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Friday, December 9, 2022

Roku has a problem: the buttons don’t print enough money

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No, you haven’t suddenly forgotten how to read: Roku, the streaming and service company, is concerned about how much money its buds are making. Not because it suddenly started making clicky actuators for other companies to include in their products (what a hub that would be), but because Roku is really an advertising company in streamer apparel. And it has absolutely excellent real estate to sell to streaming services: For a fee, it sticks their logos on buttons that customers are likely to see every time they use a Roku. Even better, those buttons will nothing but start that service.

In short, Roku’s best ROI may be the Netflix red and Disney blue paint its suppliers buy.

At the bottom of each Roku remote, you’ll see four buttons with a variety of streaming services — currently Roku’s website shows Netflix, Disney Plus, Apple TV Plus, and Paramount Plus. That’s an absolute plethora of pluses, though the buds do change over time as new streaming services are born, die, or make other decisions about where to spend their ad budgets. (I’d love to imagine someone ever got the worst remote ever, only with buttons for streaming services they never use, like Sling, Rdio, PlayStation Vue, and Quobo. Points if you can guess which one of those was made up without googling.)

Sorry if you wanted buttons that everyone would use.
Image: Roku

Roku certainly isn’t the only company to rely on “button monetization,” but it’s pushing these buttons really hard; on his simple remote control these shortcuts literally form a quarter of all buttons, even if you are very generous and count the D-pad as four separate inputs. That ratio does not change that much if you switch to the Voice Remote or Voice Remote Pro. It’s easy to see why Roku makes the buttons so prominent; in 2019 Bloomberg reported that streaming services paid about $1 per customer to place their button on the remote. If that number is still accurate, it means that Roku could earn up to $4 per remote just from streaming service costs alone. Multiply that by most of the 63 million active accounts Roku reported in earnings for the second quarter of 2022 (pdf)and that’s a big part of the change.

If you’re Roku, that’s genius; every time you sell a remote, you get money from whoever buys it and from four streaming services. Limiting it to four slots on most models is also smart – the last time I checked there were many more streaming services than the one who would like a button on Roku’s remote. If there’s one thing I’ve learned from my economics lessons (aka the great GPU scalping wars of ’20 and ’21), low supply plus high demand equals cash in the bank. Roku can basically print money, as long as it keeps selling devices and remotes, convincing advertisers to keep paying the same amount for their own dedicated buttons.

Yes, so about that. In its Q2 earnings call last week, the company said it had to adjust its forecasts because people have not bought so many Roku devices. According to the company’s CFO, the main reason a drop in player sales is impacting forecasts is “a lower expectation of button revenue in certain deals where we sold those deep link buttons on the remote.”

To break that down, Roku hasn’t changed its financial assumptions just because it didn’t sell as many streaming boxes, or because fewer boxes means a smaller audience it can sell to advertisers. “The most explicit” result of that reduced sales, according to Roku, is that button profits drop.

Of course, consumers aren’t the only ones hesitant to throw money at things. Rokus too terribly concerned about advertisers tightening their wallets too, warn shareholders that the current economy could drive down advertising budgets, as the onset of the pandemic did. (Reassuring!) That almost certainly includes budgets on some streaming services, which can also lower the price of Roku’s buds if they’re not willing to bid that high for the real estate on your remote.

Of course, you might just ignore these buttons (or live in constant slight frustration that you can’t assign them to a service you actually use). But streaming services are generally under the impression that paying Roku for button posting could help them get enough subscribers to make it worthwhile, and Roku has now revealed how important those assumptions are to the bottom line. If you’ve ever wanted a sample of how valuable your attention is, Roku’s buttons may have just put one within reach.

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