Amazon is Roku's biggest competitor in the connected-TV space, so the two companies make strange bedfellows. But Roku has good reasons to get its streaming service on Fire TV devices and anywhere else consumers are watching video content.
Watching Roku on Fire TV
The Roku Channel on Fire TV will look similar to the service on Roku's own devices. The main difference is you can't buy or watch premium subscriptions through The Roku Channel on Fire TV.
Amazon wants to keep that premium subscription revenue for itself when it can. Interestingly, Roku allows users to purchase Amazon Prime Video Channels through the Prime Video app on Roku.
Fire TV viewers present a massive opportunity for The Roku Channel even without selling new premium subscriptions. Fire TV had over 40 million active accounts at the start of 2020. Roku had 43 million mid-year.
If Roku wants to expand its audience, however, it'll need to do some on-platform advertising to get Fire TV users to download The Roku Channel app. Early adopters of the app on Fire TV may simply be existing Roku users that also have a Fire TV device.
Roku ought to see increased engagement from the new Fire TV app nonetheless, and that's critical to its overarching efforts within The Roku Channel and its platform business more broadly.
Winning over content and advertisers
There are two ways Roku acquires content for The Roku Channel. When it first launched, most content came by way of licensing it directly from the owners. But more and more of its content now comes from revenue-share agreements, where content owners provide their content to The Roku Channel, Roku sells ads against that content, and then splits that revenue with the content owner.
An expanding and increasingly engaged audience makes The Roku Channel a more attractive place for content owners to share their series and films. More content makes it more attractive to viewers, creating a virtuous cycle for Roku.
Likewise, advertisers are attracted to broad audiences. Adding the Fire TV viewer base could increase the value of advertisements in The Roku Channel across all platforms. That would also increase the value for media companies to include their content in The Roku Channel and support the virtuous cycle.
Growing The Roku Channel, growing the advertising business
Platform revenue accounted for 69% of Roku's top line in the second quarter, and practically all of Roku's gross profit stems from that segment. Roku's aiming to operate at breakeven on device sales in an effort to grow its active accounts as much as possible, supporting the more profitable platform business.
Within the platform segment, advertising is accounting for a greater percentage of revenue every year. Last quarter, Roku said its monetized video ad impressions climbed 50% year over year, outpacing total platform revenue growth. And in 2019, monetized ad impressions more than doubled.
The Roku Channel is a big part of that since Roku controls the entire ad inventory. Roku had to make some concessions for revenue or ad-inventory sharing with Amazon to get The Roku Channel on Fire TV devices, but the benefits of increased engagement and an expanding audience ought to outweigh those concessions. Roku wouldn't have made the deal if it didn't think so.
As The Roku Channel continues to become a bigger piece of the company's platform business, putting the service in front of as many viewers as possible is good news for investors. It indicates strong results from the ad-supported streaming service.
Editor's Note: A previous version of this article incorrectly stated viewers could watch premium subscription content in The Roku Channel on Fire TV if they originally purchased it on a Roku device.