Themes From Roku and Trade Desk Earnings

Roku and Trade Desk ("TTD") both reported earnings last week. 1Q results were strong but 2Q does not sound that great, especially for TTD which mentioned that during the last 10 days of April, "total spend improved to a negative high teens year-over-year decline."

But this post is not about near term puts and takes. I want to outline the big picture themes that stood out to me.


TV Upfronts

Both TTD and Roku talked about how failure of traditional TV "upfront" season can accelerate movement toward connected TV ("CTV").

Here's Roku in its 1Q20 call:



Here's TTD:

"Often, the majority of TV ads are sold in the upfront process. The upfronts are usually done in late April and early May, and those events are largely suspended this year."

"For advertisers, this can be liberating. I hear it from brands and agencies every day. For them, the upfronts are a bit of a burden. They're asked to commit billions of dollars to content they don't know that much about and chasing audiences that they can't measure quite as well as anywhere else. Now they have the freedom to be more deliberate, agile and data-driven in their TV ad investments."

That's an interesting point about advertisers not liking the upfront format. It reminds me of Bruce Greenwald's views of upfronts - as a scheme for media to collaborate against advertisers. 

"Behind the glitz is a highly successful, closely coordinated system to ensure the highest prices possible for advertising with the least incentive among networks to undercut one another."

"The up-front season occurs in the context of a general industry agreement on capacity developed under the guise of a public interest code of conduct to 'protect' viewers from too many advertisements...With the limited number of minutes available for sale preagreed, the tight time frames of the season make it relatively difficult for advertisers to successfully pit the networks against one another on price."

      - from "Curse of the Mogul" by Seave, Greenwald, and Knee


So traditional media is already declining, and now its implicitly anti-competitive/collaboration scheme is being exposed.

The question is what replaces the upfronts? Will there be another process that protects the bargaining power of publishers? Or does the leverage shift to ad buyers from now on?


CTV Now Exceeds Linear TV in Reach


I find it hard to believe but this is what TTD is saying. Jeff Green actually goes further and compares TTD alone to traditional TV!

"As I said, according to eMarketer, our total U.S. households with cable would fall below 82.9 million this year. Our research suggests it could be below 80 million. This year, we expect to reach well over 80 million households via CTV in the United States."

"This is an important point. The Trade Desk is the largest aggregator of CTV ad impressions across every major content provider, and that massive scale is a great leading indicator of future spend on our platform. All of this means that in 2020, The Trade Desk will likely surpass traditional TV in reach capabilities for the first time in our history. We're already seeing this shift as brands strategize on our platform."

Of course, larger reach does not mean larger monetization, but things are certainly looking bright for CTV. 

I don't like how TTD use the word "aggregator" to describe itself. It may be technically true, but broadcasting your ambition this way will likely make your clients wary and try to reign in your dominant position.

Strategic Role of Roku Channel, and CTV Fragmentation

In its quarterly letter, Roku mentioned that in the UK, the Roku Channel works on NOW TV (Sky) and Sky Q Devices.

Sky is part of Comcast which has Peacock. Peacock works on Roku. The Roku Channel works on certain Comcast devices. 

Are we going into a world where every channel works on every device, and the market for smart TV devices/software/platform gets commoditized? We now have Apple TV, Amazon Fire, Roku, Android TV (and its variants), Comcast Flex, Samsung smart TV, and it looks like XBox is getting into the game too. 

So where's the strategic point in the value chain? If CTV platforms like Roku and Apple TV become commodities, then the next point of aggregation are aggregate channels like Roku Channel, Peacock, Netflix, Hulu…etc. 

For Roku, there's a possible scenario where its importance in the value chain (and its profit potential) comes not from Roku the platform, but from Roku the Channel.