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Roku a streaming “gatekeeper” but could be threatened by major tech players

Roku CEO, Anthony Wood

Streaming device maker Roku has emerged as a “strong gatekeeper” in the streaming world, claims a new report.

While the company is set to benefit from an increasing focus on ad sales, MoffettNathanson analyst Michael Nathanson has said that it is still a relatively small player when compared to the US’s major tech companies like Google and Apple.

The analyst noted that the company is well-placed to benefit from the growing trend towards AVOD services, with the company operating its own ad-supported streamer and acquiring demand-side advertising platform provider Dataxu in late 2019. The firm estimates that the total streaming ad market will be worth US$14 billion in 2024, up from US$3 billion in 2019.

He wrote: “As cord-cutting accelerates, we believe advertising dollars will flow to AVOD services as linear TV ad buyers look to extend TV’s reach, leverage data targeting capabilities and control CPM inflation in a brand safe, big-screen, ‘TV-like’ way.”

Roku’s 2019 revenues reached US$1.1 billion, with its platforms unit accounting for 66% of that total. Within that sector, advertising made up 52% of the total – a little more than US$377.5 million.

Roku currently has over 40 million monthly active users in the US alone, but has been harmed by carriage disputes with broadcasters and streaming platform operators. Most recently, the company has failed to do deals with WarnerMedia and NBCUniversal for their respective streamers HBO Max and Peacock.

These disputes have been positioned with Roku as the party in demand by operators due to its overwhelming dominance in the US market – MoffettNathanson estimates that Roku is in “around 40% of US homes” – but the streaming device maker’s “flexing of its muscles” is unlikely to last.

Nathanson added:  “The marketplace is incredibly fluid as Alphabet appears interested in re-positioning their floundering efforts and as large media companies consolidate the industry.”

Overall, the analyst gave Roku a ‘neutral’ rating for investors, with questions raised over how the company will monetise its user base and “How wide is the moat that they have built over the long term?”