Jun 3, 2022Liked by A Man In A Basement

Thanks for the writeup. It seems that Roku would be a great company as a toll booth, but not if it has to keep spending on content to keep itself there, to de-risk its business, and to grow users. Imo, spending on content does not build a cumulative competitive advantage (most content is not evergreen). In other words, Roku will not be able to one day stop the content spend and be confident that it will keep its competitive position. The terminal economics might not be so great considering the cashflows that need to be reinvested. Curious about your thoughts.

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Ironically, when I wrote the linked article on WTPP, I was envisioning ROKU as the perfect example of a company using WTPP as an advantage. My theory was that if you're a big streaming company like Netflix, HBO, etc you have to map every step of the way from creating/licensing content to delivering it to consumers on a screen. Then each step along the way you have to analyze what is the negotiating power of the input.

We've seen with Netflix that at first they had to shell out money to license shows in order to attract and keep subscribers from churning, but now they're able to spend almost purely on original content. However, how about other steps along the chain, like physically getting content in front of viewers? They're (likely) not going to vertically integrate and create their own devices, so instead they're reliant on a distributor to provide the Netflix app. That's where ROKU thrives, and that's what provided ROKU with all the leverage when negotiating with HBO: https://www.theverge.com/2020/12/16/21272058/hbo-max-roku-watch-wonder-woman-1984-movies-amazon-fire-stream-comcast-warnermedia

Would love to hear your thoughts, and you've got a new subscriber in me. Looking forward to reading more of your work.

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