I was first introduced to Roku in 2015 when I received a “dongle” for Father’s Day. I must admit, it sat in a drawer for nearly a year until I saw an article about how the equipment helped deliver streaming signals to remote areas of your house without dedicated wiring. I have been a DirecTV household for years, signing on when Fox acquired the satellite provider in 2003. I mean, who doesn’t like a company discount? My house at that time didn’t really have wiring issues, and I had fewer TVs, so I threw the article and the Roku back in the drawer.
After moving out of that house, I found myself with a couple of outdoor TV locations. By then, DirecTV was offering satellite subscribers the ability to stream much of their satellite programming through a DirecTV app. The process was fairly straightforward, and the Roku stick worked well on the patio. Soon, I was taking the Roku stick with me on summer vacations to escape the heat of the Arizona desert. It served as a good backup against Airbnb owners who decided it wasn’t their responsibility to provide a bundled TV service.
As “dongles” improved and TVs with Roku software became common, I switched entirely to Roku for all TVs inside and outside the house, except my main TV. This change allowed me to save about $40 per month by removing the extra boxes I had been paying DirecTV for, and added a redundancy in case the satellite or my internet service failed. Now, I have several TVs running Roku OS, some with a “dongle” that, due to the TV’s age or operating system, can’t download the DirecTV satellite app, and one DirecTV HD DVR HR54-700 connected to a Gemini C71KW-400 for my main TV.
Last week, Fox Corp. announced that it has entered into an agreement to acquire Roku, the television operating system used by 100 million people worldwide to access streaming products on their TVs (full disclosure: I was employed by Fox Sports from 1995 through 2009 and as an advisor through 2015). The transaction raises many questions for both parties, as well as consumers like me.
Here’s my breakdown of the transaction that is scheduled to close in early 2027.
For Fox, the proposed transaction would extend its reach by another 100 million homes. What caused the change in strategy by Fox? Are they finally over the failed Myspace acquisition of 2005 and ready to truly embrace streaming as a core distribution option?
And for Roku, what led them to make this move now? Was it simply a case of wanting a content partner to help shore up the Roku channel, or are there bigger plans that we don’t know about or can’t even begin to contemplate at this time?
Let’s take a look at the deal from both sides and see if there is a proverbial “pony” hidden in there somewhere.
Fox’s Rationale
Fox has basically sat on the sidelines during the “streaming wars” that began eight years ago. Sure, they were a partner at Hulu, had the ill-fated Venu Sports venture with ESPN and Warner Bros. Discovery, and the Fox Weather, Fox One, and Fox Nation verticals. But they avoided the standalone streaming ventures that the other major networks all dove into with reckless abandon. It was ultimately deemed, at least by Wall Street, a smart strategy. So why now? What changed that led Fox to pursue a digital strategy with a platform partner, even though they have been overwhelmingly tied to the legacy media bundle?
This combination makes Fox an immediate digital force. It marks Fox’s return to the distributor business, which they have lacked since the sale of DirecTV to Liberty Media in 2007 and the sale of Sky and Star TV to Comcast and Disney, respectively, in 2018. It puts Fox back on a more level playing field when dealing with other content/platform players. Fox wants its content on other platforms, and the other content players want their streaming services included in Roku’s app offerings. Leverage is always a factor in these carriage and distribution deals, and only playing with one offering is problematic. For Fox to have a clearly defined “insurance policy” to circumnavigate carriage battles with legacy linear television distributors is a big win for the folks on Pico.
It is possible this could help Fox in sports rights negotiations, as properties increasingly look for ways to reach the “cord-cutters” and “cord-nevers,” categories that have grown exponentially in number over the last 15 years. The data that Roku collects will allow Fox to offer advertisers more targeted approaches than ever before. Roku retains roughly 30 percent of the ad inventory from the third-party apps on its platform. This will be a boon to Fox’s ad-sales group as they monetize a significantly increased reach through a combination of national, local, and demographically targeted ads. Count on Fox networks and verticals to be prominently placed on the “Roku City” home page.
One area that I will be interested in seeing evolve is the combination, or lack thereof, of Tubi and The Roku Channel. During separate conference calls with analysts, both sides stressed that each service would continue to operate as standalone platforms, citing only a 33% duplication of viewers. Tubi, with its on-demand model, and The Roku Channel, with its linear-esque FAST model, will both benefit from increased cross-channel promotional and programming opportunities.
Roku’s Rationale
This always seemed like the logical next step for Roku. Shareholders seemed to endorse the transaction, with Roku stock rising after the deal was announced. But why now? Is there some sort of “chink” in Roku’s armor, or is this just another in a long list of distributors who have come to realize that having premium content helps shield you from some new technological advancement that can turn your business plan upside down in a matter of years?
As smart TVs have evolved, the makers of the operating systems have made some moves as well. Roku, Amazon Fire, Google TV, and Apple TV are the primary providers of smart TV systems, along with manufacturer-specific systems from Samsung, LG, and Vizio. The equipment business, whether it be “dongles” or set-top boxes, has slowed, but is far from fading away, as many consumers continue to favor these add-ons over the somewhat “clunky” operating systems resident in today’s smart TVs.
The platform business, meanwhile, continues to grow and innovate. Subscription fatigue, combined with enhanced offerings, has led to continued growth in FAST viewership and its associated ad revenue. Roku’s operating system and FAST channel lineup, along with Fox’s news, sports, and Tubi offerings, make this a compelling combination. Both parties have distinct strengths that complement each other, leading to a relatively small initial savings projection of only $400 million on a $22 billion deal.
Time will tell
While this merger appears to have the makings of a successful marriage, time will ultimately tell whether that proves to be true. For Fox, why build it if you can just buy it? For Roku, which has always been a pretty neutral party to content companies from a distribution standpoint, will this tie-up with Fox change that dynamic?
When looking back at the many distribution/platform combinations in the past, some seem to work, some work for a while, and some don’t work at all. Which one of the aforementioned plays out over the next decade this time around?
Bob entered the television business in 1981, when he sold his first cable TV subscription to a nice lady in Aloha, Oregon. After 8 years on the cable side, he moved to Liberty Sports’ RSN group on the programming side. Liberty Sports was later sold to Fox, where he rose to President of Fox Sports Networks and Fox Sports International. He stepped down from full-time work at FOX Sports in 2009 but remained an advisor through 2016. He now spends his days playing golf, occasionally consulting through his company, Thompson Sports Group, and engaging with “experts” on X about a variety of subjects. He can be reached on X at @rltsports.
