Good day, ladies and gentlemen, and welcome to the Q2 2018 Roku Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. Please press star then 0 and your touchtone telephone. As a reminder, this conference is being recorded.
I would now like to introduce your host for today's call, Mr. James Sandford, Vice President of Investor Relations. Mr. Sandford, you may now begin.
Good afternoon, and welcome to Roku's financial results conference call the Q2 ended June 30, 2018. I'm pleased to be joined on the call today with Anthony Wood, Roku's Founder and CEO Steve Louden, our CFO and Scott Rosenberg, the GM of our Platform business, who will be available for Q and A. Please be sure to review our shareholder letter, which contains more detail Then what we will cover in the introductory remarks. The following discussion, including responses to your questions, reflects management's views as of today, August 8, 2018 only, and we do not undertake any obligation to update or revise this information. Some of the statements made on today's call are call today.
And are based on our current expectations, forecasts and assumptions and involve risks and uncertainties. These statements include, but are not limited to, statements regarding the future performance of Roku, including expected financial results for the Q3 and full year 2018 and the future growth of our business. Our actual results may differ materially from those discussed on this call for a variety of reasons. Please refer to today's shareholder letter and the company's filings with the SEC for information about factors which could cause call. Our actual results to differ materially from these forward looking statements.
You will find reconciliations to non GAAP measures to the most comparable measures discussed today in our shareholder letter, which is posted on the company's Investor Relations website at ir.roku.com. Call. And we encourage you to periodically visit our IR website for important content. Finally, unless otherwise stated, all comparisons on this call will be against our results comparable period in 2017. Now I'd like to turn it over to Anthony.
Thank you, James, and thanks everyone for joining our 2nd quarter earnings call. The strong momentum we saw entering 2018 continued this quarter as we expanded our reach to 22,000,000 active accounts, up 46%. ARPU was up 48% year over year to a record high as per customer revenue continued strong growth. We are pleased with this growth, but know these are still early days as consumers, content providers and advertisers continue to make the transition to streaming. The Roku Channel continues to be an area of focus and growth for us.
Our Roku Channel strategy is to focus on free long form content, expand content categories, extend the platforms beyond Roku OS and broaden into new geographies. For example, we recently added news to The Roku Channel and we recently announced availability in Canada. Today, we launched The Roku Channel for the web, allowing anyone to stream free movies and TV shows. And we also released The Roku Channel as an app on select smart Samsung TVs. Another important announcement in the quarter was the launch of our new Roku TV wireless speakers.
These are Specifically designed for Roku TVs and use the Roku Connect wireless protocol. These speakers dramatically increase how easy it is to improve the sound quality on our Roku TV. This makes Roku TV more appealing to consumers, which should increase loyalty and engagement. On the advertising front, We are making our targeted capabilities and technology more accessible to content publishers and advertisers through our new programmatic audience marketplace. This is an exciting time to be in the streaming business.
The massive TV ecosystem is moving to modern platform with streaming at the center of a more dynamic and innovative approach to content distribution. At Roku, we are determined to deliver enormous benefits to consumers and to help content publishers and advertisers thrive on our platform. Before opening the line up to questions, I'll turn it over to Steve for brief comments on our results and outlook. Thanks, Anthony. We had a particularly strong quarter, which is turning 2018 into another great year for Roku.
Our active account growth of 46% year over year came from the strength in both Players and Roku TVs. Please see our shareholder letter Q2 for the full financial details from the quarter. But I'll highlight a few items before turning to comments on our outlook. Total Q2 revenue increased 57 percent year over year to $156,800,000 with platform revenue nearly doubling again And representing 58% of total revenue. Monetization of our platform continues to be driven by strong advertising growth, which is the largest and fastest growing part of Roku, but we also saw very strong content distribution revenue growth this quarter.
Player revenue growth of 24% was particularly strong this quarter, with robust demand for streaming players across both our retail and partner channels, And we saw less impact from discounting or mix shift to low priced players compared to last year. Player units were up 22% year over year and ASPs were up 2%. As we have said in the past, player revenue can be lumpy Based on a variety of factors, including timing of retail shipments, partner promotional campaigns and supply chain and inventory levels. Heading into Q3, we are comping against a very strong Q3 last year. And based on visibility we have today, We expect player revenue to be roughly flat sequentially and year over year.
