Roku Enters Stage Left Selling Data with Roku Exchange
If Roku is trying to realize more value from their advertising, making it easier to tap into viewer data via programmatic tools may prevent them from leaving revenue on the table. Last week Roku announced the Roku Exchange, a “TV streaming-first” advertising solution that connects ad inventory with advertiser demand.
Via the exchange, viewer identity data from their 80 million active accounts will be grouped into segments for more precise targeting based on viewer patterns. Then it can be sold programmatically. According to their most recent quarterly shareholder letter, the Roku Platform had Q1, 2024 revenue of $755 million and has grown 19% year-over-year (YoY), this measures revenue from both streaming service distribution and advertising revenue. The majority comes from ads. Platform revenue for 2023 was $2,994,000,000, or almost $3 billion. Total net revenue for Roku in 2023 was $3,485,000,000, making it pretty clear where Roku is making their money.
Roku is counting on the fact they have a huge trove of viewer signals which is very valuable. “Roku is sitting on a gold mine of audience and content/context data,” said C.J. Leonard, Director of Ad Operations & Technology, Infinitive. “Now anyone can access valuable bid stream signals which weren't available broadly before, by simply going to your existing DSP that already integrates thru Magnite.”
The Advertising Value Proposition
The ad-supported plan “actually generates more revenue per user, despite the lower cost,” reported Aaron Back, Deputy Editor, Heard on the Street, The Wall Street Journal. Analysts expect the ad plans to contribute a greater and greater share of revenue going forward.”
Another surprising fact: ad-supported viewing is quickly catching up to social. Social video revenue is projected to rise to $23.4 billion in 2024, and CTV is expected to grow by 12% to $22.7 billion, 32% faster than total media overall, according to IAB. CTV ad budgets primarily come from reallocations – particularly linear TV and other traditional media —31% of increased spend comes from overall expansion of advertising budgets. “Among the largest ad spenders, CTV (69%) and social video (70%) are considered ‘must buys’ because of their ability to deliver both scale for branding at the top of the funnel and performance outcomes at the bottom of the funnel,” said Chris Bruderle, VP, Industry Insights & Content Strategy, IAB.
“Amazon came in and put a fork in every other streaming company’s business model by also getting into the advertising game within streaming,” said Gabriel Berger, Growth Officer, Play Anywhere. Amazon Prime has deep wells of consumer data from viewing and shopping. Disney announced at CES that they have 1,800 consumer segments available through their programmatic marketplace. Netflix is developing in-house ad tech to control more of their own destiny.
Meanwhile consumers are becoming better educated on how valuable their personal information is to each and every company out there. Amazon decided a few months ago all Prime Video subscribers were opted-in to receive advertising unless they chose to spend an extra $2.99 a month to remove the ads. One class action lawsuit has been filed against this business practice.
What Is Roku Exchange?
The Roku Exchange consists of the supply integrations, programmatic bidding, and ad decisioning, integrated with the Magnite supply-side platform (SSP) to connect into the larger programmatic landscape. “Not everything is available programmatically today,” said Louqman Parampath, VP of Product Management, Roku. “Some ad formats like Roku City and Home Screen ads, such as the marquee, can only be bought via direct deals. Roku Exchange is the mediation layer that serves ads and enriches impressions, based on Roku data from over tens of millions of streaming households.”
The company reports that viewing on the Roku platform represents around 50 percent of all time spent watching TV streaming in the U.S. The current average daily viewing time on Roku is 4.2 hours globally, up 23% YoY from 3.9 hours. This is something close to the previous viewing stats for traditional cable and broadcast viewing. This is democratizing access to Roku Media, according to Parampath, because media buys won’t be restricted to the largest advertisers.
“Access to Roku Audience data is applied on the deal ID level by Roku,” Parampath said. “Roku Exchange sends signals like RIDA [Roku ID for Advertising] through the bid request. RIDA is a standard Identifier for Advertising (IFA) for the device. In addition, we have worked with partners like Wurl/Applovin to customize signals and the way they are sent to best perform in their platform. Roku Exchange allows for flexibility in what is sent in bid requests and making Roku Audiences available to advertisers.”
“With the Roku Exchange, programmatic buyers should access the same data as direct buyers, such as the length of ad breaks and when those breaks happen within a particular stream. Programmatic buyers also get more metadata about networks and channels, including genre,” said Chris Hock, advertising industry executive and former head of Adobe Prime Time. Advertising. “They are trying to do what larger media companies do.”
When Roku started, they offered a revenue share agreement to content owners and distributors. Over the years, as they built up this deep knowledge of viewing patterns, the company started to monetize this through direct sales. “Their advertising business now dwarfs the [fees from] subscriptions,” said Hock. “This viewing data can raise their CPM by 30–40 percent, moving from a $25 CPM for CTV for example to $32.50–$35.”
“For advertisers, this programmatic solution will make it easier to buy Roku audiences now,” said Leonard. “In theory, as a viewer, you would see greater diversity in advertisers eventually, as well as increased fill rates and less slate, due to a better variety of ads.”
Reading Between the Lines
“We are making it easier for advertisers to execute campaigns programmatically by expanding and deepening our relationships with third-party platforms, including retail media networks, DSPs (demand-side platforms), and other strategic partners,” states Roku’s Q1 2024 shareholder letter. “In Q1, we continued to grow programmatic ad spend as a percentage of total video ad spend on the Roku platform. We are focused on growing both the number of advertisers we serve and the size of advertising budget, while building partnerships that expand the targeting, attribution, and measurement capabilities we offer.”
“I think it speaks to a bit of a larger trend where you see a number of companies that have access to the end consumer. They're wanting greater control over that side of programmatic and they're bringing a lot of that in-house,” said Brett Sappington, Founder & Principal Analyst, Sappington Media. “Roku has scale and you have to have scale for it to be worthwhile to be able to bring it in-house. Years ago, they bought a small DSP, Dataxu, so they have some in-house capabilities technology-wise to be able to do this. Whenever you're bringing it in-house, you're essentially cutting out a middleman and taking over more control of part of it.”
With Roku joining the many other companies in the programmatic space, if they build it, will buyers come? “At Freewheel through the view of our ad server, we know that of all the CTV impressions, only 35% are transacted programmatically,” Katy Loria, CRO of FreeWheel said in a Beet.TV interview at the 2024 FreeWheel Programmatic Activation Summit, Beet.TV interview.
Does this take away from the direct deals? “No,” said Parampath. “Roku’s goal is to meet advertisers where they do their media buying, whether that’s through direct deals or programmatic buying.”
The math on this then looks like programmatic is an option for buying. All the major companies have announced they are selling this way, but if Freewheel says they’re only seeing 35% bought via programmatic, this may not be as big a deal yet, as these companies would have you believe. Programmatic could level-set prices for the less expensive, less premium inventory, but likely the revenue from this will still be a very small percentage.
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