Why Netflix’s Buyout of Roku Might be a Bad Idea?

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We live in a world of streaming today, and the trend of cord-cutting is growing at a rapid pace because consumers of cable TV have started to realize the potential of the internet. Cable TV fans now know that they can get their hands on a similar content lineup and, in most cases, an even better variety of content through these streaming apps at a much lower cost. Then there is the option of portability and watching content on the go, an option you can’t get with cable TV, which is why many are transitioning towards cord-cutting, and many analysts have predicted that with the same pace of growth, streaming will take up more than 50% stake in the cable and TV industry as early as 2024.

In the trend of cord-cutting, cable TV fans are ditching their cable connection in favour of one or many streaming platforms as their primary means of entertainment. But one thing that should be made sure of before making streaming your primary entertainment setup is that all these platforms work over the internet.

To make sure that you get the best experience out of streaming would entirely depend on the type of internet connection that you have. This is why users should especially be mindful about their internet provider as today internet has been used in most of our day-to-day tasks like working from home and remote education. So the decision of putting your entire entertainment set up on the internet should be made after careful consideration.   

Due to the sensitive nature of the internet in the current world, users are recommended to go with providers like Cox Communications, which have a proven track record in the field of providing exceptional service to customers since the 1960s. Apart from good quality of service, Cox also has incredible after-sale service in which there are dedicated lines for customers as per their preferred language, where English customers can contact Cox customer service, while Spanish customers can reach them out through Cox Teléfono.

Roku at a Glance

Whenever we talk about streaming, there are a few key competitors that come to our mind; these might be Netflix or Amazon Prime. However, there is another key player in streaming, and that is Roku. Roku is a multimedia device that can connect to any regular and smart TV in order to make streaming apps and content available on them.

They come from a family of low-cost set-top boxes specifically designed for the consumption of streaming content. Roku was made in 2008 with Netflix’s collaboration and had an intuitive design with Roku OS along with a wide content library. Apart from that, Roku Live TV Zone also gives users the option to watch live TV programming and channels like ABC, CBS, and NBC.

Why Netflix’s Acquisition of Roku isn’t a Good Move

The total market cap of Roku is 11 Billion dollars, and 2 billion was its revenue in 2021, out of which 240 million was the profit. At the moment, Roku has 60.1 million users as of January 2022. Currently, there is a rumour floating in the corporate industry that Netflix, which helped establish Roku in the first place, is looking to buy it. However, many trade experts believe that it might not happen. Even if it comes to fruition, we are here to explain why it’s going to be a bad move on Netflix’s part. 

Financial Analysis of Netflix

The current worth of Netflix Stands at 81 billion dollars, while its overall market cap was 259 billion dollars this year. As reported the previous year, Netflix’s stocks are down by 69% from the start of this year. Its user count at the start of the year was 221 million but has now dropped for the first time ever since the launch of the streaming giant.

All have been downhill for Netflix in terms of subscribers, market cap, revenue, and stock pricing since the start of the year. Netflix has almost lost 200,000 subscribers in the first quarter of 2022. By April 20 2022, Netflix lost almost 55 Billion Dollars overnight after the close of Q1 2022. 

Comparison with Disney+

Currently, Disney+ stands at 138 million subscribers since its launch in late 2019. At this current pace of growth, it looks quite possible that Disney+ will beat Netflix in a couple of years. This has happened because of the exclusive rights of Marvel and Star Wars content, two of the biggest film franchises, which is why it is growing rapidly. Disney also earns from other sources like theme parks, merchandise, and other owned media houses. So it is pretty evident that Disney will surely beat Netflix in terms of streaming, which is its core business model, and revenue since it has so much cash to dump. 

Why This Buyout Might Not Happen

Due to the reasons mentioned above, numerous trade analysts think that this is Netflix’s recovery strategy, and they are making a large buyout in terms of Roku to create a brand new business entity in order to improve the overall deteriorating state of their current business. But here’s why this might be a rumour and is quite illogical actually to happen in the first place.

Roku’s Subscribers Base

Currently, Roku has 60.1 million subscribers, most of whom are based in the US. On the other hand, Netflix has 74.5 million US-based users. So it doesn’t seem logical that Roku would have a user base that doesn’t have a Netflix subscription or hasn’t at least made a choice to get one in the foreseeable future. 

Lack of Originals

The other major issue is the lack of original content. Roku has its originals, which can be used as a hook to lure customers, but these originals are quite a few and far between, and none of them is that big. By just doing a quick search on Roku’s website, one can easily judge their limited list of original content. Something that might not be quite intriguing for Netflix, which itself has many hit original series like Squid Games, Money Heist, and The Witcher, to name a few. 

In contrast, Amazon’s acquisition of MGM Studios for 8 Billion Dollars allowed them to get their hands on franchises like RoboCop and James Bond Series, among others. The buyout of Roku would cost Netflix around 10 to 14 Billion Dollars, but that wouldn’t be a great deal considering the current financial state of Netflix and what Roku has to offer in terms of content.

Netflix Short on Cash

Netflix’s reported cash in hand during the last quarter was 6 Billion Dollars. This would have been reduced by now, seeing the tumbling stock prices. The decision of Netflix to acquire Roku would cost around 10 to 14 billion dollars, which is more than double compared to what they have in cash. The other option might be buying through, but at this point, it’d be one-eighth of the company, which is a big chunk. 

Conclusion

Netflix needs to gear up to recover its lost revenue and subscribers. But this shouldn’t happen by acquiring a product like Roku in which they have no experience and will add no value to their core selling point, which is streaming. Take the example of Yahoo, which bought many smaller companies during the 90s and 2000s. With a spend of nearly 100 million dollars, none of these companies added to Yahoo’s core business, and all that investment went down the drain; next, we all know what happened to it. Netflix buying Roku would be pulling a trick from Yahoo’s book, but we all hope and pray that Netflix is more intelligent than that.

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Why Netflix’s Buyout of Roku Might be a Bad Idea?
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Why Netflix’s Buyout of Roku Might be a Bad Idea?
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Learn why the probable buyout of Roku by Netflix could be a bad idea and why it should be avoided.
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