Comcast is eyeing Roku for acquisition, according to a new Wall Street Journal report. This is the latest in CEO Brian Roberts’ ongoing interest in the connected-TV and device space. Comcast launched its own Xfinity Flex device in 2019, and VIP+ last year covered Comcast’s plans on launching a line of smart TVs powered by its Xfinity service.
The reasoning behind this is the core industry that has powered Comcast for so long — cable TV subscriptions — is declining and will never rebound.
Any cable or satellite TV provider has three revenue streams that are at risk from cord-cutting and the increasing amount of time spent streaming instead of watching TV: base monthly subscriptions, upsells to subscribers and on-air advertising.
Monthly subscription revenues falling as subscribers leave hasn’t happened yet, but there is only so far the remaining customers can be stretched before they break.
Revenue from upsells — think HBO, Showtime or premium sports channels — have declined in the face of many media companies launching direct-to-consumer apps. While these are offered by cable companies, and some do subscribe via them, many more opt to subscribe directly or via a connected TV or device such as Roku, Fire TV, Prime Channels, Apple TV or Samsung.
All MVPDs and VMVPDs have an allotted amount of time to run localized, and increasingly targeted, ads per hour of content, with the TV networks keeping the remainder to sell. A shrinking base, with those sticking with cable watching more streaming, will threaten the viability of the local TV ad business.
Connected TV (CTV) offers a way to recoup lost advertising and upsell revenues (with in-house Peacock Premium ultimately making up for the cable subscription declines). CTV operators such as Roku have been reporting huge increases on platform revenue in recent years, driven by ads and subscriptions made on their devices. In Roku’s case, Q1 2021’s platform revenue of $466.5 million was 5.4x greater than just two years ago ($72.5 million in Q1 2019).
This is what led Comcast to launch the Xfinity Flex, but it’s not enough. That only works within the Comcast footprint, while most subscribers use other devices to stream and other devices are national. While launching an Xfinity-powered smart-TV line is a good long-term strategy, millions are not going to throw out their current TVs just because Comcast is in the TV-set business.
That’s why the company is seriously considering acquiring the only large-scale CTV and device operator that’s independent and small enough to be bought. Comcast can’t afford to buy Apple, Amazon or Samsung for its connected devices, but it can afford a company that specializes solely in that business.
As VIP+ said in July 2020 when Roku stock surged based on rumors Google was looking to acquire it, if Google doesn’t buy Roku, someone else will. That may well be Comcast.