Why Roku wants more content — even from a failed app

Roku is reportedly in talks to buy the rights to content from Quibi, the short-form video company that shut down after just a few months. While it may seem surprising that leader Roku would make a deal with failed Quibi, the move would fit nicely into Roku’s content-acquisition binge in a hypercompetitive space.

The Wall Street Journal reported Wednesday that Roku, streaming’s top distribution platform with more than 50 million active accounts, is nearing a deal with Quibi.

Roku (ROKU) built its business by being a hub for other services, and its success is thanks to the device’s ability to offer customers content from a slew of options.

But Roku has been focusing on acquiring more content for itself. That makes sense because original content is increasingly important in the hyper-competitive streaming world — even if that content is from the short-lived, often mocked Quibi.

Case in point, Roku announced on Wednesday that users watched nearly 60 billion hours of streaming content last year, an increase of 55% year over year.

Scott Rosenberg, Roku’s senior vice president of platform business, wouldn’t confirm that the company is trying to buy Quibi’s catalog, but he did note that increased content, exclusive or otherwise, is significant to the company’s future growth.

“Our broader mission as a company is to capture all of the TV time that happens in a user’s household,” Rosenberg told CNN Business. “To do that, we actually have to provide everything the consumer might want to watch.”

In the land of streaming, content is king

Roku has been filling up its content coffers via the Roku Channel, its ad-supported offering that allows users to stay on the platform rather than switching to other streaming services to find something to watch. The company says the channel offers more than 40,000 free movies and TV shows and 150 live channels.

By investing in more content for the Roku Channel, the company is hoping to give users a reason to never leave the platform. If you want to watch Netflix, you can. If you want to watch something that Netflix doesn’t offer, but the the Roku Channel does, you can do that too.

According to the company, this plan has already worked, as evidenced by the Roku Channel becoming one of the platform’s top 10 channels. Rosenberg sees the Roku Channel as a “very strategic, important investment area” for the company’s business.

“How do we get the other 50% of viewership that’s happening in a Roku household, but not on Roku? It’s going to be through content,” Rosenberg said. “As we’ve gotten bigger, as we’ve had more scale, as our ad business has grown, the Roku Channel has grown.”

Meg Whitman, chief executive officer of Quibi SA, speaks while Jeffrey Katzenberg, chairman and founder of Quibi SA, right, listens during a Bloomberg Technology Television interview in Los Angeles, California, U.S., on Tuesday, Jan. 15, 2019. Katzenberg and Whitman discussed their new video streaming service and how they are building the new format and working with Hollywood's biggest studios. Photographer: Martina Albertazzi/Bloomberg via Getty Images

Related article Short-form video app Quibi is shutting down after just six months

Andrew Hare, a senior vice president of research at media firm Magid, told CNN Business that it makes sense for Roku to have “increasingly sticky content” to “keep users coming back for more.”

“Anything Roku can do to continue the growth story on ad-based video on demand and assert their strength in that space will be a consideration,” Hare said. “It’s clear Roku is aggressively pursuing content deals and licensing for growth. It’s not necessarily about the Quibi content, more likely content in general.”

Hare noted that Roku’s focus on content has also become a “critical element in negotiations” with companies looking to add their services to Roku’s platform.

For example, Variety reported in September that when Roku made a distribution deal with NBCUniversal’s new streaming service, Peacock, NBC television content was also added to the Roku Channel.

Variety also reported that one of the sticking points in the lengthy negotiations between Roku and CNN’s parent company WarnerMedia over HBO Max had to do with Roku looking for rights to HBO Max content to add to the Roku Channel.

“Everyone is trying out new terms, and it’s always a bit precarious with the big players. Subscription share ad split, and now content licensing deals for the Roku Channel all seem to play a part in these new deals,” Hare said. “Ad-supported video on demand, in many ways, is the next frontier in streaming and as a result seems to be a bigger part of Roku’s negotiation strategies.”

Roku-flix?

Bernie McTernan, a senior analyst at Rosenblatt Securities, believes that the limited popularity of Quibi’s content is a moot point for Roku because all that matters is that you can find it on the platform.

Related article HBO Max and Roku finally reach a deal

“On its own, I don’t see this being a significant needle-mover,” McTernan said of the potential Quibi deal. “However, there are broader industry implications if the purchase of Quibi content is a signal of an increasing shift into original content.”

McTernan also pointed out that Roku reminds him of another service that grew from its origins of strictly licensing content: Netflix.

“There are parallels to Roku’s strategy to how Netflix became a dominant media company, starting as a third party distributor of traditional media’s content and creating a larger business on top of it,” McTernan said. “Thus far Roku has been licensing content, but this could be an interesting test for the company.”

Though Roku is focusing on bringing in more content, it’s unlikely the strategy will completely shift its overall business. In short, don’t expect Roku to turn into Netflix anytime soon, according to Hare.

“Roku doesn’t need to spend $10 billion a year on content to drive subscriptions. That’s not their business,” he said. “However, exclusive content has become the cost of entry into all of streaming, and I imagine we will see more, not less, in the Roku Channel’s future.”