Times are tough in the video streaming business. Netflix, the company that, as we can say, pioneered the whole thing, is now rapidly losing subscribers and trying to find as many ways as possible to keep its users.
The streaming giant is under such pressure from its competitors that it has revealed its intentions to launch an ad-supported plan soon, despite refusing to do so for years. And now a new report suggests Netflix could use streaming service and TV box manufacturer Roku for its new ad-supported tier. But how? Well, by just buying Roku.
As Business Insider reported that in recent weeks Roku employees have been discussing the possibility of buying Netflix the smaller streaming service. This “opportunity” comes after Roku’s stock has fallen 80% since July last year.
Interestingly, according to people within Roku, the company has banned its employees from selling their company stock. Sure, there could be many reasons for doing that, but usually companies do that before disclosing important information to avoid insider trading. Could that be due to a possible buyout? It’s a possibility, yes.
It should be noted, however, that there is no official word on Netflix’s acquisition of Roku to substantiate the claim of a potential acquisition. But according to experts, now is the perfect time for a buyout.
First of all, Roku’s valuation is now below $13 billion, making it very attractive for a buyout. Also, Roku’s video ad platform generated $647 million in revenue in the first quarter. To understand how important that is, Roku’s video ads generated seven times more profit than the video streaming boxes and other devices the company sells. In a possible acquisition, Netflix could use Roku’s know-how and video advertising platform to improve its ad-supported plan to generate more profit.
Of course, with the purchase of Roku, Netflix also gains Roku’s hardware business. In previous years, Reed Hastings, co-founder and co-CEO of Netflix, said selling hardware isn’t something Netflix wants to do. However, as Business Insider noted, Roku has access to more than 61 million active accounts through its TV boxes. This gives Netflix the ability to know what users prefer to watch, which can then be used to create better strategies against the competition.
While it sounds like a great deal, some experts don’t think Netflix will actually buy Roku. According to some of them, as investors are currently pressuring Netflix to find a way to increase revenue growth and retain its subscribers, buying such a company won’t be a wise move right now. In addition, according to an industry analyst, Netflix could have problems with antitrust regulators if it tries to buy Roku.
Also, according to an expert, Netflix has not yet decided what it plans to achieve in terms of advertising and may not know at this point whether it should buy Roku or not. Furthermore, it seems that Netflix prefers to keep away from large buyouts. It acquired a few video game developers, but that was about it.
It will be interesting to see if Netflix will indeed buy Roku or if these are just empty words from people wishing for a possible Netflix-Roku merger.