Roku vs. YouTube: the good, the bad and the ugly


Roku (NASDAQ: ROKU) and Alphabet‘s (NASDAQ: GOOG) (NASDAQ: GOOGL) YouTube disagrees these days, and the two companies are on a collision course next month. If the two parties cannot agree on a new contract next month, it could be the end of YouTube and YouTube TV in the app market for Roku’s popular streaming platform.

With over 56 million active users on its reels, Roku is the ultimate taste maker for the living room. People with aftermarket Roku dongles or buyers of the 38% of smart TVs that ship with Roku as their default operating system spend an average of more than three hours a day streaming content through the platform.

The two sides exchange talks about the potential breakup in early December, and each blames the other. The latest update came on Wednesday afternoon when Roku released its third quarter results. It wasn’t much of an update, but we can analyze enough of the comments from the transcription to piece together the good, the bad and the ugly of the battle between Roku and Alphabet’s iconic video-sharing service.

Image source: Getty Images.

Good

Despite what you may have read, our Amazon agreement is not up for renewal or under negotiation at this time.

Reports in the days leading up to Roku’s earnings call indicated the streaming platform was on the verge of losing Amazon.com‘s (NASDAQ: AMZN) Prime Video and IMDb TV. There may be some truth to the reports that either or both parties are not happy with the current arrangement, but for now, losing Amazon’s popular Prime Video app doesn’t seem like a big deal. short-term concern.

The bad

We don’t have an update and our goal is to land it in a positive way for Roku and for our customers.

The lack of an update is no surprise. Roku would have issued a press release if a resolution had been reached. However, Roku would have mentioned this in the results release or in prepared remarks if he felt the contract renewal talks were progressing favorably. Waiting for an analyst to talk about it during the Q&A is not very comforting.

The ugly one

One thing I will say, as we said before, is not about the money. It’s about our ability to create the best possible experience for our customers. We are working to resolve this issue.

This is a positive comment on the surface. However, to say that it is not about money – if it is true – means that there is no price where both parties can agree on the terms. It’s all about control, and that’s where the ego goes into negotiations. Both sides believe they are right, and it could prove dangerous. YouTube would love to have access to an audience that streams roughly 6 billion hours of content per month through Roku’s platform. Roku’s operating system would feel woefully incomplete without YouTube.

Roku actions are down 11% in the last two trading days, and it has nothing to do with this impasse between two enormous actors of the streaming services universe. Keep watching, however. Roku’s and maybe even Alphabet’s actions will scale – up or down – depending on how this battle plays out in the weeks to come. There is much to be gained, but there is still more that both companies have to lose.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of the board of directors of The Motley Fool. Suzanne Frey, an executive at Alphabet, is a member of the board of directors of The Motley Fool. Rick munarriz owns shares of Alphabet (C shares), Amazon and Roku. The Motley Fool owns shares and recommends Alphabet (A shares), Alphabet (C shares), Amazon and Roku. The Motley Fool recommends the following options: January 2022 long calls at $ 1,920 on Amazon and January 2022 short calls at $ 1,940 on Amazon. The Motley Fool has a disclosure policy.

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