2020 saw an acceleration in the shift from traditional TV advertising to digital connected TV advertising. Companies like Roku (NASDAQ: ROKU) were great beneficiaries. But there is one area where Roku still lags behind the larger smart TV advertising market, and this presents a huge opportunity for it to continue to grow.

Changing the Way Marketers Buy TV Ads

Roku has done a great job of attracting more ad dollars over the past few years. Management noted that its top six advertisers doubled their ad spend in 2020 and pledged to spend even more in 2021. But Roku still operates in a “supply-rich” environment. Monetized ad impressions more than doubled in the fourth quarter. In other words, even with the increase in marketer spending, he still has more ad impressions to sell.

Image source: Roku.

One area that can help accelerate ad spend and further fill Roku’s ad inventory is programmatic advertising. Programmatic advertising platforms allow ad buyers to vary the price they are willing to pay for an ad based on known viewer information. For example, a man streaming one app during his lunch break might be worth more or less than a woman streaming a different app after dinner.

Scott Rosenberg, Roku’s head of platform business, said at the company conference call for fourth quarter results that programmatic ad spend still represents a minority of advertising on its platform. However, the overall programmatic ad spend market in the United States (where Roku generates the vast majority of its ad revenue) accounted for around 54% of connected TV advertising last year. This share will exceed 60% by 2022, according to eMarketer estimates.

Roku is quickly catching up in programmatic. It revamped its Dataxu acquisition in 2019, renaming it OneView last year. It is also in partnership with external data providers to improve its targeting and measurement capabilities. Ad impressions delivered through OneView doubled year-over-year in 2020, and ad impressions delivered by OneView to Roku devices specifically quadrupled, management wrote in its letter to shareholders. He expects the majority of his ad revenue to come from OneView over time.

The benefits of using OneView on Roku

There are several benefits to buying programmatic ads through OneView instead of paying for direct insertion on The Roku Channel or other ad-supported app.

The biggest advantage is the ability to mine data from Roku. So, in addition to generic information like location, device, and time, advertisers can also access Roku profile data, including demographics and payment information. Additionally, advertisers will also have access to other ad impressions served to that viewer through OneView, as well as linear TV ads recognized by Roku’s audio content recognition on its smart TVs. This data makes the ads purchased through OneView on Roku devices particularly valuable.

Another advantage is that it opens up Connected TV advertising to more ad buyers. Instead of just targeting traditional TV advertisers, Roku can appeal to smaller advertisers with tighter ad budgets because the cost to run is much lower. Roku doesn’t need to dedicate a sales team to low-budget advertisers, and low-budget advertisers can commit to smaller-than-TV ad buys with better measurement capabilities.

This can help Roku gain market share in the wider digital advertising market, and not just the traditional TV advertising market. Management highlighted a case study in their letter to shareholders: Frndly TV shifted part of its advertising budget to Roku and had a 65% better return on investment from its ad spend compared to large ad platforms on social networks.

Programmatic advertising can increase the average price per ad by improving relevance, conversion, and measurement while attracting new advertisers that Roku previously did not have direct access to. And given Roku’s underpenetration in programmatic advertising relative to the industry, the Technology has enormous potential to boost revenue growth over the next few years.

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