It’s tough times to be in the video streaming business. Netflix, the company that, as we may say, pioneered the whole thing, is now rapidly losing subscribers and is trying to find as many ways as possible to keep its users.
The streaming giant is under such pressure from its competitors that it revealed its intentions to launch an ad-supported plan soon, despite refusing to do so for years. And now, a new report hints that Netflix might use the streaming service and TV box manufacturer Roku for its new ad-supported tier. But how? Well, by just buying Roku.
In recent weeks, employees at Roku have been discussing the possibility of Netflix buying the smaller streaming service. This “possibility” comes after Roku’s stock dropped by 80% since July last year.
Interestingly, according to people inside Roku, the company has prohibited its employees from selling their company stock. Of course, the reasons for doing that could be many, but usually companies do that before releasing important information to prevent inside trading. Could that be because of a potential buyout? It’s a possibility, yes.
However, it should be noted that there is no official word about Netflix acquiring Roku to back up the claim of a possible acquisition. But according to experts, this is precisely the perfect time for a buyout.
First of all, Roku’s valuation is now below $13 billion, which makes it very attractive for a buyout. Also, Roku’s video-advertising platform generated $647 million in first-quarter revenue. To understand how big of a deal that is, Roku’s video advertising generated seven times more profit than its video-streaming boxes and other devices that the company sells. In a potential acquisition, Netflix could use Roku’s know-how and video-advertising platform to improve its ad-supported plan, thus generating more profit.
Of course, with buying Roku, Netflix will also get Roku’s hardware business. In previous years, Reed Hastings, a Netflix co-founder and co-CEO, has said that selling hardware is not something Netflix wants to do. However, as Business Insider pointed out, Roku has access to more than 61 million active accounts through its TV boxes. This will give Netflix the ability to know what users prefer to watch, which could then be used to create better strategies against the competition.
Although it sounds like a great deal, some experts don’t think that Netflix will actually buy Roku. According to some of them, since investors are currently pressuring Netflix to find a way to increase revenue growth and keep its subscribers, buying such a company at this time won’t be a wise move. Furthermore, according to one industry analyst, Netflix could have problems with antitrust regulators if it tries to buy Roku.
Also, according to one expert, Netflix hasn’t decided yet what it intends to accomplish in terms of advertising and may not know at this moment if it needs to acquire Roku or not. Furthermore, it looks like Netflix prefers to keep its distance from large buyouts. It acquired a few video game developers, but that was it.
It will be interesting to see if Netflix will indeed buy Roku or if these were simply empty words from people who wish for a potential Netflix-Roku merger.