Succession's Tom Wambsgans embodies the #1 FAST Service

The last two weeks we did a deep dive into the business health of the Top 3 FAST Services. I also added a splash of strategy advice from fictional Succession characters Logan and Kendall Roy. If you missed those previous posts you can read them here:

• #3 Tubi: Why Logan Roy thinks Fox should sell to Elon Musk

• #2 Pluto TV: Kendall Roy's Manic Attempt to Make Pluto TV #1

Now it’s time to write about the top dawg. Warning: Succession Spoiler Alert 🚨

#1 FAST Service: The Roku Channel

The top FAST Service right now is the Roku Channel. Roku has a lot in common with Succession’s Tom Wambsgans. Hear me out. Tom is the salt-of-the-earth outsider who slowly and steadily chipped away at the lead the much more powerful Roy children had in the battle for the top CEO spot. Just like how the launch of Roku’s first streaming device in 2008 barely registered as a blip on the radar of linear and cable providers who dominated TV then. The first device sold for $99.99. They quickly lowered prices with the goal of saturating the market. Today, you can buy their cheapest model for $29.99. Coupling low prices with being first to market allowed Roku to grab a commanding connected device market share in the U.S.

Just like Tom, Roku devices get the job done, but they aren’t winning any awards for being the best-designed anytime soon.

And now for the most “strategic” comparison…both Tom and Roku Founder Anthony Wood know how to rock the hell out of a pair of suspenders.

Ok, I’ll admit I’m stretching a bit with the Roku and Tom comparison. Now it’s time to let Roku’s numbers speak for themselves.

The Roku Channel by the Numbers

Roku launched the Roku Channel in 2017 to diversify its revenue from being too reliant on its high-cost, lower-margin hardware business. This has moved them into a much higher-margin business and enabled them to compete for a larger portion of the streaming ecosystem.

They now also generate revenue through advertising sales, operating the app store, the distribution of FAST channels within The Roku Channel, and their payment processor Roku Pay.

• MAUs: 73 Million (Rank: #2)

• Time Spent: 1.1% (Rank: #2)

• ARPU: $37.14 (Rank: #1)

• Revenue: $2.71 Billion (Rank: #1)

• COGs: $1.97 Billion (Rank #1)

• Profitability: $739 Million (Rank #1)

Key Takeaways

Roku’s hardware device revenue was $103 million in Q2 2023 (-17% gross margin) vs. Platform revenue coming in at $743 million in Q2 (53% gross margin).

Roku cleverly does not break out much data for "The Roku Channel" vs. the larger Roku operating system (OS) user base. I do believe Roku and the other Smart TV OS companies are methodically shifting to make their FAST service the default, so it’s fine to look at their overall "platform" business as the one other FAST Services are competing against.

Just look at the recent update Roku made to its home screen.

Roku is making "The Roku Channel" the default entry point on their OS because they own more of the ad revenue and content there vs. the broader app ecosystem. This gangster move’s significance cannot be understated. Being the default allows Roku to dictate terms to other streamers, sell sponsored ads other streamers have to pay for to get promoted on the homepage, and even favor its own original content.

But my main advice for Roku is to stop putting so much money into original content. There’s a lot less operational overhead in licensing, and it allows The Roku Channel’s programming team to promote the best content vs. feeling the need to promote their own original content. Instead, they should use all of the money they have to extend OS market share and license content including live sports rights, which have increasingly become the most interesting ways streaming competitors are trying to differentiate their service.

Roku’s stock is currently up 96% year-to-date as of this writing, after beating projected Q2 earnings by a whopping 40%. Roku did this by lowering costs and getting revenue back to double-digit year-over-year (YoY) growth at 11%.

Roku now has 122 million Connected TV users in the U.S., the most of any single company. As a result, Roku is forecasted to make $2.19 billion in CTV ad revenue in 2023, the third most behind Hulu ($3.63 billion), and YouTube ($2.89 billion).

Roku owning the Smart TV operating system (OS) and therefore distribution helped them not only build the most successful FAST service but also puts them in a great position to win the “Real Streaming Wars.” 

FAST Service Spreadsheet Access

If you want direct access to the Top 3 FAST Service’s spreadsheet, you just need to refer a friend or colleague. You can do that by forwarding them this newsletter and cc [email protected]. I will then provide you with spreadsheet access. I’m going to continue to add the numbers for the top FAST services, cable providers, and vMVPDs to monitor how the battle for the future of television is progressing.

I also thought it would be fun to try and use Bard and ChatGPT to extract data for the top FAST services, but that proved to be a waste of time. Bard was wildly inaccurate, and I use the free version of ChatGPT which is only trained on data up to 2021. If any of my dear readers pay for GPT-4 and want to replicate this to see if it pulls better data than either Bard or me, I would love to know.

You can see the Bard-hallucinated top 10 FAST services featuring Pluto TV currently with 833 Million MAUs if you get access to the spreadsheet. That would be nearly as many users as Snap and X (Twitter) combined and bring Pluto TV’s annual revenue closer to $12 Billion if they could maintain the same $14 ARPU. They wish.

What’s Next

For my next post, I’m working on trying to figure out how and when FAST overtakes traditional linear and cable to become the new television. Easier said than done, but there’s a viable path by the end of the decade. Until next time.

🤙 Moffie