peacock seems like yet another sign of strength for the streaming media company. After holding out for two months, it seems to have managed to find favorable terms that allow it to win.

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

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Roku Stock Quote
Roku
ROKU
$61.93 (3.98%) $2.37
AT&T Inc. Stock Quote
AT&T Inc.
T
$15.97 (0.44%) $0.07
Comcast Corporation Stock Quote
Comcast Corporation
CMCSA
$30.83 (1.54%) $0.47

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
331%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/04/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.