Roku Invests in New Ad Formats as Advertising Continues to Drive Impressive Growth

Advertising is continuing to drive Roku’s impressive growth, with the company’s overall net revenues growing 59 percent year on year in Q2 to $250 million. While Roku was once solely an over-the-top (OTT) device manufacturer, the company’s move into advertising has seen ad sales become a key revenue stream for the company, with the company investing in new formats to help continue this growth.

While Roku doesn’t break down its ad sales specifically, platform revenues (which includes ad revenues alongside distribution revenues and audience development revenues) now heavily outweigh hardware sales. Platform revenues grew 86 percent in Q2, reaching $168 million, while player revenues grew 24 percent to $82 million.

Roku’s ad revenue comes from several sources. The company sells ads on its own ad-supported OTT channel, The Roku Channel, which it launched back in 2017. Alongside this, Roku takes a slice of inventory from publishers whose run ad-supported apps on the platform, in exchange for the extra reach they get from Roku. The company also sells display ads and ads for apps within its own ecosystem, like channel recommendations and sponsored shows.

The growth of the platform has seen the volume of ad inventory available to Roku swell rapidly – the company says the number of monetised video impressions more than doubled year-on-year in Q2, which it credits as the primary driver of the company’s total revenue growth.

But Roku says its the data available to advertisers on its platform which is really drawing in advertisers. “Our deterministic data is helping advertisers reach more Roku consumers, more accurately,” founder and CEO Anthony Wood and CFO Steve Louden said in a letter to investors. “A recent study by Kantar found that Roku registration data is 21 percent more accurate than IP address (often used by third party ad tech companies for targeting) to identify a real Roku home. Use of Roku proprietary targeting segments in ad campaigns is growing significantly faster than other tactics, showing how attractive this unique data is to marketers.”

And the company is confident its data strategy will survive increased scrutiny on privacy in advertising. “We have the first-party direct relationship with our consumers and it puts us in a unique position as a platform to both explain to consumers, how the data is used and to control it,” said Roku’s GM of its platform business Scott Rosenberg on a call with investors. “And I will just contrast that against third-party entities intermediaries who don’t have that direct consumer relationship and who are going to be more challenged to articulate and justify the uses of data. So on balance of course, we take it very seriously, but feel that as a platform with a first-party consumer relationship we are uniquely positioned.”

Roku says its data and predictive models are also increasingly informing which shows it licenses and promotes within The Roku Channel, which is driving its growth and monetisation. And as Roku’s ad inventory continues to grow, the company is doubling down on its ad-led strategy with investment in new ad formats and overall better advertising experiences. Rosenberg said Roku’s motivation to move into the ad business in the first place was “not simply the revenue opportunity, but the chance to deliver a better ad product for marketers and a better ad experience for consumers. That’s about the quality ad buffering completion rates and also new formats interactivity, new sponsorship brand integration opportunities. There’s just so much opportunity in this space to create new touch points for marketers. ”

“For example, the ability to fire an email or an SMS off of a video ad is an example, that’s an exciting rift on a traditional ad spot, bringing interactivity to a 30 second spot,” Rosenberg said. “Our sponsorship experiences have similar capabilities. We view interactive as still emerging capability for TV advertisers, it’s not a capability they have traditionally had, but it’s an exciting new dimension to be able to bring to TV advertising.”

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