TCL is now the top TV brand by shipments in the US. Since Roku powers TCL smart TVs, it too is benefiting from the OEM’s success. However, smart TVs are helping Roku with its key goals much less than the company’s streaming media players are.
TCL helps Roku lead the smart TV market
In North America, TCL TV shipments eclipsed Samsung for the first time in the first quarter of 2019. According to IHS Markit, 26% of TVs shipped in Q1 were from TCL versus 23% for second place Samsung. Samsung still holds a substantial lead in revenue, securing a 35% share versus third-place TCL’s 15%. Samsung and TCL’s market positioning explains the revenue difference. TCL has focused its marketing efforts on discount stores such as Walmart, while Samsung focuses on a more premium brand image.
TCL’s performance is a remarkable achievement, keeping in mind the company only entered the US market in 2013. However, TCL’s success is also a massive win for Roku. The Roku TV OS powers all TCL TVs above the entry-level 1-Series. The news is even better for Roku. Funai shipped the fifth most TVs in North America in Q1, with an 8% share. Funai also licenses the Roku TV OS and uses it in the company’s Sanyo and Magnavox TV brands.
Since 70+% of TV sales in the US are smart TVs, the IHS data suggests Roku could have a 34% share of smart TV sales. Indeed, Roku claims to have precisely that share:
“We estimate that Roku TVs sold by our OEM partners accounted for more than one-in-three smart TVs sold in the U.S. in Q1, as we gained significant market share.”
The success in the smart TV market contributes license revenue to Roku, but the big win should be in helping the company transform into an ad-driven business. Unfortunately, that does not appear to be the case.
Driving the growth of active users
Roku has been laser-focused on transforming from a hardware company into a services and advertising-driven business. The company’s strategy for executing on the goal is to grow the number of active users. The formula is a simple one: more users means more ads seen and more revenue earned. The strategy has been a spectacular success. The company has grown active users by 9 million since Q1 2018 and saw an increase of 2 million in Q1 2019 alone.
Platform revenue, of which advertising forms the most significant portion, has tracked growth in active users. It was 65% of revenue in Q1 2019, with player sales delivering 35%.
Growing active users is more important to Roku than player revenue, allowing the company to sacrifice player profit margin and price the devices aggressively:
“Our strategy of offering players at appealing prices to drive account growth led to a 4% year-over-year drop in player ASPs.”
So, which contributes the most active users to Roku, sticks and players or smart TVs?
Player sales still deliver the users
nScreenMedia estimates that Roku sold 1.5 million players and sticks in Q1 2019.[i] TCL shipped 9.3 million TVs in North America in the first quarter, and Funai delivered about 3 million more for a total of 12 million. Assuming 70% of shipments are smart TVs, Funai and TCL shipped 8 million Roku TVs in Q1.
Active Roku users increased by just 2 million in Q1. Someone purchasing a Roku stick or player is highly likely to activate and use it. After all, the device has no other function. It’s likely 1 million or more of the new active users are using a Roku player. So, the 8 million Roku TVs that shipped in Q1 delivered, at most, 1 million or less active Roku users.
Such a disappointing activation rate for smart TVs must be a significant topic of conversation within Roku. Expect the company to work hard to boost it in the coming months.
Why it matters
Roku gets active users from its player sales and smart TV OEMs.
The number of Roku Smart TVs is five-times as high as players sold.