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Roku predicts that half of American households with a TV will cut the cord by 2024

Roku has just reported a strong holiday quarter, which is not really surprising: there is no time of the year when people buy more streaming boxes, sticks or new TVs that happen to use Roku software. The company ended 2019 with 36.9 million active accounts and customers streamed 11.7 billion hours of content in the fourth quarter.

“We are now entering the streaming decade when we believe that consumers around the world will choose streaming as their primary way of watching TV,” wrote Roku CEO Anthony Wood in his letter to investors. Roku believes that by 2024, half of all American households with a TV will have cut the cord or never had a cable to start with.

During the profit call, Roku CFO Steve Louden said that the company’s hardware activities “only had a minor impact” due to the corona virus.

But the real story remains the flourishing Roku advertising company. “In the course of 2019, our growth in revenue from video ads significantly outpaced streaming hours,” Wood wrote and said Roku “wants to shape the future of OTT ads.”

Photo by Amelia Holowaty Krales / The Verge

“In 2019, all top 10 technology and telecom advertisers, as well as all top 10 consumer consumer goods packages, spent with Roku,” Wood said in the letter. And Roku has been willing to exercise his power in the streaming market to help strengthen his ad numbers. This excellent report from The information yesterday was about part of the friction developed between Roku and major entertainment companies such as Fox and NBC. Last month Roku and Fox got into a short but bitter public sphere after the companies had not reached an agreement on a new transport agreement. The gap came just before the Super Bowl, but both parties signed a new pact that kept Fox’s apps on Roku devices up for the big game.

Without mentioning Fox’s fox, Wood said he was watching Super Bowl LIV on a Roku. Of course in 4K.

According to The information, Comcast’s NBCUniversal ended in a similar dispute with Roku at the end of 2018 and prepared for the possibility of kicking off the NBC app banner and other NBCU networks such as the US and Syfy from Roku’s platform. But that situation was resolved before anything became public.

When it’s time to extend one of these deals, Roku takes the opportunity to further expand his advertising unit. And it has multiple advertising strategies in the game. You must not miss the big ads on Roku’s home screen. That is a top placement and Roku noted today in his income release that Disney has benefited from the promotion of Disney +. The company’s free Roku channel is also an important means for advertising revenue. But there is a third pillar that is just as important as the two: Roku also sells third-party streaming apps. Per The information:

It also sells part of the advertising space on the apps of other companies. It does that by buying a portion of the advertising inventory of those apps from the companies at a reduced rate, pooling the inventory with other inventory and reselling it to advertisers.

Roku’s advertising company earns the company much more money than hardware sales from cheap streaming players. But the ambitions to build on that company have led Roku to head with other content providers. Smaller channels do not really have many options for negotiation; they cannot afford to lose the huge user base of Roku. But larger players can push back. According to The information, Fox opposed Roku’s requests to offer programming for The Roku Channel at the latest carriage renewal, and the advertising conditions did not meet what Roku had hoped.

Despite the tense negotiations, Roku still positions itself as “a neutral partner at the center of the streaming ecosystem,” according to the investor letter.

But the company sometimes even bends its strength with its own partners. Within this report from Protocol the emergence of TCL as a TV manufacturer is an interesting gold nugget: “It is said that TCL has insisted on a change in the terms of the deal” with Roku, the report says. The margins on TV sales are paper thin and Roku keeps all advertising and services revenue from Roku TVs to itself. TCL makes the well-assessed hardware, but Roku manages the software, new functions and updates. It now even has a licensing program for companies that want to build sound bars and speakers for Roku TV sets.

In total, Roku customers streamed 40.3 billion hours of content in 2019. But sometimes new software functions can even work against it. This is what the company said about why Q4 streaming growth seemed a bit tame compared to 2018:

The annual growth rate in streaming hours moderated somewhat in Q4 2019 versus Q4 2018, partly due to the timing of Black Friday that declined a week later in 2019 and the partial rollout of the “You are still watching” feature, which prompts users to confirm that they look after a period of inactivity.

“Although 2019 was a turning point in streaming obligations, the full power of change is yet to come,” Wood wrote in the investor letter. “Roku is well positioned for the new streaming decade, as we continue to differentiate our platform, deliver strong growth, implement our strategic plans and bring together more consumers, TV brands, content providers and advertisers.”