Netflix buying Roku would make a lot of sense

Business Insider published quite the rumor on Wednesday, reporting on scuttlebutt that video-streaming hardware kingpin Roku could potentially be acquired by Netflix.

The story doesn’t offer much evidence that Netflix might actually buy Roku. No sources are claiming that the two companies are even in negotiations, let alone close to any kind of deal. Instead, the story cites “internal chatter” from Roku employees, who appear to be speculating after Roku abruptly stopped them from selling their vested stock.

But it’s an interesting idea to think about. For one thing, Roku got its start as a project inside of Netflix, and only reached the market as a Roku product in 2008 after Netflix decided to make its streaming service platform-agnostic.

But while Roku is best known for its cheap streaming players and smart TV software, it’s primarily an advertising company from a business standpoint these days, making more money from software licensing and advertising than from hardware sales. And Netflix is scrambling to get into the ad business as its subscription growth hits a wall. An acquisition would make a lot of sense.

What’s in it for Netflix

By acquiring Roku, Netflix wouldn’t have to start from scratch on building a connected TV advertising business. As of last quarter, Roku had 61.3 million active accounts—presumably including some who aren’t Netflix subscribers—and it has deep insights into what users are watching and searching for across its entire platform.

Last year, Roku also acquired Nielsen’s Advanced Video Advertising unit, which includes technology for inserting targeted ads into content. It previously acquired ad tech company Dataxu, which helps marketers buy digital video ad campaigns. Buying Roku would give Netflix a shortcut into the ad tech business while also giving it more data and greater reach.

What it would mean for Roku

If Netflix did acquire Roku, it probably wouldn’t change much for users in the near term.

For Roku, streaming devices and smart TVs are just a way to acquire more eyeballs for targeted ads, so it’s highly unlikely that Netflix would disappear from other streaming platforms.

If anything, it would result in Roku’s content being more widely distributed. As Roku invests more into original content for the Roku Channel, one could imagine Netflix making that content available to its subscribers, perhaps even on an ad-free basis.

What’s less clear is how a Netflix acquisition might affect the more fledgling aspects of Roku’s business, such as its forays into home audio or its rumored smart TV lineup. A bigger and more platform-agnostic company may have less interest in ambitious new hardware projects.

Switzerland’s already dead

That said, the Roku platform could also become a much bigger showcase for Netflix content if the two companies merge.

In the past, Netflix has resisted certain streaming device features that make its content easier to browse from outside the actual Netflix app. Its original programming vanished from Google TV home screens in late 2020, and it has never participated in the universal “TV” guide app on Apple TV.

On Roku’s mobile app, you can’t add Netflix shows to the “Save List” for convenient access. If Netflix acquired Roku, you might finally have easier access to Netflix content straight from the home screen—at least on Roku devices.

This might conflict with the long-standing notion that Roku is a neutral party in the streaming wars, but in reality Roku lost its neutrality a long time ago. Free content from the Roku Channel already gets prominent billing on Roku devices, being heavily promoted in the “Featured Free” and “Live TV” sections of the home screen. Meanwhile, Netflix already gets its own special treatment on Roku: If you perform a voice search inside Netflix, the results come only from Netflix and bypass Roku’s system-wide search menu.

All of which means that the companies are already quite closely aligned. The biggest difference between them has been their business model, with Netflix focused on paid subscribers and Roku focusing on ads. As Netflix fundamentally rethinks how it makes money, the company it started as a side project would be an obvious one to turn to for help.

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