Roku has a simple equation for generative AI: Cheaper content production leads to more viewing time and engagement, which leads to more ad spend.
“It’s very clear to me that AI is going to reduce the cost of content significantly over time,” Roku CEO Anthony Wood told investors during the company’s fourth quarter earnings call on Thursday.
“As long-form content costs come down, that’s going to grow engagement on our platform,” Wood said. “And we monetize engagement – basically, our business model is monetizing engagement.”
That’s a notably upbeat stance at a moment when investors and viewers alike are wondering (and worrying about) whether a flood of AI content will dilute premium inventory and fragment attention even further than it already is.
AI in the living room
But Roku is making its case from a position of strength.
Platform revenue, which includes advertising and rev shares from streaming service distribution, grew 18% last year to $4.1 billion, including 18% growth in Q4.
Streaming hours on Roku’s platform hit 145.6 billion hours last year, up 15% year over year, and The Roku Channel was the second most popular free ad-supported streaming app, according to Nielsen’s Gauge report in December. (YouTube was No. 1, natch.)
All of that time spent on its platform gives Roku more surface area to experiment with weaving AI into the viewing experience.
On the consumer side, Roku is using AI to improve recommendations, highlight trending content and adjust how shows and apps are arranged on the home screen. It’s also using AI to automatically generate “why to watch” blurbs on content detail pages that go beyond basic plot summaries.
Roku Voice, its built-in voice assistant, is also getting an AI assist so people can ask more conversational questions and get contextual answers directly on their TV screens.
And sports, meanwhile, is an early proving ground for AI.
In Roku’s Sports Zone, for example, which is its hub for live games and sports apps, viewers are also served short-form clips, highlights, commentary and other related content – the kind of material that generative AI tools could help scale over time.
Putting the ‘AI’ in ‘tailwind’
The bigger bet for AI, though, is on the advertising side.
Wood called AI “a major driver of opportunity” for Roku’s advertising business, including allowing it to open up to “an entire new market of small and medium-size businesses” through Roku Ads Manager, its self-serve ad buying tool.
Taking a cue from MNTN’s playbook, Wood talked about how AI tools make it easier for advertisers to create video ads by automating manual workflows, such as reviewing and adapting ad formats.
“And the easier it is to create video ads,” he said, “the larger the number of advertisers that can advertise on a TV platform.”
Which sounds great – so long as the economics hold up.
On that front, Roku is also trying to reassure investors that chasing more performance and SMB dollars won’t come at the expense of profitability. But, according to CFO Dan Jedda, more SMB ad revenue isn’t a problem for Roku’s margins.
“You should not think that, as we focus on SMBs, it drags down margins,” Jedda said. “It does not.”
On that point, we’ll have to wait and see, but Roku remains generally upbeat.
“We view [AI] as a powerful tailwind to our business,” Wood said. “It’s not a disruptor for us, and we’re integrating it across our entire technology stack.”
