Roku executive suggests era of streaming dongle is over

Executives at Roku this week acknowledged that consumers were moving away from the company's streaming dongles and were instead buying television sets with Roku's operating system built in, affirming comments made by officials at other companies that effectively pronounced the era of the streaming dongle to be over.

On Wednesday, Roku revealed revenue earned from device sales during its fourth financial quarter was $135.8 million, an 18% decline compared to the $166.4 million earned one year prior.

Outpacing Roku's device revenue by a large margin is the company's platform and services products, which increased 5% from the previous year to $731.3 million. Combined, Roku's overall net revenue was $867.1 million, ahead of Wall Street estimates that put Roku's quarterly revenue around $804 million. Average revenue per user (ARPU) also climbed to $41.68, a 2% jump compared to 2021, though it was down from the $44.01 reported the previous quarter.

Roku executives spoke at length about the company's new initiative to build and sell its own line of Roku-branded smart television sets, saying the program will help Roku better understand the integration of hardware and software in ways that will lead to improve customer experiences and streaming improvements.

Sales aren't necessarily the focal point of the new Roku TV program, the company's CEO Anthony Wood said on a conference call Wednesday. Instead, the Roku TV program is expected to open the doors toward better innovation of its devices and platform, including improvements in content discovery and engagement among the 70 million households that stream movies and TV shows through Roku.

Asked how Roku might address the perception that it was suddenly competing with third-party manufacturers of Roku powered TV sets — among them, TCL, Hisense and Element — Wood shrugged off the notion, saying the first-party program wasn't unique in the industry and could actually benefit third-party Roku TV set makers.

"If you look at licensing programs with other companies, it's very common for a program to have both first-party and third-party hardware," Wood said. "Companies do this because it gives their consumers more choice, and it helps drive innovation, helps better understand the integration of hardware and software, and those innovations roll out to licensing partners as well."

Those third-party partnerships have helped Roku grow to become the biggest operating system of smart television sets sold in the United States, Canada and Mexico, Wood said. In the United States, nearly half of all smart television sets and streaming devices inside broadband-connected households are running Roku's operating system, and it's quickly gaining popularity among "Generation Z" consumers, he added.

"The brand is great, the products are great, and people love streaming," Wood said.

But Roku has also been subject to certain macroeconomic elements that have impacted others in the streaming and technology space. While Roku saw gains in its platform revenue spurred in part by an increase in connected advertising dollars, executives affirmed that some media and entertainment (M&E) partners were expected to continue pulling back on their ad dollars in the coming months.

But Wood said Roku's position in the streaming space still makes it an attractive place for advertisers to spend their money. In addition to its own free, ad-supported streaming service, The Roku Channel, Roku also provides advertisement opportunities through its home screen and new menus like the "Live TV" and "Sports Zone" tabs that recently began popping up on devices.

"A big area of differentiation for us is that 70 million households start their TV journey every day by turning on their Roku TV and starting at the home screen," Wood said.

Roku's approach to the home screen isn't unique, nor is its decision to better control the hardware and software experience: Others, like Vizio, have successfully done the same thing for several years. Last month, a Vizio executive shrugged off Roku's decision to suddenly start making its own TV sets, predicting Roku will face significant challenges as they continue to build out that program, including getting shelf space at retailers like Walmart and Target.

Speaking at the 25th annual Needham Growth Conference in January, Vizio CRO Mike O'Donnell said Roku's challenges will be greater given the notion that the era of the dongle is apparently dead, with consumers shifting their attention toward streaming experiences built into their television sets. (Vizio offers one such experience, called SmartCast, that, like Roku, offers access to major streaming services as well as free, ad-supported content.)

On Wednesday, Roku suggested itself that the era of the dongle is coming to a close.

"We sell streaming players, and we have the Roku TV program, and both are successful," Wood said. "As time has progressed, the Roku TV program is becoming increasingly important to active accounts, and is now the majority of new active accounts."

Roku’s own TV sets are expected to come in a variety of sizes, starting at $120. Retail partners have yet to be named, but Roku says the first models will start shipping in the spring.