What’s at Stake in the Amazon and Roku Streaming-Service Standoff

Streaming Platforms Standoff
Cheyne Gateley/VIP

Video consumers prize ease of use. That’s what explains the success of connected devices such as Roku, Chromecast, Amazon Fire and smart TVs, which offer easy access to most, if not all, of the video services a viewer may wish to watch via one gateway.

But while easy access comes cheap to the consumer, that access incurs potential costs for the various services on these devices. Sign up to subscribe via a particular connected-TV platform, and that platform receives up to 30% of the monthly fee for facilitating access (much as cable providers take a share of premium cable subscriptions). 

If your service is ad supported, the platform wants a slice of air time, again, much as cable providers take from linear networks. Connected devices also maintain control of viewer data: what else do they watch, what can be offered to entice them to spend more time with the platform and hopefully spend more time on it, adding to their monetization.

This relationship, between streaming service and device, is currently being challenged in the U.S. by two media giants: AT&T’s WarnerMedia and Comcast’s NBCUniversal.

With the launch of their new streaming platforms, HBO Max and Peacock respectively, these firms are challenging what they see as excessive rent-extractive behavior by the two biggest U.S. connected platform operators, Amazon and Roku, as it relates to user data and revenue splits.

This issue isn’t limited domestically. The EU is hitting Apple with an antitrust probe, specifically looking at the 30% Apple takes as standard from any fees generated on its devices as being excessive and seeks to limit it.

Roku will find a potential platform-cap disconcerting for future revenue potential, given EU rulings for business tend to be practiced worldwide. The connected-TV market leader is increasingly reliant upon platform revenues (see chart below), which have become its main profit stream.

Roku has recently upgraded its own FAST linear streaming options (see VIP’s special report on FAST), with the hope that this will boost their own generated ad revenues. This becomes more significant when considering the signs of fraying relationships between Roku and the media companies noticeable throughout 2020. In other words, Roku could be looking to create a homegrown alternative for a future with fewer services available on it to counter a worst-case scenario.

The most high-profile example, prior to HBO Max and Peacock, was when Roku pulled Fox’s app from the platform days before the Super Bowl, with Fox referring to the move as “a naked effort to use [Roku]’s customers as pawns.” The two companies reached an agreement prior to the NFL’s annual showcase, but in hindsight suggests Roku execs were beginning to make steeper demands from media partners.

Amazon’s strategy is a little different. The company isn’t dependent on revenues generated by Fire TV, but it is one part of their overall strategy to own as much consumer data as possible and control their engagement time and spending decisions.

It is also possible that standoff heralds a shift in attitudes from legacy TV companies moving into streaming. With more and more consumers exiting cable TV, at some point the revenues TV networks make from carriage deals will start declining. 

Seeing the writing on the wall, networks may begin to demand deals that tilt the balance in their favor, versus that of streaming platforms. Consider too, that since January 2019, many of the largest free streaming services – Pluto TV, Xumo, Tubi, Vudu – have been snapped up by old media, eager to preserve viewers (and revenues) by any means necessary.

Amazon and Roku maintain that the deals they’ve offered WarnerMedia and NBCUniversal are the standard deals in place with pay and free streaming services. Let’s not forget that Amazon Fire and Roku rose to the top of the streaming device market by being willing partners across the streaming universe. It would be out of character should they suddenly be making extreme demands for new services. 

The longer the impasse lasts, the greater the impact when it breaks. If the platforms get the demands they want, then it signals to other services “fall in line.” If the streaming services win the concessions they seek, it will suggest that playing hardball gets the job done. If there is no agreement, and Peacock and HBO Max remain absent from Roku and Amazon Fire devices, then rival free and subscription services that are present will benefit from the lack of competitors. 

With quarterly earnings approaching, and an expectation that COVID-19’s impact on entertainment will yield ugly results for media companies, being able to announce streaming carriage deals will buoy stock prices. The earliest to expect an update therefore will be AT&T’s investor call on July 23; given the need to have “good” news, expect this as a possibility.