Roku is currently tied to rumored plans for building its own smart TVs but on Thursday the company laid out some reasons why that might not make sense.
According to Business Insider, Roku last month convened a focus group to get consumer feedback on different models, feature sets, names, sizes and price points. It sounds reasonable enough for Roku to build a branded TV and it’s a move that other platform providers like Amazon and Comcast have already made. Besides, it could provide another boost for Roku’s platform business, which is driving a large majority of the company’s revenues thanks to advertising gains.
However, when Roku’s platform business chief Scott Rosenberg took on the question during the company’s fourth-quarter earnings call, he listed off some factors that take some of the shine off Roku potentially building its own TVs.
Supply chain disruptions are being felt in almost every industry. For TV manufacturers, the ongoing issues have created shortages in panels and made it much more expensive to ship televisions, Rosenberg said. “The results of all that is that TVs prices have gone up a lot for consumers and that’s reduced demand.”
CFO Steve Louden said the dip in demand for TVs from 2021 will continue this year, which equals bad timing to make the investment necessary to start manufacturing TVs.
Roku declined to speculate on the reports, but Rosenberg did point toward the success Roku has continued to enjoy through its smart TV partner program, where it creates reference designs and then works with TV makers like TCL, Hisense, Sanyo, Philips and more to get them produced and retail partners like Walmart to get them sold.
“We offer a full spec solution and are really very helpful for them in growing their smart TV market share,” he said.
Roku’s player business was less impacted than its partners’ smart TVs by the supply chain woes. Louden said that the company was lucky to have lots of Roku player inventory available to help offset the decline in TV sales. However, Roku still experienced rising material and shipping costs within its player business and largely did not pass those costs onto consumers, which pushed gross margins into the red during the third and fourth quarters.
Even in ideal supply chain conditions, Roku’s player business doesn’t produce anywhere near the profit margins seen in the company’s platform business. Adding more low-margin products to the player side of the business might make profits sink even further.
There could come a day when Roku decides that building a TV of its own is the right thing to do. But for now, there seems to be plenty of reasons why it shouldn’t.