Introduction
Roku is a leading company that allows its customer to have access to multiple streaming platforms without having to pay a monthly fee. The system is affordable and easy to use, which is why Roku’s revenue significantly increased during the national lockdown when more people needed such entertainment. Roku’s income primarily consists of money from companies paying for advertisement and a share of the revenue that the company’s partners were receiving when consumers accessed their content through Roku. However, as advertisement is the primary source of income, the corporation is willing to explore other options. Researchers point out that such organizations have to find other sources of revenue since TV ads are becoming less favored (Malthouse et al., 2018). Clients are more inclined to use social media and online searches for promotion, which is a major strategic-level problem for Roku as their services will soon be much less demanded.
Analysis of the Environment
It is essential to analyze both the external and internal environments to understand the issue of the decreasing demand for TV ads and how to replace the source of income. These aspects are relevant to the problem and help construct and implement a strategy that will minimize the risks and allow for a better solution to the financial threat. The external environment will be analyzed through the PESTEL framework, while the internal one will be examined using SWOT as an analytical method of assessing the company.
External Environment
Several concepts influence the company from the outside, including politics, economy, legislation, social aspects, the environment, and technology. Roku is an international company with customers from different regions such as North America, Latin America, and Europe. However, the majority of users are from the US and Canada. These countries are relatively stable in terms of political changes and regulatory aspects that may be influenced in case the political shift is in another direction. Moreover, the countries where Roku operates can be described as developed or developing. There is a large consumer base that can afford such services. As the income of these individuals increases, more opportunities they have to engage in purchasing entertaining content and paying for the services and products that are advertised.
The technological aspect is ambiguous since advancements are beneficial for the company, yet competitiveness increases as other similar corporations have access to more advanced technologies. According to researchers, Roku is challenged with finding innovative ways of keeping up with its rivals (Pleggenkuhle-Miles et al., 2021). Furthermore, trends like social media and other platforms that can be used for advertisement are becoming more prominent, which ties in with the initial structural issue Roku is facing at the moment. The effective use of such websites as Facebook, Instagram, and Twitter correlates with the social aspect of the target audience being the most significant population of social media users. Since these platforms are such important societal ways of communication and watching content, clients looking to promote their products would instead choose to pay for an ad that will reach more people.
In terms of legislation, Roku is an international company, which means that the regulations depend on the country where the corporation operates. One of the main issues tied to the advertisement and legal problems is the right to privacy and security that customers do not always benefit from with such streaming platforms. Targeted advertising is the most efficient one, yet this requires tracking and collecting data regarding the preferences of the consumers. Since clients want a specific targeted audience to receive the information regarding their offers, the provider must find out what certain users are interested in purchasing. Researchers point out that Roku engages in such practices, and users often have very little success avoiding this (Mohajeri Moghaddam et al., 2019). Another possible issue that some consumers can encounter is a lack of an environment-focused agenda. While Roku does not mention any specific strategies for reducing waste or environmental damage, the company has not been in any recent controversy regarding unethical behavior. The overall analysis of the external environment has shown:
- Favorable political environment.
- Customers with financial potency.
- Social media advancements attract advertising.
- The target audience (youth) uses social media for content and promotions.
- Targeted advertising may compromise the user’s privacy.
- No environmental agenda in place.
Internal Environment
The SWOT model looks at the company’s strong points, weak spots, opportunities, and threats or risks that may affect the outcomes. Roku’s strong point is the presence of a broad audience that is willing to purchase its products. Moreover, this allows clients to invest in the advertisement because Roku has many customers who will be notified regarding the product or service that another company is selling. Another strong point is the fact that Roku is entering more countries in the international arena with new locations where it operates. As the number of countries where Roku is available increases, more international partners will be willing to promote themselves using the streaming platform.
The biggest weakness, which is the structural problem in question, is the significant reliance on advertisement as the primary source of income. While other monthly subscription platforms have a stable revenue depending on the number of users, Roku depends on clients willing to pay for ads. This is less sustainable in the long run as consumer demand changes, and social media is becoming a more prominent tool for such measures.
Roku has the opportunity to develop its brand since they have recently started incorporating exclusive content. This consolidates the corporation and increases the chance of competing with other streaming platforms such as Netflix, Apple, and Amazon. Moreover, having exclusive content allows Roku to maintain a loyal audience by satisfying the demand for specific entertainment content. The company can establish itself as a more powerful brand with products that cannot be found anywhere else on the market. Such an opportunity gives Roku the potential of having a solid base of users and a leading position among rivals operating within the same industry. Moreover, suppose the corporation invests in the right domain and continues having an expansionist policy that strives for innovation. In that case, smaller companies trying to enter the same market will be less likely to repeat Roku’s success.