Q4 is seasonally our strongest quarter for players, And we anticipate delivering modest positive year over year growth. Our key financial performance metric is gross profit, which was up 107% year over year this quarter to a record 77,800,000 While the biggest driver was platform gross profit growth of 84% year over year, player gross profit benefited from lower COGS release of accruals of $8,900,000 related to potential IP licensing liabilities that have not materialized and management now believes will not materialize. Excluding these accrual releases, which did not impact revenue. Total gross profit was up 83% year over year and gross margin expanded 6 percentage points year over year to 44%. We continue to invest in our strategic initiatives, primarily via increased headcount, resulting in year over year OpEx growth of 53 percent to $78,000,000 Adjusted EBITDA came in well ahead of our outlook at positive $7,100,000 Q2 based on strong overall results and the benefit from IP licensing accrual reversals.
In the New Year, we adopted the new revenue accounting standard ASC 606, details of which are disclosed in our Q1 10 Q, which we filed in May 2018. In the income statement for this quarter, revenue and gross profit under ASC 606 We're roughly $3,100,000 $800,000 higher than they would have been under ASC 605 respectively. Most of the impact was in our Platform segment related to the gross up of both revenue and cost of goods sold for inventory split ad impressions. The difference between 605 and 606 will continue to be highly volatile in the back half depending on a variety of factors, Such as timing and terms of contract signings or modifications, mix of ad inventory and timing of delivery of obligations under existing contracts. Based on what we have reported year to date and our visibility into the back half, we now expect the overall difference between 606 ASC six zero five for the year to be positive $5,000,000 to $10,000,000 on revenue and roughly neutral on gross profit.
With that brief overview, let me turn to our outlook. Based on our strong performance year to date and what we know as of today about account growth, engagement and monetization trends. We are again raising our full year outlook. Our updated full year outlook increases to 40% revenue growth and 61% gross profit growth at the midpoint, up from prior growth rates of 36% 49%, respectively, when we provided outlook in May, and 31% 43% growth Q1 of 2019. We are now
ready to take our questions back into
R and D and sales and marketing to fuel continued growth and innovation. And the effect of these investments, Q1, which is primarily headcount related, is expected to show up in 2019 and beyond. Based on the strength of the first half of twenty eighteen, We now expect positive adjusted EBITDA for the full year, up from atornerebreakeven previously. As you may have seen in recent 8 ks filing, we signed a new lease agreement that will significantly expand our real estate footprint Q2 over the next few years and provide us with capacity to grow. We expect this to add incremental expense in CapEx in 2019 2020.
And we will provide more detailed outlook for 2019 in our Q4 earnings call in February. For Q3, our outlook for year over year revenue growth up 35% at the midpoint factors in a roughly flat player revenue growth and modest slowdown in Q3 platform revenue growth, Primarily due to tough comp in the prior year, when platform grew 137% year over year. Continued mix shift to video advertising and seasonality in player margins is reflected in our outlook for year over year total gross profit growth of 47% at the midpoint and nearly 4 percentage points of margin expansion. On the expense side, We are adding talent at a rapid pace, which factors into our outlook for a modest adjusted EBITDA loss in Q3 Q4. Before rebounding to positive adjusted EBITDA in our seasonally strong Q4.
Overall, the fundamentals of our business are strong and We continue to see plenty of opportunities to reinvest in our business to solidify our long term growth potential. Thank you for your continued interest in Roku.
Tone telephone. We ask that you please limit yourself to 1 question and one follow-up question. You may then return to the queue. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Our first question comes from Evan Wingren with KeyBanc Capital Markets.
Thanks. Just wanted to ask about the Roku channel launching for free on all devices. Obviously, it's very early, But is there any way you can give us a sense for how you think about the longer term opportunity with this announcement in terms of driving engagement, new accounts and monetization? And then just a follow-up to that would be, is the content set that you currently have for The Roku Channel available or will there be incremental investment necessary for content or marketing. Thank you.
Yes, let me start. This is Anthony. I'll start and then maybe Scott can add something. Just overall, our strategy just to recap our Roku Channel strategy, It's free long form content, it's an owner and operator service. Our goal is to keep expanding reach.
So one way We're going to do that is expanding off platform. So we announced, for example, our web launch today. We plan to expand to more geographic regions. So for example, we recently announced that we're entering Canada. And then we plan to keep adding more content categories, Long form content.
So for example, we added news recently. So we're making good progress on that strategy. And I'll let Scott answer the questions around the economics.
Sure. And just to add this is Scott here. Just to add to Anthony's comment and by way of background, The Roku Channel launched last September. We've had huge success the channel on our platform in the time since. The channel is already a top 5 reach channel in terms of the number of users or accounts that it reaches in a given month.
