Maria Diaz/ZDNET
Are you a cord-cutter? The last time my family paid for cable TV was in 2017. Since then, we have watched all our TV entertainment on streaming services. While some shows are still difficult to find, nearly everything is available if you're willing to look for it or pay for it.
If you watch TV via streaming, you need a device to download and present the stream. Most smartphones, tablets and computers have apps that will do this.
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But they leave something to be desired when it comes to spending Fourth of July weekend curled up on the couch watching the latest episodes of The Librarians: The Next Chapter (season bought via Apple TV+) or rewatching Star Trek: Strange New Worlds (on Paramount+) before the new season debuts next week.
And that's where the class of device the ad industry calls CTV comes in. CTV (Connected TV) is the industry's term for streaming gear such as add-on devices for your TV or smart TVs themselves.
Back when my family cut the cord, we also standardized on one streaming TV platform: Roku. Roku did something different with its user interface that we really liked. It placed the external device inputs on the same menu as the streaming services. As such, you could use the same selection process to choose the Xbox as you would to select Netflix. It was a confusing hassle to switch inputs before Roku introduced that simple menu innovation.
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That one Roku TV with the integrated input menu eventually became two, then three, four, and now we have five. If we get a TV, we get a Roku TV. It's just that simple.
We are not alone. According to TV analytics firm Pixalate, "Roku led in CTV device market share in the USA (38%), followed by Amazon Fire TV (18%) and Apple TV (13%)."
Roku, in other words, has become a very big deal. But there's a limit to how much revenue the company can make from selling set-top boxes and licensing its OS for inclusion in TVs. After all, people just don't replace their TVs all that often.
So, like almost every other company with eyeballs potentially to sell, Roku has embraced that holy grail of attention capitalism: advertising. As a Roku user, I have to admit it is not nearly as annoying as I would have expected.
The company offers advertisers a wide array of advertising placement options. These include:
Ads on the home screen: Take over the entire home screen theme with an advertiser-driven focus.
Take over the entire home screen theme with an advertiser-driven focus. Destination ads: Appear on specific submenus of the Roku interface.
Appear on specific submenus of the Roku interface. Roku City ads: Curated ads that appear in Roku's trademark screensaver. While Roku allows banners in Roku City, the most appealing ads are those where the city gets redesigned with an advertiser's building hidden or displayed as an Easter egg.
Curated ads that appear in Roku's trademark screensaver. While Roku allows banners in Roku City, the most appealing ads are those where the city gets redesigned with an advertiser's building hidden or displayed as an Easter egg. Video ads: Intrusive beginning, interstitial and ending TV ads. These display on ad-supported streaming services, including Roku's free Roku TV Channel. They do not display over premium commercial-free streaming services.
Intrusive beginning, interstitial and ending TV ads. These display on ad-supported streaming services, including Roku's free Roku TV Channel. They do not display over premium commercial-free streaming services. Action ads: Invite users to click OK on their remotes to initiate an email or reminder. I've only seen a few of these on my Rokus.
But now Roku is upping its advertising game via a partnership with Amazon.
The Amazon deal
I can't tell if this is sleeping with the enemy, mutually-assured destruction or smart business. To explain, let's go back to Pixalate's analysis. Pixalate uses a metric called SOV (share of voice). Share of voice is the percentage of advertising activity attributable to a given platform. For example, if Ford ran a whole bunch of ads, what percentage of those ads were seen on Roku devices? That would be Roku's SOV.
Stick with me here, because this gets fairly brutal. According to TVTech, reporting on a Pixalate analysis only available to paying clients, Roku "had the highest open programmatic CTV device market share in the United States, with 39% share of voice (SOV) in Q4, 2024."
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But here's the kicker. Roku's share declined from 55% in 2023 to 39% in 2024. That's a heck of a market-share drop. At the same time, Amazon increased its share by 40% from 2023 to 2024. Amazon still has only 15% of the market compared to Roku, but one company's trajectory is up while the other's is down.
As you might imagine, a deal between Roku and Amazon would… wait… Roku's stock went up by 11% on the news that it was doing a deal with the company eating its market share? What?
So the deal announced in June is this: Amazon and Roku have integrated their DSPs (demand-side platforms) so advertisers can automatically buy ads on both Amazon and Roku devices. This gives advertisers a reach of more than 80% of connected-TV households.
For advertisers, the scale is big. But the deal requires advertisers who want the integrated-buying benefits to buy through an Amazon-controlled service. In a Barron's article, analyst Daniel L. Kurnos said the partnership represents Roku's "most significant pivot toward expanding their buying platform across the CTV universe."
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According to analysts at Wedbush Securities, quoted in TheStreet, Roku is "creating a moat as a CTV platform that will further insulate it from competition in the coming years."
Yeah, but the minute Roku's numbers start to go down -- if they do -- these will be the same analysts who say partnering with Amazon resulted in Roku giving up control of its biggest ad-sales reach to its biggest competitor.
But what does it mean for us users?
ZDNET reached out to Roku for comment on how this new ad program will affect users. The company replied, "We will pass on providing a quote for this article at this time, but thank you for reaching out." So we don't really have any additional executive perspective on the deal other than that both parties think it will be good for their businesses.
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So far, Roku has been very smart in how it advertises to its users. The ads are not intrusive, except on free TV services, where users assume they'll get ads to avoid paying for programming. That's a fair deal.
I will say that when Roku first introduced advertising, I expected it to suck. But Roku has been careful with how it places ads, and they've generally been unobtrusive and, with Roku City, even fun.
With a bigger reach, Roku is likely to run more ads. But if it doesn't change up the ads to something obnoxious, it probably won't spark a user rebellion.
Last year, once, when I paused my Roku on a premium, ad-free video channel, Roku ran a video ad with audio during the pause. That was annoying for a number of reasons. It blocked the paused frame, and the ad volume was inappropriately loud. I'm guessing Roku got a lot of user pushback on that ad style, because it hasn't shown up on my device since.
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It's not clear the company can sustain growth, support, and innovation merely on device sales and OS licenses. It needs a more regular stream of income. If the Amazon partnership increases Roku's footprint and market share, and the ads remain unobtrusive, it's probably a win-win for streamers and consumers alike.
I just think Roku's management needs to be very careful anytime they do an exclusive deal with a giant like Amazon. It may be a mutually beneficial partnership, or as Jack Nicholson said in 1989's Batman, Roku might be, "Dancing with the devil in the pale moonlight."
Stay tuned. Same Bat time. Same Bat channel.
What do you think about Roku's strategy? Do you see the partnership with Amazon as a smart business move or a potential long-term risk? Have you noticed any changes in the way ads appear on your Roku device? How much advertising would be too much for you? Let us know in the comments below.
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