The risk that significantly threatens the overall system in which Roku operates is the decreasing demand for TV advertisements. Clients are more likely to invest in social media ads and Google search promotions. Since Roku depends on such deals and a significant amount of the income comes from such transactions, remaining stagnant may result in major financial loss. This is a threat that can potentially lead to a loss in revenue and other adverse outcomes for the organization. Roku has to find new income sources as it is the only way this risk can be minimized. In summary, the SWOT analysis has illustrated:
- A strong clientele and international development.
- A significant reliance on advertisement for income while the demand decreases.
- An opportunity to promote the brand with exclusive content.
- Risk of losing a significant source of revenue as clients choose to social media.
Strategy Formulation
The assessment of the internal and external environments has shown that Roku has an opportunity to shift from an advertisement-based income to a more partner-sharing system by increasing the percentage of the payment for streaming other services. Furthermore, since clients are more inclined to promote their products on social media and search systems, it is crucial to find another way of diverting the source of income to one that is more stable in modern times when TV ads are not as demandable. This can only be possible if Roku keeps building the brand by increasing its library of exclusive content and building a solid and loyal customer base. Roku is already successful because they require a one-time payment for their services, unlike other similar companies. As soon as the corporation becomes more successful with its channels and content, it will be able to increase this rate to a more significant amount while keeping the initial strategy of not requiring monthly subscriptions. Moreover, the preliminary analysis shows that as the company is growing internationally, its partners will be willing to spend more money to keep such a profitable partner. The strategy that will benefit the corporation in terms of future revenue is changing the way it generates income by focusing on higher payments from users and partners for third-party streaming content.
Implementation
The implementation will start with branding, establishing a solid policy of increasing the influence of Roku’s exclusive content, and growing the user base. First, it is vital to have the necessary tools and customer demand to compete with the other companies that are already experienced with streaming exclusive content. Roku is moving in this direction by investing in exclusive shows and channels. While it may be a financial risk, being stagnant is not an option due to the growing competitiveness of other similar companies. As soon as Roku is fully functional with its exclusive shows or movies, an increase in the payment rate for partners and customers will not lead to lower demand. It is crucial to continue using a one-payment system. However, this initial payment that users have to make to use Roku needs to increase after the company recommends itself as a reliable source of exclusive content that other platforms do not provide. Moreover, as the brand becomes more competitive in the market, partners willing to cooperate by streaming their content will agree to invest more in having such a reliable associate.
The clients who use Roku for promotions will become less significant sources of revenue as new income channels are becoming more potent and less hesitant to increase their expenses. It is vital to gradually make slight strategic shifts without raising the prices too suddenly or too high to minimize the loss of customers and partners. The best solution to mitigate the risks is to focus on building a stronger brand and a competitive content provider before making the improvements mentioned above. This will be a beneficial shift from receiving most of the revenue from clients who purchase advertisement time to a more sustainable and stable system.
Evaluation and Control
An evaluation and control stage will follow after the implementation of the strategy that refers to a shift in income sources. A balanced scorecard will be used to examine the positive or negative changes within the organization. This method will allow for an overview in regards to the overall cash flow after TV advertisement will not be as significant and will provide data on how customers view the price change. Furthermore, using a balanced scorecard will help determine whether employees are satisfied with the policies and the general internal processes that experienced reforms after the strategy became fully operational. This performance measure takes into consideration multiple different organizational systems and factors that affect how Roku operates. A balanced scorecard gives direct feedback on all levels, which is why it is a suitable method of evaluating the implemented plan.
Financial performance is a domain that requires a more in-depth examination. Since the goal is to shift the financial system and make certain changes that will benefit the organization in the future, it is crucial to analyze the monetary losses and gains. Specifically, the three indicators used during this method of evaluation are the return on investment (ROI), return on equity (ROE), and earnings per share (EPS). The first indicator will show the overall efficiency of the investments by comparing the money spent on the project and the net profit. ROE is another important financial metric that uses the shareholder’s equity and the net income to assess the strategy’s effectiveness. Last but not least, the EPS metric will give an overview of the corporate value by calculating the financial value of the company’s shares. These performance measures will give an in-depth understanding of whether the strategy is financially profitable or not.
References
Malthouse, E. C., Maslowska, E., & Franks, J. U. (2018). Understanding Programmatic TV advertising. International Journal of Advertising, 37(5), 769–784.
Mohajeri Moghaddam, H., Acar, G., Burgess, B., Mathur, A., Huang, D. Y., Feamster, N., Felten, E. W., Mittal, P., & Narayanan, A. (2019). Watching you watch: The tracking ecosystem of over-the-top TV streaming devices. Proceedings of the 2019 ACM SIGSAC Conference on Computer and Communications Security.
Pleggenkuhle-Miles, E. G., Winchester, C. C., Bass, A. E., & West, T. (2021). Streaming success: Positioning Roku’s future in a hypercompetitive industry. The CASE Journal, 17(3), 295–319.