There's another standoff in the streaming wars. Roku (ROKU -7.98%) and Walt Disney (DIS -0.24%) are squaring off in a battle of revenue sharing and who knows what else this month. It's a fight that neither party can afford to lose. If the impasse continues both companies will suffer.
The first public shots were fired late last week when Disney+ launched an ad-supported streaming plan at a discount to the original service that's free of commercial interruptions on Thursday. The new tier is priced at $7.99 a month, rolling out at the same time the ad-free version saw its monthly rate soar 38% to $10.99.
The problem here is that you can't stream the new Disney+ format with ads on Roku's operating system. The streaming video pioneer and media giant failed to hammer out a distribution agreement ahead of the launch. It's a big deal now, but the snowball is going to get even bigger if a resolution isn't negotiated soon.
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A stream is a wish your heart makes
Both sides may think that they have leverage here. Roku is the country's leading streaming platform through its deployment of dongles and smart TVs that come with its operating system factory installed. Roku has nearly a third of streaming market in the U.S., nearly double the share of its closest competitor. Roku has more than 65 million active accounts, and these homes are streaming an average of nearly four hours a day. If you're not on Roku you're not reaching a thick slice of your potential streaming audience.
This isn't the first time that Roku has played hardball with a giant service. A year ago Roku traded blows with YouTube and YouTube TV. The year before that it was Peacock and HBO Max unavailable for months on Roku after their respective product launches. Peacock and HBO Max failed to hit the ground running without Roku support, and that was when Roku was serving just 43 million accounts.
Disney naturally believes that it has a strong hand here. Its streaming service has exploded in popularity since its debut just three years ago. It's a cornerstone of content for young families as well as new series that appeal to older audiences. Switching costs aren't necessarily high with Roku rivals pricing their dongles as low as $20 over the holidays.
An interesting twist here is that the ad-free Disney plan remains accessible to Roku users. You don't have to give up Disney+ on Roku. You just don't have the option to save $3 a month by putting up with ad blocks as you stream. Many existing Disney+ users will likely stick to the costlier option to save time as they stream and spare their children from marketing missives.
It doesn't mean that Roku and Disney can win if the standoff continues. Disney fans eyeing smart TVs or streaming devices over this holiday shopping season may decide on a smaller rival's platform. The economic outlook is still foggy, and the inability for some Roku families to trade down to the cheaper Disney+ plan may find them canceling the service instead.
Both stocks have been hit hard since reaching all-time highs last year. Disney is down 53% from its peak, and Roku is off by a bruising 89%. A scuffle as little as this can make investors in both stocks more than a bit concerned. The appeal to Roku is its agnosticism, its ability to play nice with more than 5,000 available apps on its platform. Disney's streaming business just clocked in with a nearly $1.5 billion operating loss in its latest report.
There's a lot to lose if the discord continues between two leading streaming service stocks. Thankfully for both depressed entities there's still time for a Disney fairy-tale ending.
