Magnite Steals the Show
Another shot in the battle for the future of television was fired on Monday after the close.
Managers at Roku, Inc. (Nasdaq: ROKU) announced plans to buy the advanced TV advertising platform of Neilson Holdings Plc (NYSE: NLSN). In theory, the deal makes Roku more competitive in digital ads.
Don’t buy into the hype. Let me explain.
Roku managers correctly put the company in the middle of the cord-cutting revolution in 2008 when Anthony Wood, a former executive at Netflix, Inc. (Nasdaq: NFLX), pulled together a team of engineers to build a streaming media box. The project got $6 million in early funding from Wood’s former employer and even office space alongside Netflix in Los Gatos, Calif.
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Today, Roku has a portfolio of streaming media boxes and dongles, a smart TV ecosystem that includes thousands of third-party content providers and 51.2 million active users. More recently, managers have shifted their focus to monetizing user engagement through advertising.
In theory, buying Neilson’s advanced digital ad business should help … but in reality, the impact will be negligible.
Unfortunately, the companies have been working together since 2015 and they haven’t been able to crack the code of inserting Roku’s digital ad inventory into normal linear TV programming. Even worse, broadcasters are rushing in the other direction. They are investing heavily to distribute live TV over the internet, negating the need for Neilson’s tech.
The better play for investors is Magnite, Inc. (Nasdaq: MGNI), a forward-looking advertising technology business.
I first wrote about Magnite in March 2019. Back then, the company was called the Rubicon Project, a tiny adtech business with lots of problems. Like so many firms in the 2010s, managers had bungled web-based advertising with annoying pop-ups and video ads that started as soon as the page opened.
Two years ago, they turned their full attention to Connected TV, digital ads for smart televisions.
In January, managers announced the acquisition of SpotX, a CTV platform. The merged company will have inventory agreements with a number of content providers and device makers including Discovery, Inc. (Nasdaq: DISCA), The Walt Disney Co. (NYSE: DIS) and Hulu, ViacomCBS Inc. (Nasdaq: VIAC), Fox Corp. (Nasdaq: FOX), Activision Blizzard, Inc. (Nasdaq: ATVI), fuboTV Inc. (NYSE: FUBO), Samsung, Sling TV, and Vizio. Magnite even helps Roku manage its ad inventory.
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In a SEC filing in November, Magnite managers noted the number of advertisers using its CTV targeting during the third quarter increased 250% year-over-year. CTV revenues grew to $11.1 million, up 51% from a year ago.
While this is currently an extremely small business, keep in mind that most of TV advertising will eventually be connected, a total addressable market of $70 billion. The current market penetration for CTV is only $7.6 billion, according to a report from eMarketer.
Magnite executives have their eye on the connected future of TV. It’s what savvy investors should focus on, too.
Jon D. Markman