What Happened: Roku acquired TOH Intermediate Holdings LLC, which owns the “This Old House” business, from TZP Group, a New York City private equity firm that purchased the business in 2016 from Time Inc. The financial terms of the acquisition were not made public and the executive team of “This Old House,” including CEO Dan Suratt, will become part of Roku.
The acquisition encompasses the global distribution rights and all subsidiary brands, including the television programs, “This Old House” (now in its 42nd season) and “Ask This Old House” (now in its 19th season), plus the shows’ libraries, the television production studio and all digital assets.
“This Old House” and “Ask This Old House” were the two top-rated home improvement programs on U.S. television during 2020, according to Nielsen data, and over the years have accumulated a total of 19 Emmy Awards and 102 nominations.
Current seasons of the programs are available for free on The Roku Channel as on-demand episodes after they have their initial broadcasts on local PBS stations. The past seasons of the programs are available for free on The Roku Channel through both linear and on-demand programming.
“As the top-rated home improvement programs in America, ‘This Old House’ has the broad appeal that is perfectly suited to support The Roku Channel’s ad-supported growth strategy,” said Rob Holmes, vice president of programming for Roku. “‘This Old House’ created the television home improvement genre and is beloved by millions of fans. We are thrilled to welcome this incredible team, and we could not be more excited to help grow the brand for an entire new generation of home improvement enthusiasts.”
A Good Deal? Needham analysts Laura Martin and Dan Medina reviewed the acquisition and commented that the transaction has its strong points and weaknesses.
On the plus side, the analysts observed that through the acquisition of 1,500 hours of “This Old House” content, the company has created two new units for attracting brand advertisers and “may have better luck getting commitments from brands during the upfront market, instead of fighting for the 20% of their ad budgets in the scatter market each year.”
They also opined this deal could open a direct dialogue between Roku and advertisers without the need for intermediate agencies to negotiate deals, although they warned the agencies might take umbrage or worse if they find themselves left in the cold.
Furthermore, the analysts pointed out that most episodes from the business were already available to Roku viewers, a financial positive for the company.
“Most episodes were already on The Roku Channel (TRC). Buying the copyright for less than $100mm (our estimate) captures forever the 50% rev share Roku was paying out and gives Roku the current season the day after each new linear TV show airs (ie, 1 year earlier), which suggests upside to TRC engagement,” the wrote.
However, they also warned that “platform revenue generally has 60%-70% gross margins and Roku is using those high-return dollars to create content (ie, 10%-25% margins), which suggests falling ROICs.”
With television industry content creation at peak levels, the analysts speculated Roku might be making errors that impacted other companies.
“A distribution company (like Roku) hires expensive lawyers and production talent and then hates to see them twiddling their thumbs so buys/produces more content, which requires hiring more, etc.,” they wrote. “Content eats the high-return distribution profits. Hidden costs include beautiful office space, expense accounts, parties, etc., because great content-creation talent is hard to attract and harder to retain. It also drives distribution wages higher, to close the salary gap.”
(A discussion on window installation strategies from “This Old House.” Photo courtesy PBS.)
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