What happened

Shares of Roku (NASDAQ:ROKU) fell by as much as 5% today as investors digested a report that the company is expanding into original content. The Wall Street Journal reported yesterday that Roku is in talks to acquire Quibi's catalog following the start-up's spectacular failure last year. Quibi shut down just six months after launching.

So what

Quibi had attracted considerable hype since it was founded by media industry legend Jeffrey Katzenberg and the start-up had spent lavishly to get many prominent celebrities to star in its shows. Meanwhile, Digiday reported last March that Roku was contemplating jumping into original content. Following Quibi's shutdown, that content could find a home on Roku's dominant video-streaming platform.

The Roku Channel on a flatscreen TV mounted on a wall

Image source: Roku.

Roku is potentially interested in acquiring the rights to Quibi's library, according to the report, but financial terms remain unclear and it's possible that no deal materializes. Roku stock opened higher this morning but has declined along with the broader market.

Now what

The COVID-19 pandemic boosted engagement on Roku's platform throughout 2020. Part of the company's growth strategy has been to monetize licensed content with advertising through The Roku Channel, but many streaming services have been focused on utilizing exclusive programming as a cost-effective method to garner subscribers. Original content has high fixed costs, but those expenses can be spread out across a large user base as the company adds subscribers.

While Quibi's content failed to attract paid subscribers, Roku may have better luck in offering it for free with advertising. Furthermore, the potential move would likely represent the beginning of an original content strategy.