ROKU

The Roku Channel Is Now the Biggest AVOD in the U.S.

The market for streaming-video services keeps getting more and more crowded. And while some companies look to compete for a piece of viewers' wallets, there's a growing preference toward free ad-supported video-on-demand services, or AVODs.

There are several big media companies in the AVOD space: ViacomCBS (NASDAQ: VIAC) bought Pluto TV in 2019, Fox (NASDAQ: FOX) (NASDAQ: FOXA) acquired Tubi last year, and Comcast (NASDAQ: CMCSA) launched Peacock last summer. But Roku (NASDAQ: ROKU) has managed to attract an audience much faster than the traditional media companies, and it's poised to stay in the lead.

The Roku Channel home screen on a TV with a Roku Stick and remote in front of it

Image source: Roku.

63 million viewers and counting

Roku launched The Roku Channel in 2017. That's well after Pluto TV (2013) and Tubi (2014) came to market, but the timing couldn't have been better. Cord-cutting was accelerating at the same time prices for subscription video-on-demand services started climbing.

Since The Roku Channel's launch, the company has tripled the number of active accounts using its connected-TV devices to 51 million. In 2020, management said Roku Channel viewers were growing twice as fast as its overall platform. Indeed, Roku Channel viewers grew more than 100% while active accounts increased "just" 39% for the year.

The company continued growing viewership quickly in the final months of 2020, jumping from an estimated 54 million viewers at the end of the third quarter to 63 million by the end of the year.

Growing faster than the competition

While all AVOD services saw a big jump in viewership in 2020, The Roku Channel performed exceptionally well.

Tubi, which ended 2020 with 33 million monthly active users, said viewership increased 58% last year. Pluto TV's monthly active users grew 80% globally and 34% in the United States.

The analysts at eMarketer believe Roku will keep pace with its now-smaller competitors in 2021. The research firm expects U.S. viewers for Roku to climb another 19% this year, while Tubi and Pluto TV viewership will rise 20% and 17%, respectively.

Comcast says Peacock signed up 33 million accounts by the end of 2020. But internal data seen by The Information suggests just 11 million households are regularly watching content on the new streaming service.

Adding lots of content

The big media companies are adding lots of content to their AVOD services.

Fox now distributes some of its broadcast content like The Masked Singer shortly after it originally airs on its network. Likewise, Pluto TV has added a lot of old Viacom content since the big media company bought the streaming service a couple years ago. Both are also exploring the potential for original content on their platforms.

Comcast hopes to improve engagement this summer with exclusive content from the Olympic Games. The sporting event was meant to be at the center of its launch campaign, but COVID-19 had other plans.

Meanwhile, Roku has aggressively negotiated for additional content on The Roku Channel as part of its distribution agreements for premium streaming services on its connected-TV platform. It's also starting to license original content for the AVOD service. CEO Anthony Wood says the growth of The Roku Channel creates a virtuous cycle where it's able to invest in more and better content, which in turn draws in more viewership, so it's quite possible The Roku Channel's growth could continue to outpace the competition in 2021.

Winning ad dollars

Racking up a bunch of viewers with a growing content library is one thing. It's another for Roku to take on media giants like Fox, ViacomCBS, and Comcast in advertising sales.

But the company has been building up its advertising capabilities for years. It acquired Dataxu in 2019 and recently made a deal to buy Nielsen's ad technology. The two businesses position Roku to sell ads beyond its own streaming service or connected-TV platform. It can place ads on other digital properties and even linear TV, just like the traditional media companies.

While it might not have as much inventory to sell on linear TV as competitors with broadcast networks, it can offer marketers the ability to reach unique audiences in streaming with its audio content recognition technology. What's more, Roku is less likely to cannibalize its ad sales with streaming video ads like Fox, ViacomCBS, or Comcast.

So while the big media companies are growing AVOD services to move ad revenue from one bucket to another, Roku's taking share of the overall television advertising market. As more TV advertising moves from linear to digital, that advantage will become extremely important.

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Adam Levy has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Roku. 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.

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