The Peacock vs Roku Dilemna, and Why Roku Is Right

Another Streaming Channel

You may have heard, NBC Universal has released its own channel full of NBCU content, called ‘Peacock‘. Movies such as ET & The Bourne Identity, TV shows such as Parks And Rec, & 30 Rock as well as classics, such as my personal fave show ‘Cheers’. Peacock isn’t just a video on demand model either. Their channel also includes 24/7 curated programming, of linear feeds constantly running SNL clips, or The Tonight Show (how great would non-stop Johnny Carson episodes be?). Pluto TV has a similar model, developed with Live TV and interactive menu similar to the old digital cable days (I cut the cord in 2010). In addition, they seem to be creating original programming seemingly specific for the channel, mostly random outtakes, docu-comedies and potential bingeworthy reboots.

Sounds like a decent start. Which brings us to their revenue model, which seems an interesting three tier approach:

  • Free (limited programming available)
  • Full Inventory (with ads) $4.99
  • Paid Full Inventory (No ads) $9.99

A true sales funnel, it probably is a good model and pricing. You get entered in, but you want the good stuff. Then you get the good stuff, but you don’t want to put up with the ads. Then you clear out the ads, but suddenly realize you’re now paying $120 dollars more a year on streaming. When you consider NBC & Universals vast collection of movies and shows (note: some shows and movies are licensed elsewhere and not available. Such as Friends, Seinfeld & The Matrix), it does become voluminous. I feel Netflix kinda reached its tipping point of lackluster original programming, and after losing movie licenses during the past 5 years or so, it’s nearing bad in terms of value, and a competitor like Peacock could become a rival. Especially with tiers to attract all OTT users.

The Battle With Roku/Fire TV

So why the fight?  To put it bluntly, money. Mostly, ad revenue. Roku has a business model of being a free platform to develop channels for, and if desired, offer the channel to customers for free or subscription. However, with free channels, one needs to sign over 30% of ad inventory in a 70/30 split.

Whoa, hold up. 30 percent of advertising revenue?

Well, yes. First tho, I ask you consider this. In the days you watched cable TV (ie Comcast et al), do you remember seeing local cable commercials?  To shops and car dealerships?  Right, although now you’re going to tell me that it’s good for small business, and helps local companies compete. Well, this is true. But what’s also true, is those weren’t the only commercial your cable company was selling. Many, were unnoticeable, but more regional chains and banks. Dunkin Donuts, Wawa, banks, travel destinations such as Florida, In N Out Burger for those on the West Coast. These were often sold locally as the company didn’t have a market share in the entire US, so buying a regional ad made sense. Cable companies tended to receive 4-8 commercials per hour, across all channels, all of them. USA, ESPN, TNT etc. and they received them nearly 24/7, highly rated shows not being excluded. The Walking Dead, Breaking Bad, Monday Night Football, MLB on ESPN. 4 ads, per hour.

… and this was while the cable company was charging you monthly for the channels. And the cable box too!  Not a bad side hustle. Roku created this OTT Behemoth by not charging its customers anything. Sortof a backend income stream. And they’re not even ‘charging’ channel operators, they’re just allowing them to earn less. (Reminds me of Chris Rock saying something along the lines of ‘You don’t pay taxes, they take taxes’). Also, there’s a little known fact in the OTT world where, advertising revenue, at the moment, is not all that. Not much at all. Pennies. As advertising like premium content, and shows people are excited and engaged in, such as a highly touted sports game or new episode of a favorite show. Watching 20 year old shows & movies doesn’t attract that same level of interest, nor, possibly, the same clientele.

The Outcome

While the battle remains ongoing, and likely to for some time, Roku has built into a powerful player in the OTT war. It’s unlikely they bow down anytime soon, especially to a company who made the decision to enter into the streaming game later than most (ie. last). Also, losing nearly 60% of potential audience is not a winning strategy to enter into already infested waters. Disney+, offering a library of back catalog family movies, along with an anchor hit show in original programming in The Mandalorian, seems to have made the best start among capturing subscribers. Currently they are at over 60 million subscribers, something Deadline reports they told investors they anticipated to reach by 2024.

Is Peacocks fight sustainable?  In my mind, no. OTT devices and Roku specifically have been dominating the streaming game, as Smart TV’s are a challenge for channel programmers to continually update, for such a small user base. 1 change in code for the Roku platform reaches over 50% of all channels users. Easy peasy. Developers like these ease of access, and slowly tend to phase out TV O/S, causing users to test the waters by buying a cheaper end Roku device. While it’s possible Roku will cave on this, it would have a damaging affect on their ad revenue model going forward, as other large channels will step up and fight the 70/30 rev share model, and while Roku doesn’t want to lose users, it’s tough to think many people are switching platforms & devices to receive 1 small channel. Time will tell.