Roku just report­ed a strong hol­i­day quar­ter, which doesn’t real­ly come as a sur­prise: there’s no time of year when peo­ple buy more stream­ing box­es, sticks, or new TVs that hap­pen to run Roku’s soft­ware. The com­pa­ny end­ed 2019 with 36.9 mil­lion active accounts, and cus­tomers streamed 11.7 bil­lion hours of con­tent in the fourth quar­ter.

“We have now entered the stream­ing decade when we believe con­sumers around the world will choose stream­ing as their pri­ma­ry way of view­ing TV,” Roku CEO Antho­ny Wood wrote in his let­ter to investors. Roku believes that by 2024, half of all US house­holds with a TV will have either cut the cord or nev­er had cable to begin with.

Dur­ing the earn­ings call, Roku CFO Steve Louden said the company’s hard­ware oper­a­tions have “only expe­ri­enced minor impacts” due to the coro­n­avirus.

But the real sto­ry con­tin­ues to be Roku’s thriv­ing ad busi­ness. “Through­out 2019, our growth in mon­e­ti­z­able video ad impres­sions sig­nif­i­cant­ly out­paced stream­ing hour growth,” Wood wrote, say­ing that Roku aims to “shape the future of OTT adver­tis­ing.”

Pho­to by Amelia Holowaty Krales / The Verge

“In 2019, all top 10 tech­nol­o­gy and tele­com adver­tis­ers, as well as all top 10 con­sumer pack­aged goods com­pa­nies, spent with Roku,” Wood said in the let­ter. And Roku has been will­ing to exert its pow­er in the stream­ing mar­ket to help bol­ster its ad num­bers. This excel­lent report from The Infor­ma­tion yes­ter­day went over some of the fric­tion that has devel­oped between Roku and major enter­tain­ment busi­ness­es like Fox and NBC. Last month, Roku and Fox got into a brief-but-acri­mo­nious pub­lic spat after the com­pa­nies failed to come to terms on a new car­riage agree­ment. The rift came just ahead of the Super Bowl, but both sides struck a new pact that kept Fox’s apps on Roku devices for the big game.

With­out men­tion­ing the Fox dust-up, Wood said that he watched Super Bowl LIV on a Roku. In 4K, nat­u­ral­ly.

Accord­ing to The Infor­ma­tion, Comcast’s NBCU­ni­ver­sal found itself in a sim­i­lar dis­pute with Roku in late 2018 and was prepar­ing for the pos­si­bil­i­ty of the ban­ner NBC app and oth­er NBCU net­works like USA and Syfy being kicked off Roku’s plat­form. But that sit­u­a­tion was resolved before any­thing went pub­lic.

When­ev­er it comes time to renew one of these deals, Roku uses the oppor­tu­ni­ty to con­tin­ue grow­ing out its adver­tis­ing unit. And it has mul­ti­ple ad strate­gies in play. You can’t miss the large ads on Roku’s home screen. That’s prime place­ment, and Roku not­ed in its earn­ings release today that Dis­ney took advan­tage to pro­mote the launch of Dis­ney+. The company’s free-to-watch Roku Chan­nel is also an impor­tant vehi­cle for ad rev­enue. But there’s a third pil­lar that’s just as impor­tant as those two: Roku also sells ads for third-par­ty stream­ing apps. Per The Infor­ma­tion:

It also sells some of the ad space on oth­er com­pa­nies’ apps. It does that by buy­ing a por­tion of those apps’ ad inven­to­ry from the com­pa­nies at a reduced rate, pool­ing the inven­to­ry with oth­er inven­to­ry it has and re-sell­ing it to adver­tis­ers.

Roku’s adver­tis­ing busi­ness earns the com­pa­ny much more mon­ey than hard­ware sales of low-cost stream­ing play­ers. But its ambi­tions to keep build­ing upon that busi­ness have caused Roku to butt heads with some con­tent providers. Small­er chan­nels don’t real­ly have much in the way of bar­gain­ing pow­er; they can’t afford to lose Roku’s mas­sive user base. But larg­er play­ers can push back. Accord­ing to The Infor­ma­tion, Fox resist­ed Roku’s requests to pro­vide pro­gram­ming for The Roku Chan­nel when com­ing to the last-minute car­riage renew­al, and adver­tis­ing terms fell short of what Roku had hoped for.

Roku still insists it’s a neu­tral par­ty in the stream­ing wars

Despite the strained nego­ti­a­tions, Roku still posi­tions itself as “a neu­tral part­ner at the cen­ter of the stream­ing ecosys­tem,” per the investor let­ter.

But the com­pa­ny some­times even flex­es its pow­er with its own part­ners. Inside this report from Pro­to­col chron­i­cling TCL’s rise as a TV man­u­fac­tur­er is an inter­est­ing nugget: “TCL is said to have pushed for a change to the terms of the deal” with Roku, the report says. Mar­gins on TV sales are razor thin, and Roku keeps all of the adver­tis­ing and ser­vices rev­enue that come from Roku TVs to itself. TCL makes the well-reviewed hard­ware, but Roku con­trols the soft­ware, new fea­tures, and updates. It’s now even got a licens­ing pro­gram for com­pa­nies that want to build sound­bars and speak­ers for Roku TV sets.

In total, Roku cus­tomers streamed 40.3 bil­lion hours of con­tent in 2019. But some­times new soft­ware fea­tures can actu­al­ly work against that fig­ure. Here’s what the com­pa­ny said as to why Q4 stream­ing growth seemed a lit­tle tame com­pared to 2018:

The year-over-year growth rate in stream­ing hours mod­er­at­ed some­what in Q4 2019 ver­sus Q4 2018 due in part to the tim­ing of Black Fri­day falling a week lat­er in 2019 and the par­tial roll­out of the “Are you still watch­ing” fea­ture, which prompts users to con­firm they are watch­ing after a peri­od of inac­tiv­i­ty.

“While 2019 was a tip­ping point in com­mit­ments to stream­ing, the full force of change is still to come,” Wood wrote in the investor let­ter. “Roku is well posi­tioned for the new stream­ing decade as we con­tin­ue to dif­fer­en­ti­ate our plat­form, deliv­er strong growth, exe­cute our strate­gic plans and bring togeth­er even more con­sumers, TV brands, con­tent providers and adver­tis­ers.”

Pho­to by Amelia Holowaty Krales / The Verge

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