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Roku Says It Won’t Be Long Before Streaming Revenue Eclipses TV

Ryan Vlastelica

(Bloomberg) -- Streaming video has been one of the biggest growth stories of the past several years, but even with all the attention that has been paid to the space, the industry is nowhere near full maturity, according to an executive at streaming-platform Roku Inc.

“In the long run, the total addressable market for streaming video is all TV money, period,” said Scott Rosenberg, a senior vice president and general manager of Roku’s platform business. Over-the-top (OTT) streaming “lets advertisers do things that they’ve gotten used to in digital but which hasn’t been possible on TV,” such as individually targeting consumers based on user-specific data.

Rosenberg compared the industry, specifically streaming-related advertising, to the early days of smartphones, when usage far outpaced how much advertisers focused on them. He cited a study from Magna that suggested 29% of TV viewing was happening outside the traditional model, although only 3% of TV ad budgets were being allocated to streaming services.

That imbalance will correct “in a pretty accelerated fashion over the next two or three years,” he said in a phone interview. “Marketers are starting to move their money, and once it begins to happen apace, I think we’ll see a significant outflow.”

It will likely take a few years for streaming ad revenue to surpass linear TV, he said, though the trend is accelerating. According to Bloomberg Intelligence, OTT ad revenue is expected to grow to $9 billion by 2023, compared with $4 billion in 2019. The TV advertising market is estimated at around $70 billion.

While much of the focus on the sector has been on the fight for audiences between content providers -- both Apple and Walt Disney have recently launched new services, with others on the way, including HBO Max next spring -- Roku has benefited by being a portal to these services, rather than a competitor. Last month, Apple announced that its TV+ app would be available on Roku’s platform, news that was notable as the iPhone maker offers its own streaming hardware.

The agreement “validates [Roku’s] dominant role as an aggregator,” and “the content-agnostic nature of its platform will allow more deals with streaming services,” Bloomberg Intelligence wrote.

Investors have rewarded Roku’s position within the ecosystem. Shares are up more than 400% thus far this year, making it the biggest gainer in the Russell 1000 index by far. Netflix Inc. is up about 10% thus far in 2019, while Disney has risen 32%.

Earlier this month, RBC Capital Markets wrote that Roku was “one of the best plays on ad-supported OTT, with the company being one of the best positioned to take share of the very large, underpenetrated” $70 billion TV advertising spending opportunity

Roku posted its sixth straight advance on Friday and has risen more than 30% over that stretch. The gains have coincided with the launch of Disney+, as well as bullish commentary from Bank of America, which on Friday raised its price target and wrote that Roku’s Black Friday discounts are setting it up for “outsized” account growth in the fourth quarter.

While the stock struggled in September because of concerns about competition for streaming hardware, Roku’s platform business accounts for a growing percentage of its overall revenue. According to data compiled by Bloomberg, the division comprised nearly 70% of the company’s third-quarter revenue, while the rest came from its players business. Over all of 2018, platforms accounted for just 56.1% of revenue.

Roku’s Rosenberg told Bloomberg that the company continued to view linear TV as its biggest competition for near-term growth. “We’re trying to take OTT advertising from a $5 billion market to a market that’s $20, $30, or even $50 billion. However, cord-cutters are leaving paid-TV in droves, and user engagement is on our side. When I started here, there were no networks doing streaming, but now Disney is all-in on a major service. There’s been a series of tipping points for the industry.”

He added that he was planning to spend the weekend watching “The Mandalorian,” a new series set in the “Star Wars” universe, now streaming on Disney+.

To contact the reporter on this story: Ryan Vlastelica in New York at rvlastelica1@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Tatiana Darie

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