Roku looks a lot like Netflix Circa 2012

It can be hard to remember a moment when Netflix (NASDAQ: NFLX) was considered a great friend for media companies rather than their worst nightmare. But just seven years ago, Netflix had never had a single Emmy or Oscar. "original content" was still only a streaming service experience.

In 2012, it was mainly a platform for other media companies to broadcast their content to audiences other than traditional television, particularly in the United States. First original series of Netflix Lilyhammer It only started in February 2012 and Netflix closed this year with 85% of its streaming subscribers coming from its home country.

Media companies like Disney (NYSE: DIS) have become aware since then. Disney signed a massive deal with Netflix in 2012 for movie production, but this one did not put his movies on sale until 2016. Shortly after, this agreement came into effect, Disney announced that would not renew it. Instead, it would launch its own consumer streaming service to take full advantage of the value of its content library. Several other major media and technology groups have followed suit.

Although the strategy may have changed, distribution remains a key element of the equation. And there is a company that is exactly where Netflix sat in 2012 when she was courting Disney and was running huge content deals, as she planned her own original content ambitions. and a great international expansion. This company is Roku (NASDAQ: ROKU).

What is Roku?

Roku is best known for its streaming media players, but savvy investors know that the company is no longer geared towards hardware. Now everything is based on his platform. The platform business, which has 30.5 million users on Roku's own devices as well as those of other manufacturers who use its licensed software, accounted for 96% of the gross profit of the company. 39, business in the second quarter.

Basically, Roku is a distribution platform through which media companies can reach audiences without going through traditional TV and cable systems. Does not that remind you of Netflix?

There are more than 5,000 streaming channels on the Roku Channel Store, and that number continues to grow as more and more media companies launch their own streaming services. Similarly, Netflix experienced a significant growth in its licensed content library early in the decade by taking just about all the streaming content it could draw on. (Subscribers have seen a significant contraction in the Netflix catalog in recent years, as they are more interested in originals.)

If a media company wants to easily reach its audience by streaming, Roku is its best choice. There are certainly other options, just like Netflix in 2012, but Roku is the market leader in the United States in terms of the number of users and commitment. That's why media companies like Disney and even Apple, which owns its own distribution platforms, uses Roku as a distributor of its upcoming streaming services.

In grass original content ambitions

The Roku channel was launched two years ago and the success was immediate. Management consistently shares the fact that this is the fifth channel of the Roku platform. Presenting the licensed content of the company, the content of partners sharing the advertising revenue with Roku, as well as the content of a premium subscription, gathered under one roof, it is the equivalent Roku from the original Netflix series and movies.

Netflix originals are more expensive initially, but provide the company with a way to improve long-term profitability, especially on a large scale. Similarly, Roku believes that users who watch content on the Roku channel benefit from greater economic profitability than sharing their revenue from advertising-funded content or premium subscriptions.

Although the Roku channel is already quite popular, it is still in its infancy. As the company grows and strengthens its commitment to the Roku channel, it has the opportunity to invest more in the content of the channel and demand a greater share of the revenues of its media partners. . Amazon, for example, already requires 50% of the revenues of its smaller partners for Amazon channels.

Just as Netflix has invested more in creating its original content catalog, Roku can spend more on creating its channel. He may even invest in original content, although management has stated that this was not part of his current plan.

Still mostly a domestic business

Another important similarity between Roku and Netflix around 2012 is the potential for international growth. Netflix grew from 85% of its US streaming subscribers in late 2012 to a customer base of less than 40% by the end of the second quarter of this year.

The Roku user base is nowadays largely concentrated in the United States, but it has big plans for expansion in Europe and other international markets. It lays the groundwork this year and is expected to start seeing results in 2020. It has recently announced the extension of its television license program to Europe, in order to integrate the broadcasting system. operating Roku in smart TVs. Anthony Wood, CEO, believes that Roku OS could power half of all TVs in the world in the long run. While Roku currently powers about one-third of all smart TVs sold in the United States, it only holds 4% of the global market.

An analyst thinks that the international expansion of Roku could go even faster than that of Netflix. Roku could have 80 million active accounts by 2025, according to Ralph Schackart, an analyst with William Blair. He also expects US average revenue per user to reach $ 58 that year. Roku said his last ARPU of 21.06 dollars.

As the best alternative distribution platform for media companies, Roku is expected to experience growth comparable to that of Netflix as long as it will be able to execute its plans for international and international expansion. of the Roku chain.