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Analyst: Roku/Netflix Deal is “Absurd” & “Hard to Understand”

Roku
(Image credit: Roku)

SAN JOSE & LOS GATOS, Calif.—Rumors that Netflix might be interested in buying Roku as part of its push into advertising boosted Roku’s stock on June 8 but produced mixed reactions from analysts.

The idea prompted widespread media speculation after the Business Insider (opens in new tab) reported that talk had heated up on the possible deal among Roku employees and that Roku closed its employee trading window, which means employees could not sell vested shares.  

The combination would allow Netflix to get quickly into the advertising business as it prepares to roll-out a lower cost ad supported tier later this year. 

Both companies also face mounting pressures from investors, with Roku facing increased competition from other operating systems like Google TV and Netflix seeing its stock hammered by sub losses and increased competition in the streaming wars. 

Prior to this rumor, both Roku and Netflix are trading more than 70% lower (opens in new tab) than their peak stock prices, according to USA Today. 

Speaking on CNBC (opens in new tab) about a possible deal, Richard Greenfield, partner and media and technology analyst at LightShed Partners firmly dismissed the idea, however.

“I think this is one of the most absurd ideas I’ve heard in 27 years following media stocks,” Greenfield said. “Just think about what Roku is. It is the operating system that is built into devices and dongles as well as sticks that you plug into TVs and everybody wants to run on top of that TV operating system….Netflix owning hardware, and basically prioritizing one hardware [platform they own] over the 1000s of devices that Netflix is on, seems completely antithetical to the everything that Reed Hastings and Ted Sarandos have built over the last three years. So it's very hard to understand.”

Others agreed. Innovid CTO and co-founder, Tal Chalozin noted in an email that the deal is likely to remain just a rumor: “The deal could happen but it’s not a perfect fit, necessarily. Netflix built its success being device agnostic – acquiring a device-based business seems counter to that, though Roku does feature the infrastructure Netflix will require for its ad-supported business. Netflix’s user base is also mostly saturated in North America so they’re seeking support for international distribution. But it’s early days for Roku’s [international] expansion.”

Roku stock was up 9% on the speculation to 101.88 at the end of trading on June 8 while Netflix stock was up 2% to 202.83.

George Winslow is the senior content producer for TV Tech. He has written about the television, media and technology industries for nearly 30 years for such publications as Broadcasting & Cable, Multichannel News and TV Tech. Over the years, he has edited a number of magazines, including Multichannel News International and World Screen, and moderated panels at such major industry events as NAB and MIP TV. He has published two books and dozens of encyclopedia articles on such subjects as the media, New York City history and economics.