Ad-supported Disney+ is the only tier of major streaming services currently unavailable on Roku, the number one device maker in the US.
Why isn’t Disney+ on Roku with ads yet? Streaming is a match made in heaven: Roku is the number one streaming portal in the US with a 40 percent market share, according to a Q3 survey by Parks Associates. (The Q4 NPD report put that at 38 percent.) And by the time Disney+ launched its ad-supported tier last December, it had “hired over 100 advertisers across all major categories.”
Tim Nollen, senior media technology analyst at Australian global financial services group Macquarie, called Roku’s omission of Disney+ Basic with Ads “hard to fathom” in a research note to clients. However, there may be a simple reason for this: there are not enough ads.
Subscription streaming services kick some money back to the gatekeeper if you use the subscriber’s platform or device (like Roku) to sign up. Ad-supported apps share ad revenue with the device maker, who looks after the shared ecosystem. Disney+ Basic uses ads to keep the ad load low – about 4-5 minutes per hour.
According to Colin Dixon, founder and chief analyst at NScreenMedia, this creates a relatively small amount of advertising dollars that Disney is reluctant to share. He also pointed out that when it launched in 2019, even ad-free Disney+ didn’t have a deal on Roku “until the last minute.”
Those were tough negotiations, and Disney and Roku are still negotiating the ad-supported tier. They are “committed” to a deal, a person familiar with the negotiations told IndieWire. It’s just a matter of time, and promotions—the time when a platform sells most of the year’s ads—are just around the corner; The Disney preview will be on May 16. The ad-supported Disney+ tier was announced a year ago; this is the second start of the streamer.
“Obviously, the two sides are debating how to share ad revenue,” Nollen wrote on March 29, “but we believe Disney’s opportunity cost is high without this presence.
If you’re still trying to turn a profit like Disney+ and other young streamers, the opportunity cost can be a real lost opportunity. And Roku represents an opportunity: by the end of 2022, the number of active accounts reached 70 million, which is almost 10 million more than in 2021. The number of streaming hours available on Roku devices increased by 14.3 billion hours to 87.4 billion.
And unlike Disney+, Roku is already profitable. In 2022, its gross profit rose 2 percent to $1.4 billion on revenue of $2.7 billion (up 20 percent).
But it’s not all sunshine and rainbows. On Thursday, Roku revealed through a filing with the SEC that it is laying off about 200 employees, or roughly 6 percent of its workforce. The company also deals with deposits for some currently unused office space. The restructuring, which is designed to “reduce the growth of the Company’s annual operating expenses and prioritize projects that the Company believes will allow for higher returns,” will cost Roku $30 million to $35 million in severance and other costs.
Nollen didn’t estimate what Disney could expect with ads on Roku, but Dixon has no doubt that Disney will win.
“In the end, Disney wins the argument. It’s a case of Roku needing Disney+ more than Disney+ needs it,” Dixon said, though he admitted, “It’s going to be awkward at first.”
Disney and Roku spokespeople did not immediately return calls to IndieWire for comment on the matter.
The Roku interface on a Roku-branded TV
Courtesy of Roku
After a challenging quarter from October to December (the first fiscal quarter of 2023 and the last calendar quarter of 2022), Disney+’s core service had 104.3 million global subscribers. Including Disney+ Hotstar (which doesn’t bring in much revenue), the number rises to 161.8 million. Those numbers don’t include stand-alone subscribers to Hulu and ESPN+, but they do include anyone with one or both services bundled with Disney+. (Hulu had 48 million subscribers, ESPN+ had 24.9 million.)
Disney’s direct-to-consumer revenue rose 13 percent in the quarter to $5.3 billion. The streaming business once again lost more than $1 billion ($1.05 billion, to be exact). Disney still believes Disney+ will be profitable in 2024.