Netflix is often seen as the face of the cord-cutting movement, a service where you can essentially stream what you want, when you want, for a reasonable monthly fee. With a massive content library that's about to get even larger as the company plans to spend $13 billion on new, original programming, Netflix is a cord-cutter's dream.
Yet while the streaming service has the content videophiles are looking for, a recent report on the website Cord Cutters News says there's another company that's beloved every bit as much by people wanting to distance themselves from their cable TV company: Roku (NASDAQ: ROKU).
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Roku holds the clear lead
Results from the industry site's quarterly consumer survey show that when it comes to those looking beyond the cable box, Roku leads the pack. For the third straight year, a sampling of over 2,000 people who have cut the cord shows that more than 70% of them own a Roku device, whether it is one of its streaming devices or a Roku TV.
The significance of Roku's dominance is found in what it is going up against. Amazon.com's (NASDAQ: AMZN) Fire TV is the second most popular streaming device. But with just 35% of those surveyed saying they had one, that puts it far behind the leader. Similarly, just 24% of consumers had Apple's (NASDAQ: AAPL) Apple TV. The numbers of the survey don't sum to 100% because some consumers have more than one streaming device.
The results are supported by TabloTV, which makes DVRs that allow consumers to record any over-the-air broadcast on any device. It tweeted in response to the survey by Cord Cutter News that Roku "also controls 70% of Tablo OTA DVRs!"
Taking full advantage
Roku is using its leadership position to further grow its business. Advertising is becoming one of the keys to its results, with platform revenue surpassing sales of its streaming players for the first time last quarter.
Some $70 billion is spent on television advertising each year, and Roku is anticipating it will grab a growing percentage of that, particularly after launching the advertiser-supported Roku Channel, which has quickly become one of the top 10 channels on Roku devices, based on hours streamed. Citing statistics from Nielsen, Roku says 10% of those 18 to 34 years old in the U.S. can only be reached through the Roku platform.
Beyond just video advertising, Roku display advertising is a growth channel, too. It added 6.6 million new accounts from last year -- a 1.5 million sequential increase -- giving it 21 million active user accounts, half of whom have cut the cord with cable or were never tethered to it in the first place. That suggests streaming apps will pay top dollar for landing on its home screen.
Indeed, Cord Cutter News finds that many services launch on Roku first before moving onto other devices. It points to apps from Sling TV and Philo as two examples of apps that made their splash on Roku first, though it also notes that some services surprisingly don't prioritize Roku's platform.
Many more plan to switch, too
Beyond just cord-cutters, though, investors should also take note of where this race is heading. The survey also found that when it comes to which device consumers were planning to purchase, they chose a Roku more than two-to-one over Amazon's Fire TV.
Having combined simplicity and price with its early first-mover status, Roku has created an offering that is hard to beat. It also indicates why the service is smart not to abandon its hardware business as it develops the platform side to become its primary source of revenue.
This may not be an exact replica of a razor-and-blade business model, as Roku isn't quite giving away its hardware. But the service has found a way to cut through the noise in the cord-cutter market and land firmly in the forefront of the industry by using the hardware to push advertising.
The two-pronged approach ensures that Roku will be the market leader well into the future, and consumers seem thrilled with that outlook.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Apple, and Netflix. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.