It's Official: Roku's Making Original Content

Roku (NASDAQ: ROKU) has danced around the term "original content" for a while now, but it's finally ready to make it official. The streaming company said it's rebranding the content it acquired from Quibi as "Roku Originals" when it releases it on The Roku Channel over the coming months. "Roku Originals will also be the brand name for future original programming for The Roku Channel," the company wrote in a blog post (bolding mine).

The news follows Roku's "exclusive premiere" of Cypher last month. Roku also launched an advertising brand studio to develop new ad formats and TV programming for marketers in March.

Here's what a bigger push into original content means for Roku investors.

The Roku Originals logo.

Image source: Roku.

The Roku Channel has evolved

When The Roku Channel launched, it was a place for media companies to put the content they couldn't meaningfully monetize on their own. In exchange for letting Roku stream and monetize a film or series, the media companies get a cut of ad revenue.

Roku still licenses some content on a revenue share basis. But it's increasingly focused on acquiring content rights as part of distribution agreements for a media company's streaming app(s). For example, Roku negotiated hard with Comcast (NASDAQ: CMCSA) for distribution of Peacock, and received key content in return.

Acquiring content that way gives Roku more leeway with regard to competing with its media partners. Whether or not media companies will want to put some of their content on The Roku Channel and share ad revenue with Roku when they're competing directly against Roku Originals is no longer a concern. Roku's able to acquire content regardless as part of broader distribution deals.

Meanwhile, The Roku Channel's audience is growing quickly. Viewership doubled in 2020, and it could easily double again as the content continues to improve and Roku's total active accounts grow.

That's important because Roku directly monetizes each piece of content it licenses with video advertisements. In order to break even, a piece of content needs a certain number of viewers. The more total viewers on The Roku Channel, the more likely any single project will break even. And since there's a minimum threshold to produce an original series, Roku needs a certain audience to ensure it can make originals profitable. It's reached that level.

A big revenue opportunity

Roku generated $28.76 per user in 2020. Growing that number will rely heavily on increasing Roku monetized video ad impressions, and The Roku Channel is a key factor in doing just that. Spending on originals should increase engagement across The Roku Channel and lead to more ad impressions per user.

There's a lot of room for growth in ad revenue for The Roku Channel. As an example, Disney (NYSE: DIS) generates around $7 per month in ad revenue per Hulu subscriber.

Not only could Roku Originals increase engagement among current viewers, it could bring in new Roku users to The Roku Channel. And while the streaming service is available on other devices, it may serve to increase brand affinity and ensure Roku maintains and grows its position as the leading connected-TV platform.

2020 served as the perfect springboard for Roku to jump to the next level with The Roku Channel. A surge in new premium streaming services gave it opportunities to win new content for its ad-supported service. More people staying at home streaming led to greater interest in what it had to offer. Now it's positioned to keep the virtuous cycle going by spending big on original content, ultimately leading to faster revenue growth that it could either reinvest in content or let fall to the bottom line.

10 stocks we like better than Roku
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Roku wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of February 24, 2021

Adam Levy owns shares of Walt Disney. The Motley Fool owns shares of and recommends Roku and Walt Disney. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Latest Markets Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More