Roku Inc's Business Segments

Roku pioneered streaming to the TV. Roku connects users to the streaming content they love, enables content publishers to build and monetize large audiences, and provides advertisers with unique capabilities to engage consumers. We do this at scale. TV streaming’s disruptive content distribution model is shifting billions of dollars of economic value. Roku is capitalizing on this large economic opportunity as a leading TV streaming platform for users, content publishers and advertisers.

Consumers win with TV streaming—they get a better user experience, more entertainment options and more control over what they spend on content. When users want to enjoy streaming entertainment, they start at the Roku home screen where we put users first by helping them find the content they want to watch. From our home screen, users can easily search, discover and access over 500,000 movies and TV episodes in the United States, as well as live sports, music, news and more. Users can also compare the price of content from various channels available on our platform and choose from ad-supported, subscription, and transactional video on-demand content. The Roku platform delivers a significant expansion in consumer choice. Consumers can personalize their content selection with cable TV replacement offerings and other streaming services that suit their budget and needs. Ad-supported channels available on the Roku platform include YouTube, CBS News, Crackle, The CW and Vice; subscription channels include HBO Now, Hulu and Netflix as well as traditional pay TV replacement services like DirecTV Now, Sling TV, Spectrum TV and Sony PlayStation Vue; and transactional channels include Amazon Video, Google Play and Vudu. Consumers are increasingly streaming ad-supported content.

Roku operates the number one TV streaming platform in the United States as measured by total hours streamed, according to a survey that we commissioned, conducted in the fourth quarter of 2017, by Kantar Millward Brown. Content publishers and advertisers win with Roku because our large and growing user base simplifies their access to the fragmented and complex over the top, or OTT, market and we provide them with direct to consumer engagement and monetization opportunities. We provide our content publishers with access to the most engaged OTT audience, as measured by average hours streamed, and the ability to monetize their content with advertising, subscription or transactional business models. Furthermore, as a pure play, neutral TV streaming platform, we are better able to serve content publishers compared to other platforms that have diversified business operations and competitive content offerings. Advertisers on our platform can reach our desirable OTT audience with ads that are more relevant, interactive and measurable than advertising delivered on traditional linear TV. As traditional TV audiences shrink, OTT audiences have become increasingly important to advertisers who must continue to reach large audiences. Our growth in active accounts and hours streamed has attracted more content publishers and advertisers to our TV streaming platform creating a better user experience.

While we currently generate a majority of our revenue from sales of our streaming players, we generate a majority of our gross profit from our platform revenue. Our business model is to grow gross profit by increasing the number of active accounts and growing average revenue per user, or ARPU which we believe represents the inherent value of our business. We define ARPU as our platform revenue during the preceding four quarters divided by the average of the number of active accounts at the end of that period and the end of the prior four quarters. We grow new accounts through three primary channels: we sell streaming players, we partner with TV brands through our Roku TV licensing program, and we have licensing relationships with service operators. We believe we have a significant opportunity to grow platform revenue and as we further monetize TV streaming hours we will increase ARPU, which was $13.78 per active user during the year ended December 31, 2017 up by 48% as compared to $9.28 per active user for the year ended December 31, 2016. Our success in growing ARPU will depend on our ability to increasingly generate platform revenue from content publishers and advertisers as we increase the number of active accounts.

Advertising

Our advertising products enable advertisers to serve relevant ads to our users and measure return on investment. We collect a variety of information on the Roku streaming platform, including user registration data, as well as anonymized information like audience engagement with channels on our platform, use of features like search and interactions with advertisements. With Roku TVs, we have the ability to use automatic content recognition (ACR) and other technology to collect information about what users watch via antennae and devices connected to Roku TVs, and we collect data about the use of the Roku TV’s on-screen programming guide.

We gather this information and then create user segments, develop look-a-like audience and predictive models, and activate segments for use in a variety of business operations including recommendations for users and analytics for content publishers and advertisers. Our platform also provides a mechanism to match and ingest third party data sets from our advertisers and data vendors who may have demographic or other attributes that would enhance our analytics, products or advertising efforts.

