Top executives from Fox Corp. and Roku say Fox’s $22 billion acquisition of the streaming giant is a win-win transaction, but Wall Street appears to have reservations.
Fox shares fell 18% in the first hour of trading Monday after the deal was announced, a sharper-than-usual haircut for a company making a major acquisition. Roku stock drifted down 1%, following a huge runup on Friday after reports surfaced that the company had held deal talks with a then-unnamed suitor.
During a conference call with Wall Street analysts, several questions addressed a concern on the Street’s part about how a “Switzerland” business like Roku can continue to prosper as part of Fox. Kannan Venkateshwar of Barclays put an even finer point on it. “When you negotiate with, say, Comcast or YouTube, you are largely a supplier of content. But now you’re also a distributor of the content,” he said. “It just creates a lot of complications both with respect to how many brands you own, what those brands individually do, as well your distribution strategy.”
Fox CEO Lachlan Murdoch pushed back on that assertion. “I don’t think that’s, that’s quite the case,” he said. “We’re partners now in many ways with with YouTube and YouTube TV and Comcast, that doesn’t change. Those businesses themselves, in many cases, are both distributors and content providers. That doesn’t change.”
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Murdoch called Roku and Tubi, a free streaming platform Fox acquired in 2020, “incredibly complementary” services, with about a one-third overlap in audience. Initially, he added, the plan will be to maintain them as distinct brands and businesses. Roku’s own free destination, the Roku Channel, is mainly FAST programming, while 90% of Tubi viewing is on-demand.
Roku founder and CEO Anthony Wood also took issue with a different analyst’s stated assumption that combining Fox and Roku would diminish the profitability of Roku’s home screen, which is beachfront property in streaming. “I don’t think that’s true, actually,” he said. “It’s going to increase profitability.”
Wood went on to “level-set,” as he put it, in terms of Roku’s main operations. “We sell ads on our home screen throughout our” user interface, he said. “But we also have many, many ways to promote content throughout the UI that are not necessarily sold. And we use that to promote partners, but we also use it as promote our own and operated our own properties.”
About 25% of viewing for the Roku Channel comes from a user clicking on the on-screen tile for the channel, with the other 75% coming from search traffic or other sources, Wood estimated. “There are many, many different ingress points throughout the user experience,” he said, with “almost an infinite supply” of ad impressions. “So we can easily, for example, promote owned and operated properties,” he said. In continuing to operate a “sports zone,” for example, Roku could continue to include third-party sports programmers alongside Fox, Wood maintained.
Roku’s advertising and subscriptions business is primarily “driven by promotion of our partners,” Wood said. “And our goal is to grow that business, not to retreat. So, we’re going to continue to grow that business. That means that means working closely with partners to do that.”
Striking a balance between owned-and-operated content and third-party business is “not a new problem for us,” Wood added. “The home screen of the platform is a unique asset and allows us to do that. We have policies and processes in place to allocate inventory appropriately. We are good at that. We know how to do that. We know how to promote our own services as well as promoting our partner services. And so we intend to continue doing that.”
Wood also noted that Fox and Roku together will account for the third-most viewing of any media company, according to a recent edition of Nielsen’s monthly Gauge report on market share. “The amount of content being distributed now is significantly increased in scale, and that provides a lot of leverage on different dimensions,” he said. That expanded setup “makes it a more interesting, must-use partner for content owners.”
Asked whether there was a competitive bidding process, Wood would only say that the Roku board of directors “ran a thorough process” and determined that Fox’s bid was “the best offer.”
In the executive ranks, there is also bound to be some intrigue as the two companies come together in the coming months – a topic that was not addressed on the call. In the deal announcement, the companies said Wood will have an “ongoing role” and be added to the Fox Corp. board.
While Wood will continue to look after the company he launched, three senior execs with streaming experience will also be in the mix. Anjali Sud, head of Tubi, steered it through significant growth and gained acclaim for her poise and business acumen. Pete Distad, a former Apple exec who joined Fox last year and spearheaded the launch of the Fox One subscription streamer, is seasoned and well-regarded. Charlie Collier, president of Roku Media, is the former head of entertainment at Fox and before that worked at AMC Global Media. While Collier spent a large portion of his career in traditional linear TV, his tenure at Fox coincided with the company’s $440 million acquisition of Tubi and he has been a key part of Roku’s recent strides.
