Streaming super-power Netflix is considering acquiring its rival Roku after a difficult 12 months for the hardware manufacturer, which has seen the value of its stock drop by around 80%, according to a report in Business Insider.
In the report, sources claim that Roku has been discussing a potential Netflix takeover "in recent weeks," with speculation further reinforced by the news that the struggling company unexpectedly closed its stock trading window for employees, suggesting that information will soon be released that could impact its share price.
It may seem unlikely that Netflix should be shopping around at the moment, considering that it has been contending with its own financial woes. Last month the service revealed that its revenue growth had slowed considerably with a global net loss of 200,000 paid users resulting in a share drop that has since wiped around £56.5bn / $70bn / AU$99.8bn off its market value. The company has picked up a few small video game developers since then, but buying Roku would be a much bigger proposition, expected to cost at least one-fifth of its current $88 billion market valuation.
However, in the wake of its earnings drop, Netflix has been increasingly upfront about its desire to follow its rivals, including HBO Max, Hulu and Disney Plus, in pursuing revenue from advertising, telling its employees that it plans to introduce an ad-supported tier before the end of the year. According to Business Insider, while its fortunes may not be rosy at the moment, Roku has particularly strong form when it comes to combining adverting and video-on-demand services, with the company making $647 million from advertising in its first quarter, seven times more than from its core business of hardware.
Acquiring one of its competitors could also give Netflix access to the viewing habits of Roku's 61 million active account holders. Roku not only produces some of the best streaming sticks on the market but collaborates with TV manufacturers such as TCL and Hisense, which use its streaming platform as the basis for their smart TV operating systems, all of which could provide Netflix invaluable insight and expand its strategic reach in an increasingly crowded market.
It also raises the inevitable question as to whether Netflix may expand into hardware producing its own streaming stick or even a Sky Glass style TV. It seems unlikely that Netflix would want to limit its content to a specific device, given that its current market dominance has partly been achieved by remaining neutral to have its app supported by as many 3rd party platforms as possible. However, it may be looking to diversify its offering and follow the likes of Amazon and Apple, which both produce content and hardware, as well as apps available on products made by their rivals.
Neither Netflix nor Roku has confirmed the rumours of a takeover, but with Netflix on course to shake up its business model before the end of the year, we likely won't have to wait long to find out if 'Netflix Stix' could become a reality.
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