Disney’s Roku Dispute Came at the Worst Possible Moment

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Illustration: VIP+

For all the changes streaming has wrought for the media business, it can still produce a good old-fashioned carriage dispute.

The long-awaited launch of Disney+ with ads last week came with some unexpected and, for many users, unwelcome news: the ad-supported version of the service is not available on Roku devices for the time being. The holdup is likely due to a dispute over how ad dollars will be shared, as Roku requires ad-supported apps on its platform to split their inventories with the tech company.

“Channels that incorporate advertisements into their business model will default to an ‘Inventory Split’ model, whereby the channel sets up its own ad server and must send 30% of inventory to Roku,” the company’s developer guidelines state. “Roku retains 100% of revenue from this inventory (but is under no obligation to fill it). The publisher fully controls the remaining 70%, and keeps 100% of the revenue associated with its share of inventory.”

Disney and Roku declined to comment on the details of their negotiations, but a Disney spokesperson told VIP+ that discussions with Roku are ongoing, and the studio is “committed to working with Roku and reaching an agreement that is fair and advantageous to both parties.”

In the meantime, however, the ad-supported “Disney+ Basic” tier will remain unavailable to Roku users, who will be “unable to sign up for this plan on Roku devices or stream Disney+ on Roku devices if viewers have this plan,” per a Disney+ support page.

This sort of carriage dispute is hardly unprecedented in the streaming era. Netflix’s ad-supported tier launched without support from Apple TV just last month, and HBO Max was unavailable on both Amazon and Roku devices for most of its first six months on the market.

Nor is this likely to be a long-term problem. The overwhelming disadvantages of the standoff, and the money now being left on the table with each passing day, should compel Disney and Roku to reach a deal as quickly as possible — because, quite frankly, this dispute could scarcely have come at a worse possible moment for both sides.

Roku could certainly use whatever ad dollars it can compel Disney to share, given the impact of this year’s ad-market slowdown on the tech company’s financials. Roku’s year-over-year revenue growth has steadily declined throughout 2022 and is projected to turn negative in the final quarter, which the company’s Q3 earnings report blamed largely on declining ad spending.

These challenges have pressured Roku hard; its adjusted EBITDA loss more than doubled from $12.1 million in Q2 to $34.4 million in Q3, and its stock price is down nearly 80 percent year-to-date. A share of Disney+ ad revenues probably won’t be enough to turn things around, but at this point, Roku needs all the help it can get on that front.

Despite those struggles, however, Roku remains the top connected TV platform in North America, with its streaming devices and smart TV OS together commanding a third of the U.S. streaming hardware market. That’s enough to make it the global leader in streaming viewing time, nearly doubling that of its closest competitor Amazon Fire TV in Q3, according to data from analytics firm Conviva.

Per a report from Pixalate, Roku devices also commanded far and away the largest share of CTV ad spending in the first half of the year, which seems unlikely to change anytime soon given the company’s massive device market share.

Without Roku support, therefore, Disney and its advertisers are not merely missing out on tens of millions of potential viewers but the largest group of streaming users in their largest market — not to mention the attendant ad dollars they would deliver.

Furthermore, as the launch of Disney+ Basic coincided with a price hike on the ad-free service, Roku users who planned to downgrade to the ad-supported tier will now find themselves forced to pay $3 more for Disney+. This will likely prompt some subscribers to cancel the service instead — not a huge number, in all likelihood, but with domestic sub growth starting to sputter, any number of users canceling is bad news for Disney.

The upshot of all this is that Disney+ revenue could take a substantial hit, at a moment when the Mouse House desperately needs to show Wall Street that it can generate more money from streaming and put Disney+ on the path to profitability. With Disney stock down 40 percent year-to-date and the company in open crisis mode — as the emergency return of CEO Bob Iger made clear — there is little room for error at the moment.

And make no mistake, letting this dispute with Roku continue past Disney+ Basic’s launch was an error, the type of mishap we all grew accustomed to from Disney under Bob Chapek and that Iger was supposedly brought in to help prevent going forward. Roku, of course, should not escape its share of the blame, but it is incumbent upon both parties to realize they have more to lose than to gain by playing hardball.