Roku Makes Big Advertising Leap

What do you think of when you hear the words, “hit TV series?” When it comes to linear TV, the meaning of that phrase is pretty concretely anchored in actual audience metrics. A “hit” series is one that the networks are reasonably sure many viewers are tuned into. Indeed, networks have a fairly strong handle on the demographics of their audiences.

But what happens when Netflix says that of its own original content? Because the streaming provider doesn’t cough up actual numbers—and because they refuse to work with audience-measuring services like Nielson—there’s no way to actually measure what’s truly popular on Netflix, other than taking their word for it.

This obscurity doesn’t matter all that much to Netflix as it relies on subscriptions, not advertising, to underwrite its finances. But the service is indicative of a general opaqueness when it comes to streaming video metrics that have hampered OTT ad revenue.

At least one company is looking to change that. Roku announced earlier this month that it will offer audience guarantees to its advertisers, similar to those provided by networks. Roku is integrating demographic data via Nielsen’s Digital Ad Ratings service, building on a 2016 partnership with several measurement companies to provide richer information for the company’s ad customers.

Advertising is an increasingly big business for Roku. Nearly a quarter of the company’s $400 million in revenue last year was tied to advertising and media licensing. Meanwhile, the company has a fairly strong share of cord-cutters, making them an enviable platform for ad dollars, especially since the company has expanded from set-top boxes to smart TV operating systems (indeed, the company now refers to itself as an operating system play rather than a device maker).

According to Roku, 40 percent of its customers have canceled or reduced their traditional pay TV service, and in some cases, watch all of their TV through their Roku set-top box. The company also noted that ad-supported viewing is the fastest-growing segment on the Roku platform—accounting for half of the top 250 most-watched channels. Offering improved demographic targeting should only boost Roku’s ad-derived revenue.

Yet, few are apt to follow Roku’s lead. Indeed, when it comes to measurement, only Twitter has shown a similar willingness to link up with third-party measurement services (including Nielsen). Other video behemoths, like Google (YouTube) and Facebook have been reluctant to do so. And both services have come under fire for their ad practices, albeit in different ways. Facebook fell into hot water last year when they copped to miscalculating the views on their video ads for the past two years. More recently, YouTube has come under fire for placing major brand ads next to hate-filled video content.

The rapid growth of OTT video, along with  the corresponding shift in ad dollars from linear TV to streaming and social networks, has partially obscured the still Wild West nature of the new video landscape. At least Roku is working to bring about a sense of order.