Analysts make compelling cases for Comcast to pony up or stay away from the king of streaming devices
Should Comcast, in an effort to jumpstart its lagging streaming business, make a run at acquiring Roku? Media analysts are split on the question that's surfaced since the Wall Street Journal's Wednesday's report that Comcast chief executive Brian Roberts was "scoping out options" to make the company into a streaming powerhouse, including a potential acquisition of Roku.
On the one hand, a Roku acquisition would help Peacock, Comcast's linchpin streaming service, bring in more streaming ad dollars and provide a springboard to international expansion. On the other, there are business roadblocks in the way, and a deal wouldn't solve the service's primary issue -- a lack of content compared to competitors like Netflix and Disney.
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And there's another factor to consider: Buying Roku wouldn't be cheap.
Still, a Roku buyout would be a "great way" for Comcast to give Peacock a shot in the arm, Omdia analyst Sarah Henschel told TheWrap. Comcast recently reported 42 million signups for Peacock, but the Journal noted only about 10 million of those are paying customers. Compared to other major streaming services, that's minor league; Netflix leads the way with nearly 208 million global customers, Amazon Prime Video has 175 million, and Disney+ is already above 100 million subscribers.
Granted, Peacock only rolled out nationwide last July, and it shouldn't be expected to compete with the big boys immediately. Still, Discovery+ has 15 million paying customers already -- and it launched earlier this year. In other words, there's definitely room for improvement for Peacock.
"Other services like Disney+, HBO Max and Discovery+ have leaned heavily into partnerships or bundles to bolster subscriber growth," Henschel said. "Buying or partnering with Roku would also give Comcast nationwide partnership reach for Peacock as opposed to working with regional pay TV operators to build out bundles or partnerships."
Roku, which battles Amazon Fire TV for streaming device supremacy in the U.S., reported it had 53.6 million active accounts — and that The Roku Channel reached 70 million Americans — by the end of March; prominently featuring Peacock on the platform would boost the service's subscriber count.
Another selling point: Roku is a "very successful advertising platform and content aggregator," Henschel said. Roku is best known for its streaming devices, but ad sales account for the lion's share of the company's revenue each quarter. (Last quarter, Roku's platform revenue, which includes its ad sales, accounted for 81% of the company's $574.2 million in total revenue.)
For Comcast, tapping into that growing streaming ad market would be a nice jolt for Peacock as it works to attract more paying customers. (And remember, Peacock offers both an ad-free and an ad-supported subscription, which could lead to some "great synergies," Henschel said, between Roku and Peacock's ad strategies.)
Toby Halleran, a senior analyst with Ampere Analysis, agreed there are a few good reasons for Comcast to take a good look at Roku -- including there already being a technology tie between the two companies. "Comcast already has a relationship with Roku, given Sky’s stake in the company prior to Comcast’s acquisition of the European satellite operator," he said.
And that could pay off down the road, especially since Roberts said in April that Comcast was exploring ways to expand Peacock outside the U.S. "Sky’s Now TV boxes, which are available in Europe, are built on Roku infrastructure," Halleran said. "An acquisition of Roku could further complement Sky streaming subscriptions in Europe, and Roku device owners could serve as a demographic to market Peacock alongside any international expansion, and Roku devices also provide a low cost point of entry to access Peacock on a TV set."
Others aren't as bullish on a potential Comcast-Roku marriage, though. Bank of America analyst Jessica Reif Ehrlich, in a note to clients on Thursday, remains skeptical a deal would work out. She pointed to Comcast's budding partnership with Walmart to utilize Comcast software on smart TVs -- a move that would improve distribution and be "a significantly more cost-effective approach than a likely dilutive purchase of Roku." (More on that point in a minute.)
But perhaps the biggest reason for Comcast to stay away: A Roku deal "would add nothing from a content/IP perspective," Ehrlich said. And as they say, content is king when it comes to streaming. Disney was able to run past its Disney+ subscriber projections thanks in large part to having a treasure trove of franchises and well-known movies and shows people want to watch (and in the case of families with young children, watch over and over again). Roku is at the opposite end of that spectrum, having just jumped into the original content game with its purchase of Quibi programming late last year.
A few Quibi shows won't help Comcast boost its content library. Peacock offers subscribers exclusive access to classic NBC shows like "The Office," as well as a handful of original series; the service will also be the streaming home to the Olympics this summer. But more than one-third of the 9,000 hours of NBCUniversal content on Peacock is also on Disney-owned Hulu, Halleran said, while another 1,300 hours of NBCU content on Hulu isn't even available on Peacock.
Credit Suisse analyst Douglas Mitchelson, in a report on Thursday, also said a Roku deal would also be a radical shift in Comcast's current business strategy. "Acquiring Roku would be highly dilutive and likely lever Comcast's balance sheet (something that management has been clear it will not do near-to-mid term), in pursuit of a new out-of-market connected TV strategy with unclear longer-term barriers to entry and customer acquisition costs, and which management has already been building internally," he said.
Lastly, even if Comcast pushes forward with a Roku offer, it would end up being one of the biggest tech/media mergers of all time.
Roku closed Thursday trading at $423.58 per share -- giving the company a market cap of about $56 billion -- and the company traded as high as $486 just a few months back. Michael Queller, a professional trader based in South Florida, said any offer from Comcast would have to start at $500 per share, at minimum. That would put about a $68 billion to $70 billion price tag on Roku -- right around what Disney paid for the bulk of Fox's assets in 2018. Comcast, with a market cap pushing $260 billion, could find a way to make it work, Queller said, but it wouldn't be easy.
Compounding matters, Ehrlich noted that Comcast just re-instituted a stock buyback program in May that dampens the odds of making a big deal anytime soon.
Ultimately, if Comcast does end up making a play for Roku, it'll be betting on Roku's platform size, ad synergies and potential help with Peacock's international rollout -- but you probably don't want to hold your breath waiting on a deal to happen.