Fox Is Buying Roku. Is It a Better Buy than Netflix, Disney, and Paramount Skydance?

The streaming industry's strategic consolidations continue, although the most recent one took more than a few investors by surprise. Just days after Paramount Skydance (NASDAQ: PSKY) cleared a major regulatory hurdle to move forward with its acquisition of Warner Bros. Discovery (NASDAQ: WBD), media powerhouse Fox Corp. (NASDAQ: FOX) (NASDAQ: FOXA) announced on Monday, June 15, that it intends to purchase streaming technology outfit Roku (NASDAQ: ROKU) for $22 billion in stock and cash.

It's a good fit for several reasons, not the least of which is that the merger of two relatively small players in the business shouldn't raise any serious antitrust concerns that larger players might encounter. The bigger upside is simply that Roku's place in the industry offers a much more promising future than mere content creation -- a role increasingly rife with challenges that may never go away.

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Roku by the numbers

On the off-chance you're not aware, Roku makes streaming hardware. It's best known for its set-top boxes that attach to a television, offering users a way to access their streaming services. More recently, though, it's licensed its tech and brand name to TV manufacturers.

In addition to hardware revenue, Roku receives payments from streaming services like Netflix and Paramount+ for promoting and distributing their programming. Indeed, this business accounted for 90% of Roku's total first-quarter revenue of $1.25 billion, versus only 10% from device sales and licensing.

And Roku made quite a name for itself on this front. Although it doesn't account for the majority of the rather fragmented connected-television market, Roku's hardware is the most commonly used in the Western Hemisphere and within North America, where it enjoys a 36% market share in both regions, according to numbers from Pixalate. It's leading in Latin America too, with connected-TV market share of 42%. All told, more than 100 million households worldwide now use its streaming tech.

This, of course, is what Fox is eyeing. As the TV entertainment industry continues to move away from conventional cable and toward streaming, being a streaming gatekeeper offers some control over what consumers can easily access, and how they can be monetized.

And Fox could certainly use the help.

Smart, strategic positioning

Don't misread the message. Fox is doing fine in terms of cable-TV market share. The cable-TV market itself, however, is shrinking. Comcast's (NASDAQ: CMCSA) Xfinity lost another 322,000 paying customers last quarter, while Charter's Spectrum shed another 60,000, extending long-standing streaks of subscriber attrition. Again, this crowd is increasingly viewing streaming content, which TV-ratings agency Nielsen says now accounts for more total viewing time in the United States than cable programming and network broadcasts combined. Fox is simply ensuring it has a seat at the table -- by owning the table.

This doesn't mean Roku or Fox can favor their own streaming apps over others, if and when this acquisition is allowed to move forward. The pairing may not be of particular concern to the Federal Communications Commission (FCC), since it won't change (at least not initially) any programming that's currently available. But odds are good that the Department of Justice (DOJ) will scrutinize the fact that a major network and a minor streamer will have control of a major means of content distribution. Fox will almost certainly be required to make assurances that it will remain impartial.

Impartial, however, doesn't mean Roku can't prominently feature Fox's free-to-watch (100% ad-supported) streaming channel Tubi, which Nielsen reports is now more watched within the U.S. than Paramount+ or Comcast's Peacock. For that matter, so is Roku's homegrown free-to-watch streaming service The Roku Channel. As the two biggest ad-supported streaming venues in the U.S., these two platforms should complement one another's growth.

Then there's the other hook: Fox's sports arm. While it doesn't offer access to the most sporting events, when and where it chooses to compete, it does so in a big way. For instance, its coverage of Super Bowl LIX in early 2025 was the single most-watched sporting event of the year, according to Nielsen -- and it was also on Tubi. There's little doubt that Fox could leverage its sports reach to cross-promote Roku, and vice versa.

Despite the market's initial response, it makes good sense

Connect the dots. This is a brilliant buy.

Sure, there are other combinations that could conceivably work. Almost all of them face at least one significant complication, though: Any prospective partner like Walt Disney or Paramount Skydance already owns a broadcast network. It's unlikely the FCC or the DOJ would allow two majors to operate under the same roof.

Netflix is a neutral streaming name that could do well by entering the distribution technology business, although it's arguable that uniting the world's biggest streaming name with the Western Hemisphere's top streaming distribution platform would raise more than a few regulatory eyebrows. Netflix also seems to be doing fine on its own, and isn't interested in changing its corporate chemistry.

Pairing a respectably-sized media name like Fox with an increasingly important media distributor, however, is a cost-effective win-win. Moreover, with Roku's distribution leverage at its disposal, bundled content partnerships -- like plans for a sports-focused streaming package called Venu that Fox, Disney, and Warner Bros. ultimately abandoned in early 2025 due to regulatory hassles -- come back into focus, with Fox holding most of the cards.

That's why it's a bit surprising that the acquisition announced on Monday hasn't happened yet, and particularly surprising that Comcast didn't make a bid. It definitely had something to gain by easing into the streaming hardware and distribution business. Comcast could also have done something special with Roku by leveraging its existing cable, broadband, and even mobile infrastructure, as well as its NBC broadcast network, Universal Studios, and its streaming service Peacock.

Fox doesn't bring quite as much to the table. It brings enough, though, and Roku certainly offers something complementary at a time when a larger content library alone is of little value. Streaming programming has essentially become a commodity; there's so much of it that consumers are struggling to sift through all of their choices. It's the intermediaries that are best positioned to monetize streaming programming.

Investors punished the deal anyway, sending Fox shares lower on Monday. However, that's arguably a reflection of sheer surprise, along with the seemingly high price the company's paying for Roku. It's worth the premium, though. A great deal of synergy is waiting to be unlocked by this pairing.

James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix, Roku, Walt Disney, and Warner Bros. Discovery. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.