Video Streaming Boom: Case of Roku
- Video streaming is expected to grow at a CAGR range of 9.3% – 20.4% by 2027.
- Roku's subscriber base into 2021 surpassed the 50 million mark. An increase in subscription has not reflected substantially in revenue growth.
- Netflix has capitalized on its internet dominance to increase subscribers and promote advertisements while streaming movies and shows globally.
The market share of video streaming is growing exponentially due to internet availability around the world. In 2019, the global value of this market was $42.60 billion. It is anticipated to grow at a compound annual growth rate (CAGR) of 20.4% from 2020 to 2027. Various companies are ready to adopt innovative streaming services such as blockchain and artificial intelligence (AI) to help in video production.
Roku recently celebrated an important milestone in the active subscription service. As of January 8, 2021, Roku had 51.2 million active subscribers, up from 37.2 million in the first quarter of 2020 (a 37.63% increase). Company estimates indicated that Q4 2020 had seen 17 billion hours streamed from Roku. A total of 58.7 billion hours had been streamed in 2020 – a gain of 55% YoY. The stay-at-home measures instituted during the COVID-19 lockdown helped to increase streaming in households.
In the past five years, Roku’s share price has risen by more than 183% and its revenue by 1,500%. The company's annual income is $1.129 billion, with a market capitalization of $48.14 billion.
Roku’s revenue for the past five years is not commensurate with the market cap. At 50 million subscribers, Roku is neck-to-neck with Amazon's Fire TV, but still, the revenue is wrongly placed. Roku makes most of its money on selling advertisement inventories. Its high subscriber base means that the company will command higher rates for impressions. With the decline of digital advertising, Roku has to balance selling ads at premium rates or harmonizing the rates to increase customers.
Higher engagement in regards to Roku subscriptions is not translating to higher revenues as required. The onset of streaming services has revolutionized the availability of standard television packages.
Shares of Netflix were priced at $508.89 as of January 8, 2021. With up to 182 million subscribers, the company could generate revenues of up to $20 billion. Annual profits of Netflix stood at $7 billion while Roku had $495 million. The difference lies in the fact that Netflix capitalizes on its internet dominance to gain subscribers and also supports advertisements to its streaming network.
Roku needs to adjust pricing to attract advertisers. Further, the company should change its program storage feature so that consumers can watch ads on stored programs.
Other features, such as high definition (HD) internet, will alter the landscape of digital streaming services. Consumers should benefit from inter-connectivity that will also help advertisers. Live streaming advertisements will help attract customers who want to replicate the in-stream ads on Facebook (FB). With the in-stream ads, advertisers can place their 5-15 second skits to those watching videos. What's more, these ads cannot be skipped and are only rolled on mid-way into streaming.
Video streaming is here to stay
By 2021, video streaming revenues are expected to reach $32 billion. This revenue is projected to grow at a CAGR of 9.3% between 2021-2025. In the end, gains will be substantial at $45 billion. Video streaming services need to adopt user penetration mechanisms to increase revenues and add subscriptions. This market share's highest chunk is expected in the US, where companies like Roku, Amazon, and Netflix reside.