What happened
Shares of Roku (ROKU 0.15%) turned sharply lower Wednesday, falling as much as 5.5%. As of 12:44 p.m. ET, the stock was still down 1.5%.
While the uncertain market no doubt added fuel to its move, the catalyst that appeared to weigh most heavily on the stock were reports the streaming pioneer might be making a big move to feed its growing content ambitions.
So what
Reports emerged late Tuesday that Roku and Apollo Global Management had joined forces to bid on a minority stake in Starz, the cable channel and streaming video service owned by Lions Gate Entertainment (LGF-A -0.09%) (LGF-B 0.10%), according to Deadline.
Image source: Getty Images.
There were other parties interesting in the bidding, including privately held DIRECTV, so the process is moving along at a snail's pace. No word yet on the potential cost of a deal.
In a regulatory filing late last year, Lions Gate revealed that it was exploring strategic alternatives for Starz, "including, but not limited to, a full or partial spin-off, split-off, issuance of a tracking stock or other transactions."
Lions Gate acquired Starz in 2016 in a cash and stock deal valued at roughly $4 billion. The media company has struggled to find its place in an increasingly competitive industry and Lions Gate currently sports a market cap of just under $3 billion, likely contributing to its decision.
Now what
Roku has been venturing further into original content to populate its homegrown streaming option, The Roku Channel, which had a reach of roughly 80 million viewers to close out 2021. The channel has become one of its big success stories, and in the first quarter it was a top-five channel on the platform in the U.S. in terms of reach and streaming hour engagement.
The company initially found success with This Old House and its companion show, Ask This Old House, which it acquired early last year. Since then, the company has added to its library, acquiring a host of original, award-winning programming from the now shuttered Quibi service, as well as its breakout hit, Zoey's Extraordinary Christmas -- which was the "No. 1 viewed program globally on The Roku Channel during its opening weekend."
Ad revenue generates the bulk of Roku's revenue and given the increasing viewership original content has generated, it isn't surprising the company is continuing down this path.
