Roku is maturing fast this week: First came news of its first cable-channel partner, WealthTV, and now a deal with mDialog that will allow for dynamic midstream ad insertion in its programming. While WealthTV might seem the bigger deal, the latter has bigger implications.
The ability to dynamically insert ads is something that could attract more programmers–not to mention, more prominent ones than WealthTV–who will want a dual revenue stream in place if they’re going to consider Roku as a distribution partner.
As it stands, the only advertising on Roku is from either Hulu Plus, which handles its own ad placement, or live-sports programmers like NHL Gamecenter that replicate whatever they’re doing on air. Otherwise, you have ad-free zones from channels that subsist entirely on subscriptions like Netflix (NSDQ: NFLX), or programmers who are just winging it for now.
But if mDialog is going to allow for programmers to insert more ads, it’s going to be interesting to see whether there’s any pushback from viewers. The answer here may not necessarily be a yes or no question to ads on Roku channels. It may take some experimentation with ad load and price point to get it right.
For instance, could a channel that charges a cheaper fee because it carries ads be an acceptable tradeoff to consumers? Possibly. Roku could potentially offer consumers two different channels priced differently depending on whether there are ads in-stream or not.
What may make all the difference here is what type of ads are inserted. If Roku can provide advertisers with demographic data, ads can be targeted to relevant IP addresses. There’s also potential for making “smart” ads that aren’t just 30-second videos, but interactive experiences that can culminate in actual transactions.
But even with the ability to add commercials, the bigger question is, will marketers care about a footprint of 1 million devices? That’s infinitesimal compared with most cable channels; most advertisers won’t roll out of bed in the TV sector unless there’s 20 million households in place. That said, programmers that have their channels on a number of platforms may just use Roku as padding for their total reach. Channels that exist on Roku and not much else won’t have that luxury.