Shares of Netflix fell more than 4 percent during the trading day Tuesday following a report the company sought to acquire streaming hardware and connected television platform developer Roku but missed out on the opportunity after Fox Corporation outbid it.
The report, from the newsletter Semafor, made the case that the world’s most-popular subscription streaming service is ready to acquire other companies and products that are complementary to its business, but is having some trouble executing on deals in recent months.
Its pursuit of Roku, which had not been previously reported, fell apart just a short time after Netflix withdrew from a bidding war for Warner Bros Discovery (WBD), with executives feeling the streaming company had little chance to get regulatory approval for its deal. Paramount is now moving forward with an acquisition of WBD, and secured approvals from the U.S. Department of Justice’s antitrust division last week.
It isn’t clear how close discussions between Netflix and Roku were, or if a financial offer was made to acquire the company. But executives reportedly felt any deal would have trouble gaining regulatory approvals because Netflix competes against services currently found on Roku’s platform, including Disney Plus, Amazon’s Prime Video and Paramount Plus.
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Roku was founded in 2002 and became closely aligned with Netflix when the latter company sought to build its own streaming TV device aimed at bringing a then-fledgling streaming service to the biggest screen in most homes. (At the time, Netflix’s core business was shipping movies and shows on DVD through the mail.)
Netflix abandoned its set-top box project in 2007, with the company deciding instead to develop apps for a variety of devices, including Internet-connected DVD and Blu-Ray players, TiVo boxes, game consoles and computers. It was one of the first streaming apps available on the inaugural Roku box that debuted a year later, and the two companies have been close — but separate — ever since.
Acquiring Roku would have helped Netflix further its advertising business: Roku’s streaming app The Roku Channel is the second most-used free service on its platform (YouTube is first), and the company’s advertising and platform business generated more than $1.1 billion during the first three months of this year alone, outpacing hardware sales by a sizable margin.
Netflix’s advertising business has gained momentum since the company released its ad-supported tier a few years ago, but the bulk of the company’s revenue is still rooted in monthly subscriptions charged for its content.
With Roku and WBD now off the table, Netflix appears ready to acquire a content player, a move that could help beef up its library of films and TV shows and free up capital currently earmarked for licensing. Semafor reported Netflix is interested in Lionsgate, the production studio behind TV hits like “Tracker” on CBS, “Grey’s Anatomy” on ABC and “Mad Men” on AMC Network. Grey’s Anatomy consistently ranks among the most-watched TV shows on Netflix in the United States.
Netflix has not submitted a formal interest in Lionsgate, Semafor said, citing the information to an unnamed source.
