Yesterday’s announcement by Roku, that it would begin offering SVOD and ad-free premium cable TV networks (what Roku calls “Premium Subscriptions”) within The Roku Channel, is the latest sign that subscription video services are turning to bigger third party platforms to add and retain paying subscribers. Despite all the industry excitement over direct-to-consumer (“DTC”) business models, third party distribution remains critical.

Roku’s move evokes what Amazon has been doing with its Amazon Channels program for just over 3 years, which I've been bullish on from the beginning. Prime subscribers are able to choose from dozens of different small and large SVOD services and premium cable TV networks and have the fees billed directly to their credit card on file with Amazon. Free trials are commonplace and the content is viewed seamlessly within the Prime Video app on multiple devices.

Roku is taking a similar approach, but using its The Roku Channel as the catch-all place premium subscription content will be viewed. Roku will offer free trials, one-click sign-up, centralized billing to one credit card, unified search, etc. for over 25 subscription services to start with choices no doubt expanding in the future.

Using The Roku Channel this way seems mutually beneficial - subscription services gain exposure to a huge base of viewers (Roku has said The Roku Channel is a top 5 channel, though hasn’t disclosed actual viewership; Roku said it had 23.8 million active accounts at the end of Q3 '18) while Roku augments its free content with premium subscription content. In some ways, it’s a modern version of pay-TV’s traditional approach, except in this case the base content layer (The Roku Channel) is actually free.

There are lots of reasons to believe the market for SVOD and premium cable TV networks will continue trending toward third party distribution, despite the hype around DTC. For consumers it’s a much simpler approach - not needing to enter a credit card again, manage a subscription, deal with another app and other points of friction. The subscription service gains reach, promotion and operational/delivery support in exchange for a cut of revenue and losing some insight/data on its viewers. It’s not a perfect approach for the subscription services, but they can still run their DTC efforts simultaneously.

Beyond Roku and Amazon, last year Apple belatedly geared up a video distribution model in its TV app, going beyond what it has historically done in iTunes (and btw, Netflix’s recent decision to spurn iTunes should be considered an outlier example not an indication of a new normal). Comcast has also embarked on this path in X1. And despite YouTube refocusing its own video monetization on advertising, the company is well-positioned to deliver subscription services to its massive user base as well. There are even murmurs that Facebook wants to become a distributor.

Given all of this, it’s practically inevitable that an increasing percentage of new premium subscribers will come via third party platforms and distributors. True DTC will still have its place in most content providers’ portfolios, but its contribution will decline over time. As the saying going, “everything old is new again.”