January 19, 2021
Business Editors' Pick Hollywood & Entertainment Media

Roku Buys Quibi Library, Jumping Into Original Content For First Time

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In this photo illustration a Roku digital media player App...

(Photo Illustration by Igor Golovniov/SOPA Images/LightRocket via Getty Images)

SOPA Images/LightRocket via Getty Images

High-flying device maker Roku made its first foray into original content, buying the library of around 75 shows commissioned by failed startup Quibi for less than $100 million.

Roku shares, which jumped more than 10 percent Thursday, were up another 5 percent today after the latest news broke. Shares neared $399 as the week’s trading neared an end.

The company earlier in the week said it significantly surpassed some key metrics, with 51.2 million households using its streaming devices, up 38 percent in a year. It also said audiences watched 58.7 billion hours in 2020 on its Roku Channel, a free streaming app whose advertising and subscription-fee revenue generates much of its profit. That represented a 55-percent jump in watch time compared to 2019.

In response, Needham analyst Laura Martin upped her price target for the company from $315 to $400, writing to clients that “Roku has won the streaming wars.” With the past two days’ of price run-ups, even that substantial new target may end up being low.

But the Quibi deal marks a new, potentially challenging frontier for Roku. Quibi was the first of the high-profile subscription-video services launched in the past 15 months to fail, after raising $1.75 billion and commissioning a wide array of shows from some of Hollywood’s most prominent creators and companies.

The shows, even feature-length projects, were designed to be watched in 8- to 10-minute episodes on mobile phones, and were created in a novel “Turnstile” mode that allowed full-screen viewing whether the device was held in portrait or landscape aspect ratio.

The mobile-only approach proved proved to be a problem in mid-pandemic, however, contributing to Quibi’s rapid shutdown in October after six months of operation. The site initially didn’t allow shows to be “thrown” from phones to connected TVs and other larger screens, though that was exactly what audiences wanted to do when stuck at home during the early months of the pandemic with little to do but watch TV. Now those shows will be available on dozens of streaming devices and screens of all sizes.

In all, the Roku acquisition will involve around 75 shows, including some that never got a chance to debut on Quibi before its shutdown, the Wall Street Journal reported. The price for the shows was reported by multiple sources as less than $100 million.

The shows will be exclusive to the Roku Channel for the balance of two-year windows that were part of the original deals between Quibi and their creators. In an unusual approach to help recruit those creators, Quibi had agreed in most deals to only control the shows for a total of seven years, with long-form versions of the shows reverting to creators after two years.

The deal marks the first original programs acquired by the scrappy independent, which has long made its money by distributing the content of other companies. Its streaming sticks and pucks, and slick built-in interface remain the core of the company’s success, though its Roku Channel is the biggest source of its profits.

The channel is actually a collection of live, linear and on-demand programming culled from the hundreds of services available through the Roku interface. It’s largely similar to free, ad-supported services such as Tubi, Pluto and Xumo, all of which are also available on Roku.

Fights over whether some of their content would be available on the free, ad-supported Roku Channel are reportedly one reason that the apps for AT&T’s HBO Now and Comcast’s CMCSA Peacock were excluded from Roku for months after their respective launches.

With the Quibi acquisition, Roku will compete in yet another way with some of the world’s biggest tech and entertainment companies. It already faces Alphabet, Amazon AMZN , and Apple AAPL , along with Vizio and Samsung, in the streaming hardware space, and Comcast, Amazon, Fox, and ViacomCBS in the free, ad-supported aggregator sector.

Original content is a much more expensive and unreliable investment, however, as tech giants and Hollywood studios are finding in their shift to streaming. Disney DIS , for instance, had a smashing first year for its Disney+ service, with close to 90 million subscribers worldwide.

But even though Disney says it plans to spend $8 billion a year on original programming for its streaming outlets, analysts question whether that’s enough to truly compete with Netflix NFLX , which spent $19 billion on programming in 2020, and doesn’t have legacy broadcast, cable and theatrical operations to feed as well.