Telly: Building on Roku’s Precedent

As you can see Platform Revenue makes up a far majority of the revenue and has very strong margins. Device Revenue is small and, notably, has negative gross margins.

Therefore, for years, Roku has actively subsidized the cost of their TVs to access 55% margin+ Platform Revenue. While the Device Revenue is a one-off, Platform Revenue has perpetual potential.

Roku even highlights this in their annual report: “We expect to continue to manage the average selling prices (“ASP”) of Roku streaming devices to increase our active accounts. We expect that the trade off from devices gross profit or loss to grow active accounts will result in increased platform revenue and platform gross profit.”

Although Roku claims inflation and supply chain issues have contributed to the negative gross margins, even pre-COVID, Device Revenue gross margins were consistently in the single digits. 

This strategy has paid off for Roku as they have been able to reach global scale as a key gatekeeper in the Streaming Wars represented by more than 72M active accounts across the globe enabling over 25 billion hours of viewing in the first quarter of ’23. 

Telly

Telly’s strategy is simply taking the Roku model a couple steps further, betting that in the long run they can overcome the few hundred dollars up front through partnerships at launch and unprecedently aggressive advertising.

The company is even implementing unique strategies like analysis of “the physical presence” of how you and others are watching the TV at any given moment.

The Telly story also highlights many of the hottest questions in the AdTech space like “How much do consumers value their privacy? Are they willing to share more information for serious value?” 

Whether it is the concerns mentioned above, the need to fuel the up-front costs of the TV through VC funding or advertising partnerships, or whether there will be consumer appetite for the product, Telly has some hurdles to overcome. Interestingly, even Roku themselves after 20 years is still not generating profit.

However, if these concerns are addressed, there is no reason that the company can’t succeed.

While the idea of Telly might seem crazy, when Pozin launched PlutoTV on April 1, 2013 people thought it was an April Fool’s joke. Today? It is a $1B business in the hottest growing sub-sector of streaming (FAST). 

The Telly story will definitely be one to watch, and I look forward to keeping you all posted. 

Talk soon, 

Emily