As Roku becomes more like TV, some partners say it’s abusing its power

The company recently changed the terms of its distribution agreements for linear streaming channels. Some critics say Roku, like other streamers, is consolidating power.

A Roku Inc. signage on a Smart television in an arranged photograph in Hastings-on-Hudson, New York, U.S., on Sunday, May 2, 2021. Roku Inc. is scheduled to release earnings figures on May 6. Photographer: Tiffany Hagler-Geard/Bloomberg via Getty Images

Some allege that Roku’s latest contractual changes are an example of platform providers consolidating power.

Photo: Tiffany Hagler-Geard/Bloomberg via Getty Images

In recent weeks, Roku began to send notices to many of its content partners, informing them that it would change a key distribution agreement. The changes applied to free, ad-supported streaming channels, also known as FAST channels in industry parlance, which have been a massive growth engine for TV makers and publishers alike.

Roku told its partners they would have to switch some of the technology powering their channels to its in-house stack, and that it would decrease revenue share payouts by 5%. But what concerned Roku’s partners the most were the indirect implications of these changes: By taking control of the technology powering these linear channels, Roku was also limiting access to the data related to channel performance.

FAST channels have become very popular with streaming audiences because they provide a cable TV-like leanback experience, free of charge. As those channels draw increasingly large audiences, some industry insiders argue that streaming platforms have to behave more like traditional TV services to match their level of quality. Others allege that Roku’s latest contractual changes are just the latest example of platform providers consolidating power.

‘A bit of a money grab’

Roku began adding free linear programming to its streaming devices and TVs in 2018 as part of its efforts to turn the Roku Channel into a destination for ad-supported video. The company has long offered publishers a 60/40 ad revenue split for both on-demand and linear content.

Under the new terms, Roku keeps 45% of net advertising revenues. That’s still less than the cut some competing platforms take, according to industry insiders. However, given Roku’s size, the change has significant impact on the business of these channel providers, with one of the affected publishers calling it “a bit of a money grab” in a conversation with Protocol.

In conjunction with the new financial terms, Roku is also requiring linear channel providers to use the company’s CDN services as well as its ad insertion technology. Prior to that, publishers were free to either use third-party solutions providers for both or directly buy resources from vendors like Amazon’s AWS.

Two sources told Protocol that Roku’s move was primarily prompted by past outages related to popular live events; one source suggested that the company may be looking to transition its FAST partners to the new platform in time for the midterm elections to prepare for anticipated live audience surges. The company began to transition a first set of partners to its new platform in May and aims to bring over all remaining FAST channels in multiple stages in the coming months.

“Roku is committed to providing our customers with the best streaming experience possible, with our new system allowing for easier delivery of content and improved quality,” said a Roku spokesperson via email.

However, by taking CDN and ad insertion tech in-house, Roku is also taking control of the kind of viewership and ad performance data necessary to program these channels, and the company is said to not have any infrastructure in place yet to report some of this data with a lot of granularity, or in real time. Multiple Roku partners who spoke to Protocol under the condition of anonymity expressed fear that they would have a lot less data about the performance of FAST channels going forward.

Changes like that not only make it harder to program these channels: In some instances, FAST channel operators also have revenue share agreements with content owners that require them to know exactly how many ad spots were served during a show or movie. "The data picture is getting increasingly bleak,” an affected publisher told Protocol.

Using data as a competitive advantage

Roku is not the only streaming platform operator looking to take control of lucrative FAST channels. Samsung has also been pushing publishers to use its own CDN, but multiple sources told Protocol the company had been more measured in its demands, which included giving partners longer lead time for the switch-over and offering more access to data from the get-go.

Samsung, Roku and competitors like Pluto and Vizio are also increasingly programming their own FAST channels to run alongside licensed channels from third-party publishers. Samsung, for instance, operates a “Baywatch” channel as well as a channel called “My Kitchen Nightmares.” Altogether, the TV maker now operates around 20 free linear channels on its TV Plus streaming platform.

By contrast, Roku only operates a handful of its own FAST channels based on programming from the “This Old House” franchise the company acquired in March 2021. Some of the sources Protocol talked to expect the company to add more owned and operated linear channels to its programming in the coming months, and the fear is that Roku may use some of the data it isn’t sharing with partners to inform those programming choices.

"They are being advantaged competitors," one source said. Another called it “classic big platform bad behavior.”

Roku declined to discuss details about its data reporting on the record, but a spokesperson signaled that the company was willing to address publisher concerns related to the subject in the coming months. “When we make changes like this, we work with our partners to achieve the desired benefit and have a shared interest in building a successful business together that best serves our users,” the spokesperson said via email.

Internet TV becomes more like TV

The transition of TV programming to the internet has been a watershed moment for consumers and content companies alike. People can now watch programming for free that used to be tied up in $100 cable bundles. Programmers have more avenues to people’s eyeballs, and are less beholden to a small group of gatekeepers. Online TV networks and advertisers are able to track who is actually watching and interacting with their content, with real-time data replacing much less granular Nielsen-type viewership metrics.

Now, there is a fear among programmers that the tide is turning. Streaming platform operators are emerging as the new gatekeepers, and access to data is becoming a major point of contention as part of this power shift — a shift that makes streaming media look a lot more like the business of traditional television.

Not everyone sees this as a negative. Frequency, one of the startups that manages FAST streaming channels for a number of publishers, told existing and prospective partners in an email last week that policies like those instituted by Roku now would make things simpler and cheaper for FAST channel operators.

“These changes reflect the rapid evolution of FAST, and the adoption of business and operational models similar to those in the traditional linear ecosystem,” Frequency’s Jon Cohen, the senior vice president of Business Development, wrote in that email.

Others don’t see these changes in such a positive light. “It's a back to the future thing," said one publisher affected by Roku’s changes.

"This is a giant step backwards," agreed another source. "They're trying to put the toothpaste back in the tube."

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