Potential Roku-Netflix partnership makes sense in 2022
Analysts suggest that the Roku-Netflix partnership is likely to be much more attractive right now than it was in 2009 (when they split) due to the very different streaming environment that 2022 is creating. They add that the only downfall will be for Roku, which could potentially lose other partnerships.
Last week there were rumors about a potential partnership between Roku and Netflix. These rumors were mostly in response to the sharp drop in Roku’s stock price due to falling demand for streaming devices.
While the move will help Roku, it will also be perfect for Netflix as it prepares to launch its ad-supported tier. The streaming platform recently lost subscribers for the first time in a decade, losing 200,000 subscribers in the first quarter, and it could lose 10 times that in the current quarter.
As a reminder, Roku, one of the best streaming devices, started at Netflix in the early 2000s when founder Anthony Wood was working on a streaming device while working at Netflix. But in 2009, before the product was launched, the company spun off over concerns that it would interfere with Netflix’s availability on competing streaming devices.
Avi Gringart, president and lead analyst at Techsponentialk, doesn’t necessarily think time is of the essence, but says that in 2022, Roku has become “a completely different company with a completely different business model than when it started as an OTT network.” top box manufacturer.
He says the partnership between the two companies can now potentially help Netflix gain a new audience, revenue stream and infrastructure for its own planned ad-supported service.
“Netflix is not a technology company; it’s a content creator. If he can control costs and create great content, he will thrive. Roku is stuck with the post-pandemic hit to its growth, but basically it just needs to keep going through the downturn,” he says.
Carmi Levy, a technical analyst based in Canada, agrees and adds that in 2009 the streaming landscape was much simpler. Levy explains that as we see a decline in Netflix subscribers and a flattening of Roku’s growth curve, now is the time for them to reach out to each other.
“Netflix and Roku need each other much more in 2022 than they ever did in 2009,” he says. “Consumers cut the cord en masse, and Netflix remained pretty much the only cult brand of the time. There was literally no serious competition and Netflix could have easily continued its meteoric rise even if it hadn’t partnered with Roku.”
Partnership cannot be a simple temporary solution
Levy notes that while both companies are trying to figure out how to recover their value, they need to make sure they’re not doing anything that is a “simple workaround.”
“Relying solely on subscriber revenue may have worked when the future was boundlessly bright,” he says. “But in today’s highly competitive and steadily growing market, Netflix has no choice but to add ad revenue to it. And reaching out to Roku to quickly turn it into a real offering is the lowest-risk, fastest-time option, as both companies already have experience working together and can accelerate their partnership more aggressively because of it.”
Roku will suffer the most from this potential partnership
While it may seem like Roku is desperate for Netflix to bring back sales, Anshel Sag, senior analyst at Moor Insights & Strategy, says he has a lot to lose.
“Netflix is a competitor to many of Roku’s partner streaming services. Roku is still a platform for streaming services, and by rejoining Netflix, it actually becomes much less independent in the eyes of the other streaming services it supports,” he says.
In fact, Sag says Roku should work closely with more streaming services and also try to offer a better streaming product.
“I don’t necessarily think Roku and Netflix should merge, but I understand why both companies are struggling and the merge gives them a chance to compete with the more vertically integrated Amazon and Apple in the world,” he says.
Is partnering with companies like Sonos or Spotify the best option?
Back in May, Sonos launched the Sonos Radio service online, featuring 45-minute samples from select channels, as well as standalone shows and mixes. The company also announced a new voice assistant along with a new soundbar. Sonos Radio first launched as an ad-supported music service on its speakers in April 2020 before launching an ad-free premium tier.
Sag says that partnering with companies like Sonos or even Spotify could be a viable option, but Netflix is the most obvious and biggest potential and historic opportunity.
Greengarth agrees it would be interesting to see Roku try to partner with either company, but says such a partnership comes with challenges.
“Both would be interesting, but Spotify has more trouble than Netflix in its core metrics, and while Sonos diversifies into streaming and ads, it monetizes premium hardware sales, which is the opposite of Roku’s hardware business model,” says he.
In fact, Levy argues that Roku should not limit its partnership to Netflix and should expand to as many streaming partners as possible to be successful.
“The last thing Roku needs to do is link its fortune to just one streaming service. Omnipresence is the key to a player like Roku, while exclusivity potentially exposes the company to additional — and unnecessary — risk down the road. As the barriers between video and audio content continue to blur, once music-centric services like Spotify and Sonos are well positioned to capture the attention of consumers who are increasingly concerned about getting the most out of their monthly subscription dollar,” says he.
That being said, Levy says that if Netflix and Roku had played their cards right, they would have emerged from their respective crises with a more diversified business roadmap and more resilience to withstand future change.
“They were able to make do with apparently undiversified business models for more than a decade precisely because open-minded growth allowed it. Those days are over and their best path forward may very well be together again,” he adds.