We continue to refine measurement capabilities on our advertising platform. Through our own measurement tools and third parties including Nielsen, Acxiom, Oracle Data Cloud, Nielsen Catalina Solutions, Experian, Placed and Kantar Millward Brown, we provide advertisers the capability to measure audience demographics, validate ad effectiveness, and quantify sales lift from advertising on Roku. We offer engagement analytics such as impressions, click-through rates and video completion rates. We also work with a wide variety of third-party measurement companies to measure the branding impact of the ads we serve. We have also recently established relationships with third party providers that focus on transactional or point of sale data, which enables our advertisers to compare the effectiveness of Roku ads.

Our primary advertising products include:

Video ads. Our ad-supported content publishers use video ads to monetize our audiences and we also use video ads to monetize our platform. Video ads are sold as 15-second or 30-second spots inserted before a program starts or during a program break, within channels on the Roku platform where we have video inventory access. One of the ways we secure video ad insertion rights from content publishers is via our distribution deals with those publishers. In addition, many publishers also authorize us to fill their own unsold inventory. Except for a minority of video ads that are passed unmodified in a traditional linear broadcast, all video ads are selected and delivered to a user in real-time, as the user is engaging on our platform. Digital advertisers have raised concerns about brand safety, viewability and fraud after certain issues arose between various video ad networks and major online video distributors. OTT is an attractive alternative. On the Roku platform, our video ads play full screen, are not skippable in most channels and are delivered into a curated channel list.

Interactive video ads. We offer advertisers the ability to make their TV advertising interactive with customized clickable overlays that invite viewers to engage more intimately with brands, by watching additional videos, obtaining offer details, getting a coupon code via text or finding the nearest retailer to buy a product.

Audience development promotions. We utilize a variety of ad placements, particularly native display ads, on the Roku home screen and screen saver, to promote content publishers and their services to our users. We help them to drive channel downloads and traffic to their channels, and to drive subscriptions or movie and TV show consumption. Given our strategic role as a user’s TV streaming home screen, we are increasingly able to predict a user’s likelihood of taking action in response to an ad we serve. We also sell branded channel buttons on player and TV remote controls. The branded buttons are reserved for content publishers who want to reduce friction and drive incremental usage by allowing users to launch straight into the channel.

Brand sponsorships. We support a variety of promotional opportunities for advertisers, such as sponsored themes to take over our home screen and content sponsorships to give users the opportunity to experience a free movie or show (e.g. “Family movie night brought to you by…”). We also sell branded content rows in The Roku Channel.

Roku TVs

Roku TVs are manufactured and sold by our TV brand licensees, integrate our Roku Operating System, or Roku OS, and leverage our smart TV hardware reference design. Current licensee brands consist of Element, Hisense, Hitachi, Insignia, RCA, Philips, Sharp and TCL, with a ninth brand, Magnavox, joining in spring 2018. Roku TVs are available in sizes ranging from 24” to 75” at leading retailers in the United States and Canada. In 2017 we had over 150 models available to consumers in North America, up from 100 in 2016, featuring a wide range of prices as well as picture and display capabilities. Consumers are able to choose from very affordable HD and 4K UHD models to TVs with picture quality boosted by 4K, Dolby Vision HDR and local dimming. Approximately one in five smart TVs sold in the United States in 2017 were Roku TVs.

Streaming Players

We offer a line of streaming players for sale under the Roku brand in the United States, Canada, the United Kingdom, France, the Republic of Ireland and several Latin American countries, that allow users to access our TV streaming platform. All players run on the Roku OS, and stream content via built-in Ethernet or Wi-Fi capability, depending on the model. Our current product line for the U.S. market includes several models at a range of manufacturers’ suggested retail prices to meet the needs of different users starting at $29.99.

Roku Inc. is a prominent player in the streaming media industry known for its advanced streaming platform, hardware devices, and an extensive content ecosystem. Here’s a detailed overview of the primary segments, products, and services that Roku Inc. offers:

1. Streaming Devices

Roku offers a variety of streaming devices that provide users with access to numerous streaming platforms and services. These devices are designed to be user-friendly and offer a range of functionalities.

