It's getting pricier to keep all of your premium streaming services, and that's actually welcome news for Roku (ROKU -10.29%) shareholders.
Comcast's (CMCSA 1.85%) Peacock became the latest platform to increase its pricing. The media and connectivity company announced on Tuesday that the monthly rate for its ad-supported Peacock Premium will increase by $1 to $5.99. The commercial-free Peacock Premium Plus will now set you back $11.99 a month, a $2 increase.
Roku might not seem like a beneficiary at first. If a direct-to-consumer app becomes more expensive, it will likely price out some viewers. Premium streaming could become less popular, and that's problematic for Roku, North America's leading streaming hub, which served more than 25 billion hours of content to its users through the first three months of this year.
Making matters worse, many of the leading pay services have been cutting back on costs, and that was before Hollywood strikes shut down productions.
But take a closer look: All paths lead to Roku as a winner in this calamity. You just need to make sure that you keep watching until the very end.
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Let's start by making things seem worse before realizing that they're better. Many of the latest headlines coming out of individual streaming services paint a problematic picture.
Paramount Global (PARA -2.22%) rolled out a similar 20% increase for Paramount+ last month, only it also folded its Showtime streaming platform into the service. The shakeout is happening, and that means fewer pay services competing for attention on Roku's free hub.
Disney (DIS -0.04%) mentioned in May that it will increase prices for its ad-free Disney+ platform, and that follows a 38% increase late last year. Disney has also made shaving content costs by $3 billion a year a cornerstone of turning the streaming service profitable by the end of next year.
Comcast itself is also struggling with the lack of profitability at Peacock, which is expected to post a loss of roughly $3 billion this year. Won't charging more -- for less -- lead to a revolt from the living room armchair? How can this help Roku when it's at the mercy of driving ad revenue by keeping its 71.6 million active accounts engaged?
Image source: Getty Images.
It all boils down to what these leading streaming service stocks will do to grow their audiences in the new normal. They're raising subscription rates because they're not making enough money under the earlier promotional price points. They're cutting costs for the same reason. How do you get folks to pay more for less? Yes: marketing.
It would be surprising if these media giants don't spend more, instead of less, to stand out in front of Roku's growing audience. Roku has double the market share of its nearest stateside competitor, so it will be a priority. A chunk of the money saved in not green-lighting some productions will go into increasing awareness of the brands and content already in the vault. Roku will win.
Making an argument that ad revenue will be the catalyst that lifts Roku higher might seem like a voice in the wilderness right now. Platform revenue at Roku experienced a 13% sequential slide in the first quarter of this year and a 1% year-over-year dip. The declines happened despite a healthy increase in users and engagement. Marketers are spending less per viewer they reach, but that's about to change.
A reversal seemed in the works before the Comcast and Paramount summertime price hikes, as the connected-TV advertising market is starting to bounce back. Now, the marketing missives should have some more firepower with media networks having more at stake.
Streaming services initially paid for ads to grow the subscriber counts of their unprofitable services. With peak losses in the rearview mirror after this year, surviving premium apps are going to spend even more because the net additions of a suddenly profitable platform are even more valuable.
Roku stock has nearly doubled this year, but the inevitable turnaround in ad revenue is still being largely ignored. The biggest winner of media networks jacking up the price points for their streaming services is an operating system for smart TVs that is free for viewers to use.
