Roku’s Risky $185 Million Bet on Live TV Streaming: A Deeper Dive into the Frndly TV Acquisition
Roku, a prominent player in the streaming device market, has recently made a bold move that has raised eyebrows across the industry. The company is investing a substantial $185 million to acquire Frndly TV, a budget-friendly live TV streaming service. This decision stands out because most other major streaming platforms have deliberately avoided venturing into the live TV streaming arena, leaving many to wonder about Roku’s strategic rationale.
Frndly TV distinguishes itself by offering a remarkably affordable package of live TV channels for just $9 per month. This package includes a selection of channels typically found in traditional cable TV subscriptions, such as Hallmark, A&E, and The Weather Channel. While it’s common for streaming platforms to offer their own free or premium streaming services, Roku’s acquisition of Frndly TV marks a departure from the norm, as it involves selling its own bundle of cable channels with an optional DVR service. This unusual move has sparked speculation about Roku’s underlying motives, with the company stating its intention to boost subscription revenues on its platform. However, many industry observers believe that there’s more to the story than meets the eye.
Frndly TV operates as a "virtual Multichannel Video Programming Distributor," or vMVPD. This term, along with alternatives like live TV streaming services, streaming channel bundles, and cable replacements, essentially describes cable TV packages delivered via the internet. These services provide users with a collection of cable channels, a traditional channel guide, and DVR functionality for recording and watching live broadcasts at their convenience.
The majority of major streaming platforms have opted to steer clear of the vMVPD business due to its inherent complexities. This business model requires negotiating carriage deals with numerous TV programmers, which can be a challenging and often contentious process. Moreover, there’s always the risk of blackouts when renewal negotiations fail, adding another layer of uncertainty. The vMVPD business is also known for its slim profit margins, making it a less attractive prospect for many streaming platforms.
Despite the potential pitfalls, Roku sees an opportunity in Frndly TV, which reportedly achieved profitability in 2022. While Roku initially positioned itself as an advertising company, the company has increasingly emphasized its plans to expand its subscription revenue streams. Roku already earns a commission when users subscribe to services on its platform, but with Frndly TV, it can retain 100 percent of the revenue generated by the service.
In the near term, Roku’s strategy for Frndly TV is likely to resemble its approach with the Roku Channel, its ad-supported streaming service launched in 2017. Roku benefits financially when users watch the Roku Channel instead of other ad-supported services, so it has aggressively promoted its own service across its home screen. The company has openly stated its intention to apply a similar strategy to Frndly TV.
"We’re going to use [the platform] to drive Frndly, which is now part of Roku," CEO Anthony Wood said during an earnings call, indicating the company’s commitment to promoting Frndly TV within its ecosystem.
However, some analysts believe that Roku’s ambitions extend beyond simply promoting Frndly TV subscriptions. They speculate that Roku might use Frndly TV as a stepping stone toward offering a wider range of pay TV channels.
Frndly TV currently occupies a niche within a niche, focusing primarily on reality TV and reruns. It lacks representation from the top 10 cable channels and includes only eight of the top 50. Notably, Frndly TV’s channel lineup does not include any news or sports channels. As of late 2022, Frndly TV had approximately 700,000 subscribers.
By entering the vMVPD business, Roku instantly gains significant leverage in negotiations with TV programmers, representing its 90 million households. It seems unlikely that Roku’s efforts would be limited to channels featuring reruns of older television shows.
A plausible scenario is that Roku will gradually expand its channel offerings, leveraging TV programmers’ increasing willingness to consider more flexible bundling options. Roku could then integrate these offerings into its home screen and live TV guide, providing a streamlined billing system for managing subscriptions. This approach could position Roku as a simple solution for individuals who still want access to cable channels.
The question of why other streaming platforms haven’t pursued this strategy has been a topic of discussion for some time. Now, Roku appears to be in a prime position to execute this vision.
The acquisition of Frndly TV presents both opportunities and challenges for Roku. On one hand, it allows Roku to directly control a subscription-based streaming service and retain all of the associated revenue. This could diversify Roku’s revenue streams and reduce its reliance on advertising revenue.
On the other hand, managing a vMVPD service requires navigating complex carriage agreements and dealing with the potential for blackouts, which could negatively impact Roku’s reputation and customer satisfaction. Additionally, Roku will need to invest in marketing and customer support to grow Frndly TV’s subscriber base.
Ultimately, the success of Roku’s acquisition of Frndly TV will depend on the company’s ability to effectively manage the complexities of the vMVPD business, expand its channel offerings, and seamlessly integrate Frndly TV into its existing platform. If Roku can execute its strategy successfully, it could become a major player in the live TV streaming market and further solidify its position as a leading streaming platform. However, failure to do so could result in a costly mistake that detracts from Roku’s core business. The next few years will be critical in determining whether Roku’s $185 million bet pays off.
