In 2019, Roku will generate ad sales of around $300 million – a vast increase on the previous year.
In Q3 of 2018, 94 percent of Roku’s advertising revenue came from video ads.
Working directly with television manufacturers allows Roku to lock out competitors like Amazon since there’s no need for consumers to buy an extra device.
It also means Roku can focus on selling advertising instead of worrying about its player sales – and all those TVs with Roku built-in mean more viewers, which means more advertising revenues.
Roku has some of the most applicable data for traditional TV advertisers.
It knows what content you’re watching, when you’re watching and how you’re watching it.
As marketers shift their budgets from terrestrial television to digital, Roku stands to be one of the biggest beneficiaries.
More Detail On Targeting
As a television platform, Roku has some unique data on its users that other digital advertising platforms don’t have access to.
For example, on Roku-powered smart TVs, there’s an option to let Roku listen to what you’re watching, so that it can show you other ways to watch a show.
That’s pretty useful if you tune in to the middle of an episode and it’s available on Netflix without commercials.
Roku calls the technology “Automatic Content Recognition (ACR)”.
In the fourth quarter, Roku started testing ad products that use ACR technology to target incremental audiences for television advertisers.
Using ACR, Roku can determine whether a user has seen a television commercial, and if not, deliver that commercial to the user.
That’s tremendously valuable for advertisers, especially as cord-cutting becomes more prevalent.
In January, Roku introduced new suite of tools called “Ad Insights”.
The ad suite allows marketers to measure ad reach across various demographics and video platforms, as well as how effective those ads are at getting viewers to tune in to whatever they advertised.
It also gives marketers the option to target cord-cutters.
Advertising On TV
Let me explain how advertising on TV works.
Firstly, there’s a very good reason that TV advertising is SO expensive.
Simply, it’s powerful.
We all pretend that we’re not affected by advertising of any kind, but, bluntly, that’s nonsense. TV advertising works the best.
Here’s how advertising slots are bought.
Firstly, every single advertisement on TV is targeted.
For this reason, TV stations create a range of programs – these are to suit all ages, all backgrounds, all earnings, all sexes and so on.
So, if you watch a program aimed at babies, I can be pretty sure that you have babies.
As a result of that knowledge, I can buy advertising slots to show you diapers, baby clothes, baby medicines and similar.
Supposing an advertiser wants to reach a specific niche market.
They obtain from the TV stations their data on viewers – this will include age, earnings, sex, interests and so on.
How the TV stations obtain this data varies, depending on whether they’re terrestrial, cable, streaming and so on, but the principle is the same – and via streaming is the easiest and the most accurate!
Now, if there’s a demographic that’s hard to reach, a program aimed at them will attract a lot of interest from advertisers.
And that greatly increases the cost of each advertising slot.
Similarly, the more viewers a program has, the more the slot will cost.
Combine these and you can see why niche programming with a large dedicated demographic audience is the holy grail for TV stations, as they cost usually the same to make as most other programs – but the income is much higher.
You then have more general programming that appeals to a cross section of ages, incomes etc.
The Super Bowl final would be a good example of this.
It appeals to a wide range of viewers, who are concentrating hard, with adrenaline flowing, so adverts are very expensive.
As you can see, a niche channel can do very well indeed, as although viewers will be low (never worry about low viewer numbers on your channels, so long as they are staying and returning), the niche is very narrow and therefore can attract high advertising revenue rates.
There are broadly two types of TV ads – sales and brand
Sales are those that try to get you to buy something – medicine, a book, a gadget and so on.
Entire businesses have been built around that simple concept – and massive fortunes have been made.
Because TV is so powerful – the presenters are there in your home, talking just to you – sales are huge and they are easy.
Brand advertisements are for airlines, car rental and such like – where the name is known, but the company wants to keep awareness of the brand high – so that when you next fly, rent a car or whatever, you trust the brand that you’ve seen on TV.
TV advertisements are trusted more than anything. TV advertisements sell products and services like crazy.