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Roku Has Some Leverage in Its Standoff With NBCUniversal

Roku's scale, together with the business headwinds that TV networks are currently facing, might give it some negotiating power.
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Update: Following the publication of this article, reports emerged that Roku and NBCUniversal are close to a deal. Website The Streamable reports that "concessions on both sides were made to get a deal done."

Update 2: Roku says it has reached a deal with NBCUniversal that will "bring Peacock to Roku customers and maintains access to NBCU's TV Everywhere apps."

Comcast  (CMCSA) - Get Comcast Corporation Class A Report has had many battles over the years with TV networks over distribution terms. Now it’s finding itself on the opposite side of the fight with a major streaming platform.

But this battle is a little different than the ones fought so often between pay-TV providers and TV network owners. In this case, the distributor might have more leverage than the content provider -- particularly at a time when TV ratings  are down and cord-cutting has accelerated.

On Friday morning, Roku disclosed that Comcast’s NBCUniversal unit planned to remove its TV Everywhere apps -- apps that can be accessed with a pay-TV login -- from Roku’s platform. An NBCUniversal rep indicated that 12 apps for NBC-owned stations will be departing Roku, as will 23 apps provided by the Spanish-language Telemundo unit and 11 other TV network apps.

The apps in question haven’t yet been named. But it’s worth noting that NBCUniversal’s streaming app portfolio includes (among other things) apps for CNBC, regional sports networks, Bravo and the USA Network.

Roku’s stock fell 2.6% in Friday trading to $160.47. The decline came amid a 1.1% drop for the Nasdaq.

The culprit behind NBCUniversal’s move: A dispute over ad inventory-sharing for NBCUniversal’s Peacock service, which features two ad-supported tiers along with one ad-free tier and has been unavailable on either Roku or’s Fire TV platform.

Roku’s standard distribution terms for ad-supported content on its platform require an advertiser to either hand over 30% of its ad inventory to Roku, or to let Roku fully manage and sell its inventory.

If the former option is chosen, Roku keeps all of the revenue from the ad inventory in its possession, and the content provider keeps all the revenue from the rest of the inventory. If the latter option is chosen, Roku shares 60% of whatever ad revenue it generates, minus a 15% “operational and serving fee.”

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Amazon’s Fire TV platform, it’s worth noting, also typically requires content providers to hand over 30% of their ad inventory. In addition, Amazon only allows third-party ad networks to be accessed via its Amazon Publisher Services platform.

Regardless, according to Roku, NBCUniversal has refused to provide it with any Peacock ad inventory, on the grounds that the Peacock app is free and that it’s showing less than 5 minutes of ads per hour.

The company also claims that NBCUniversal’s apps “represent an insignificant amount of streaming hours and revenue on our platform,” and notes in an e-mail to users that NBCUniversal’s channels are still available to AT&T, Charter and (interestingly enough) Comcast TV subs via the companies’ respective pay-TV apps. It also notes that users can access the channels by signing up to free trials to online TV services such as YouTube TV and Sling TV.

In addition to NBCUniversal, Roku and Amazon both currently have disputes with AT&T’s WarnerMedia unit related to the revenue cut they would receive for sign-ups to the HBO Max streaming service. Roku typically seeks a 20% cut for subscription sign-ups that happen on its platform.

Roku and Amazon’s scale might give them some leverage in these standoffs: Roku had 43 million global active accounts on its platform as of June, and Fire TV had over 40 million active users as of January.

Also: In the case of the NBCUniversal dispute, the fact that a user losing access to NBCUniversal's Roku apps could still access their content through other means -- for example, via mobile apps, a PC browser or a pay-TV set-top -- also makes the standoff different from one where a pay-TV subscriber completely loses access to a channel (and is up in arms over it).

And one also can't lose sight of the top-line pressures that NBCUniversal is facing right now. The consensus among analysts polled by FactSet is for NBCUniversal's revenue to drop 17% in 2020 to $28.3 billion.

Meanwhile, with Roku and Amazon generally treating the sale of streaming devices as loss leaders, video ad sales and subscription revenue cuts play a pivotal role in each company’s monetization strategy for its streaming platform.

A very large percentage of Roku’s non-hardware revenue -- it’s referred by the company as “Platform” revenue -- is believed to come from ad sales and to a lesser extent subscription cuts. Roku’s Platform revenue rose 46% annually in Q2 to $244.8 million, and accounted for 69% of its total revenue.

Given the long-term opportunity provided by streaming video ads, Roku arguably has a lot of motivation not to give in to NBCUniversal's demands, and thus avoid giving other content providers an incentive to also demand more favorable terms.