When the Roku Channel launched five years ago, it was a whitefish in a sea of gushing giants.
The free, ad-supported service started small, offering nearly 500 hours of licensed programming featuring mostly older films such as 1984’s “The Karate Kid” and the comedy “Legally Blonde.”
The streaming channel mostly seemed like a footnote for the San Jose company known for providing software and devices that help consumers navigate Netflix, YouTube and other streaming services.
Not anymore. Roku Channel is now the fifth most popular streaming service in the industry, according to Activate Consulting, with 80,000 on-demand shows and movies, more than 200 live TV channels, and an estimated audience of 70 million viewers in the United States. And in an effort to attract more attention, the channel is taking a big step in original programming, with plans to develop more than 50 original scripted and unscripted shows over the next two years.
Roku’s greater investment in original programming follows Netflix’s playbook, which began as a distributor for older, licensed movies and TV shows. Then it evolved to build a large library of its own original, award-winning content.
As it evolves to become a content producer, the Roku channel has expanded its presence in the Los Angeles area. Roku’s Santa Monica team doubled to more than 200 employees by 2021.
To accommodate the larger workforce, the Roku Canal is moving to larger digs early this year. The company, which previously had an office in the Water Garden in Santa Monica, has leased 72,019 square feet in the Colorado Center, according to LA Realty Partners.
“We’ve actually outgrown the office we left before the pandemic and need to open a new one,” said Rob Holmes, Roku’s vice president of programming. “It just reflects the size of Roku’s resources and the type of investment in the LA area.”
Roku ventured into original programming when it acquired a library of more than 75 programs from Quibi. The now-defunct Hollywood streamer led by studio mogul Jeffrey Katzenberg and tech veteran Meg Whitman set out to revolutionize entertainment with videos of 10 minutes or less and featuring A-list celebrities. The start-up threw a lot of money into its productions, spending a whopping $100,000 per minute. But the app failed to gain a large enough audience and was closed in December 2020.
Many analysts believe Roku took the Quibi library at a huge discount — one person familiar with the deal, who declined to be named, said the rights had been sold for less than $100 million.
Roku’s large distribution network helped a number of former Quibi shows – now billed as Roku Originals – thrive on the new platform. Among them is “Die Hart,” an action comedy in which Kevin Hart attends an action hero training school, which was quickly renewed for a second season on the Roku channel. Also renewed was the thriller ‘Most Dangerous Game’, with Academy Award-winning actor Christoph Waltz signing for a second season.
“To be able to tell producers, talent and creators that you are getting an audience of the size and scale that Roku can provide is such a joy, because one of the most important things everyone wants [to know] when they make a show, ‘who’s going to see it and how do I get a lot of people to see it,’” said Colin Davis, head of original script programming and former senior content manager at Quibi.
Roku also develops unscripted shows in categories such as competitions, lifestyle, travel, food and pop culture, adventure and exploration, as well as scripted dramas and comedies. Estimated budgets for scripted shows range from $500,000 to $2.5 million for half-hour episodes and $2 million to $4 million for one-hour episodes, according to a person familiar with the Roku channel’s operations and was not authorized to comment.
“We have platform-wide data that shows us the types of content that people we target are viewing, and by using that first-party data, we can build a sandbox of sorts for us to plan where we should develop and deploy” , says Brian Tannenbaum, head of original alternative programming for the Roku channel.
Last year, Roku bought “This Old House,” which includes its home improvement programs and television studio, and struck a deal with Saban Films to stream its movies to the Roku channel after they hit theaters.
The company already has development agreements with production companies Hello Sunshine and Westbrook.
The Roku Channel is just one part of Roku’s overall business. Since its inception, Roku has sold TV devices — hardware that users connect to their TVs to access Roku’s software, which connects them to various streaming services in one place. Roku also licenses its software to smart TV manufacturers and is the most popular television operating system in the US
Roku gets a share of subscriptions or programs sold through its service and also makes money by selling ads on its platform and on its free streaming channel.
“The reality is, you can’t be a successful streaming service in the United States today if you’re not on Roku,” said Jason Helfstein, an analyst at Oppenheimer & Co., which has an “outperform” rating on the stock. “That gives them the power to make sure they get some kind of fair economy from all of their content providers.”
Roku’s third-quarter profit rose to $68.9 million from $12.9 million a year earlier on revenue of $680 million. Revenues were up 51% year on year, in part due to higher ad sales.
Nevertheless, Roku’s stock price has taken a hit in the past year, which analysts attribute to the global shipping challenges manufacturers face. Roku’s stock price, which closed Tuesday at $185.70 a share, is 54% lower than a year ago.
The channel’s rapid growth made it an attractive option for the producers of a Christmas movie based on the canceled NBC TV series “Zoey’s Extraordinary Playlist,” a comedy about a tech worker who can hear people sing their deepest feelings.
The new movie, dubbed “Zoey’s Extraordinary Christmas,” premiered last month and was the most-watched movie on the Roku Channel during its opening weekend.
“It has done incredibly well,” said Jim Packer, president of global TV and digital distribution for Lionsgate, which produced the film. “I feel like it was a very good move for both companies.”