- Roku Streaming Players: These include devices like Roku Express, Roku Premiere, Roku Streaming Stick, and Roku Ultra. Each of these products varies in terms of streaming quality (HD, 4K), audio capabilities (Dolby Audio, DTS), and support for features like voice control and mobile app integration.

- Roku TV: Roku has partnered with television manufacturers to integrate its operating system directly into smart TVs. These Roku TVs come with built-in access to the Roku platform, allowing for easy navigation of various streaming services without the need for an external device.

- Roku Audio Products: To complement its video streaming, Roku also offers audio solutions, including soundbars and wireless speakers that provide enhanced audio experiences. These devices often come with built-in Roku features, enabling users to control their TV and streaming services through the audio product.

Roku OS

The Roku operating system is the backbone of Rokus devices and is designed to provide a smooth and intuitive user experience.

- User Interface: The Roku OS features an easy-to-navigate interface that allows users to search for content across various streaming services. It offers personalized recommendations based on viewing habits.

- Voice Search and Control: Roku devices equipped with voice control functionality enable users to search for shows, launch apps, and control playback through voice commands.

- Roku Channel Store: The Roku OS includes access to a vast range of channels and apps via the Channel Store, where users can add or remove channels as desired.

Roku Channel

The Roku Channel is Roku’s proprietary streaming service offering free and premium content.

- Free Content: Roku Channel provides users with access to a selection of ad-supported movies, TV shows, and live TV content for free. This service aggregates content from various partners, creating a comprehensive library accessible without subscription fees.

- Premium Subscriptions: Users can also subscribe to additional premium channels through the Roku Channel, including HBO, Starz, and Showtime, allowing for bundled payments and a seamless watching experience.

- Live TV: The Roku Channel offers a variety of live TV streaming options, including news, sports, and entertainment, further enriching the content offering.

Advertising Solutions

Roku has developed a suite of advertising products designed to help brands reach their target audiences through the Roku platform.

- Roku Ad Manager: This self-service tool allows advertisers to create and manage ad campaigns on the Roku platform. It enables advertisers to target specific audiences based on demographics and viewing preferences.

- Video Ads: Roku offers video advertising solutions that can be displayed before or during streaming content. These ads are highly targeted, allowing brands to reach viewers based on their viewing behaviors and interests.

- Measurement and Analytics: Roku provides advertisers with detailed analytics on performance metrics, viewer engagement, and campaign effectiveness, helping them optimize their advertising strategies.

Content Partnerships

Roku has established a plethora of partnerships with various streaming services, content providers, and TV networks.

- Content Aggregation: Roku’s platform aggregates content from a myriad of sources, enabling users to access popular streaming services like Netflix, Hulu, Amazon Prime Video, Disney+, and many others within one interface.

- Collaboration with Content Creators: Roku collaborates with studios and content creators to bring exclusive programming to its platform, attracting diverse audiences and enhancing its content library.

International Expansion

Roku has been expanding its presence globally, launching its products in various international markets.

- Regional Partnerships: To facilitate this expansion, Roku forms partnerships with regional content providers, adapting its offerings to meet local tastes and preferences.

- Localized Content: As part of this strategy, Roku often focuses on curating localized content libraries to cater to the diverse viewing habits of international audiences.

Customer Support and Services

Roku provides extensive customer support and services to enhance the user experience.

- Self-Help Resources: Users can access a wealth of online resources, including FAQs, troubleshooting guides, and community forums to assist with device setup and issues.

- Customer Service: Roku offers support through various channels, including phone and online chat, to assist users with any problems and inquiries they might have regarding their devices or services.

Conclusion

Roku Inc. stands out in the streaming industry with its robust range of products and services, including streaming devices, an intuitive operating system, an extensive content platform, and innovative advertising solutions. As Roku continues to evolve, its focus on customer engagement and content partnerships aims to further solidify its position as a leader in the media streaming space.