Roku Surpasses 20 Billion Streaming Hours as Supply Chain Woes Continue

Despite macroeconomic factors that are throttling the U.S. television industry, Roku grew to 61.3 million active accounts in the first quarter of the year, though the platform did see a continued slowdown in adds. Roku added 1.1 million active accounts, down from the 3.7 million it added to close out 2021, it said Thursday afternoon as it announced quarterly earnings. The connected TV platform saw streaming hours increase by 1.4 billion, jumping to reach 20.9 billion hours. That’s a slight decline from the 1.5 billion last quarter, and accounts averaged 3.8 hours a day, a gain from the 3.6 hours per day in Q4. The company said that legacy TV is averaging nearly eight hours a day in terms of consumption. “We’re kind of only halfway there in terms of the move for all engagement to move over on a household base,” CFO Steve Louden told reporters ahead of the company’s investor call. In a letter to shareholders, Roku pointed out that TV streaming devices surpassed legacy pay TV devices in weekly reach in the U.S. for the first time, with 65% of adults age 18-49 streaming TV versus 63% watching legacy pay TV in March, according to Nielsen. The company reported a net loss of $26.3 million, a sharp drop from the $76.2 million in profit from this time last year. Revenue grew 28% year over year, led by platform revenue. Player revenue dropped 19%, which the company attributed to supply chain issues. Roku beat its own $720 million expectations, posting $734 million in revenue despite only adding 1.1 million users. The company is predicting net revenue to increase approximately 25% year over year to $805 million in the second quarter. AVOD is critical The Roku Channel was once again a bright spot for the connected TV platform. The AVOD was a top five channel on the Roku platform in the U.S. in both reach and engagement. “The Roku Channel is a top five app on the platform in the U.S., by both reach and, for the first time, a top five app on the engagement side as well, in terms of streaming hours,” said Louden. “It's expanding reach and engagement is being driven by increasing quality and diversity of our content portfolio.” Roku hopes the strength of The Roku Channel and Roku Originals will help drive new subscriber growth and pointed to recent programming announcements, including a series starring Jessica Alba, a deal with Reese Witherspoon’s Hello Sunshine and a Weird Al Yankovic biopic with Daniel Radcliffe. Also, expect to see new content announcements during the company’s NewFronts presentation next week. “The role of Roku Originals is a critical role, especially in attracting first-time users to The Roku Channel,” said Scott Rosenberg, svp of platform business. “It’s an important component of our overall strategy with advertisers. It creates exclusivity, scarcity, an opportunity for the brand to get in, get involved, create exciting integrations.” And while Roku Originals do play a key role in the company’s AVOD strategy, Rosenberg emphasized that it’s just a part of a much broader portfolio. “We are still first and foremost a platform company,” he said. “Most of what fills up The Roku Channel is actually a product of our partnerships with content providers up and down the ecosystem.” Roku has more than 250 content providers on the platform and recently launched Discovery+, in addition to a new output deal with Lionsgate and a deal with A+E Networks. “The Roku Channel is both about originals but also functioning as another distribution channel for IP owners,” he said. Growing despite supply chain Roku said that ongoing supply chain disruptions are contributing to increased U.S. TV prices in the quarter, which it blamed for industry-wide TV unit sales that were below 2019 levels. “The trend is moving towards streaming from consumer, from the content side, from the advertiser, that’s all intact and that is moving forward,” said Louden. “Certainly, there's some macroeconomic conditions that don't necessarily help that in the short term, but the overlying trend, streaming remains intact.” Roku differentiates between its TV side of the business and its player sales, and Louden said that from a TV perspective the company is working with its partners to try and innovate the product. “We're trying to help them with any supply chain challenges that we can help insert ourselves in, use our scale in our relationship,” he said. “On the player side, the team has done a great job in being nimble trying to navigate around all the supply chain challenges and shipping and logistics challenges.” Louden also noted that Roku has been dealing with supply chain problems for the past three quarters, but Roku had already said it expected the problems to continue well into 2022. “We’re focused on mitigating those aspects the best we can, but the biggest thing for us to continue to operate nimbly in the short-term, but not lose sight of the fact that there’s a large opportunity out there, which is why we’re continuing to invest in our strategic growth initiatives,” he said. Netflix makes waves Last week, Netflix said during its earnings that it will likely launch an ad-supported tier. In its distribution agreements with ad-supported streaming services, Roku historically takes a share of ad inventory, but it’s unclear how the company will handle a new AVOD tier. “It remains to be seen what Netflix does here,” said Rosenberg. “They’ve been a great partner historically, but advertising as a new potential offer from them would be an exciting development,” noting that advertising lowers the barrier to entry for consumers and helps retain consumers who might be price-sensitive. “The availability to get more ad-supported services we view to be a net-good for the ecosystem,” he said. “We’ve also played a pretty important role in enabling, both through marketing, distribution and ad tech, AVOD services to succeed and flourish in a Roku ecosystem.” More competition? No problem Earlier this week, Roku shares fell when Comcast and Charter announced a new joint venture to develop a new streaming platform. Roku is the No. 1 operating system in the U.S. but is facing increasing competition from companies like Amazon and Comcast in the smart TV market. But the company isn’t worried about yet another new competitor in the space. “We’ve been battling big name competitors successfully for a number of years,” said Louden. “We feel pretty good about the competitive mode for Roku. We’re the only purpose-built operating system for TV out there.” Louden noted that Comcast has had several similar ventures, pointing to X1 and Flex, which he described as the foundation of Comcast and Charter’s new joint venture. “We think for emerging competing platforms, like in this case, smart TVs with a dedicated purpose-built license operating system is the one that's going to be the most successful, so we're very happy with our competitive differentiation and our ability in the market in general against a lot of competitors."