And it really validates the original thesis behind the channel, which is that there is this great thirst Amongst OTT consumers for free content. So the announcements that you saw today are really an extension of that thesis and taking That experience off platform, where we can amplify the impact that we have for our content partners, extend reach for our advertisers and ultimately meet new users who may not yet have a Roku. In terms of your question, Evan, about content, the strategy is to take the same types of content off platform and give users the same experience. And as I said, with our content partners, the dialogue is really around how can we expand the number of people And ultimately the money that they earn in partnering with us to provide free ad supported experiences like The Roku Channel.
Thank you. Our next question comes from Jason Helfstein with Oppenheimer.
Thanks. A few questions. So our work suggests that Roku Channel advertising could be as high as 15% of your total advertising. Without commenting if that's right or wrong, how do you think about the margin of Roku Channel advertising relative to the rest of the ad business? Second question, is it possible to get an update on the Samsung partnership, potential timing, any color, will this be older sets, Any help would be helpful.
And then lastly, Steve, on this 8,900,000 benefit. Would you agree that the right way really is to strip it out both in the quarter and in the guide and obviously that's one time really We are out of the compares for 2019. Thanks.
Hey, Jason, great questions. With regards to your first question about the contribution of The Roku Channel. I'm not going to disclose the percent today, but, I will say it's already a material contributor to our ad sale, not just in terms of raw volume, but the opportunity for us to create new ad experiences because it's a wholly controlled experience. So for example, We are regularly now crafting sponsorships that live within The Roku Channel. These are unique experiences that allow brands to message directly to our users.
With regards to your question about Samsung, We've already been active in sponsorship activity on the Samsung platform. And with today's launch, the Roku Channel going live, We'll be extending the Roku Channel experience to Samsung sets. These are select Samsung TVs, but generally the newer models, the Tizen models as Samsung calls them.
Yes. Hey, Jason, it's Steve. Just on the $8,900,000 for the IP licensing accrual release. Yes, that's a process that we do regularly. We review all our accruals and contingencies And then we assess the likelihood for them to materialize.
I mean, this quarter there it was a particularly large number. So I think it's appropriate for You to kind of look at it and back that out as an unusually big accrual release versus kind of standard what we experienced in any given quarter.
Thank you. Our next question comes Ben Swinburne with Morgan Stanley.
Thanks. Good afternoon, guys. Two questions. Anthony, could you talk a little bit about the TVOS landscape and a little bit about your expectations for signing new partners and landing new agreements Look out over the next couple of years. And in particular, I'd be curious why you think some OEMs use Roku OS for some SKUs, but not all of them.
And And sort of what the opportunity might be to take that to sort of the kind of relationship you have with TCL. And then just for Scott, the Roku audience network, I know it's new, but can you give us any sort of qualitative commentary on how your publishing partners have responded to that? How they might be using it? And any help on thinking about the revenue model for Roku, given I think it's sort of a data services business rather than, something where you're the principal So our bad time, any help there would be great. Thank you.
Hey, Ben. So on TV, this is Anthony. On TVs, I would say at a high level, it's progressing as we expected. Our thesis is that all TV OEMs will switch to a licensed operating system just like all phone companies, phone makers either license Android or they're Apple. That same dynamic is happening in TVs and we're by far the number one licensor of OSs to TV manufacturers.
1 in 4 Smart TVs in the first half of the year were licensed Roku TVs. So it's going well. And in terms of the dynamics around what it kind of what's coming next, I think you'll continue to see us adding more OEMs and adding more SKUs at retailers.
I
think that will continue. The why do OEMs some OEMs not carry 100% Roku SKUs because They're still, I think, learning and finding their way and still learning that Roku's SKUs sell better. So they're not necessarily all in at once, but We generally deliver excellent results working with partners, and they generally increase the SKU count as their business with us progresses. So TV business, I think, is doing well. Our biggest competitor in that business is kind of inertia with homegrown OSs.
But as companies that continue to ship their own operating systems start continue to lose market share, then I think that will drive everyone's eventually license and OS.
Ben, with regards to your question about the recently announced Roku audience marketplace. What I'd provide by way of background is that from the very beginning, our goal with advertising at Roku has been to Elevate to evolve the state of advertising to make TV advertising natively targetable, interactive, much more highly measured Like any digital media that a modern marketer expects, as you know, we run a robust and very fast growing ad sales business of our own, but a majority of ad inventory flowing through our platform is still sold by publishers on our platform. And so a consistent request from the beginning From our publishers that we serve in many ways has been to help empower them with some of the same capabilities so that they themselves can command CPMs and compete in this evolving TV world. So the marketplace is really about deploying our ad tech and our data So that premium publishers like Fox, Viacom and Turner can sell addressable interactive high value campaigns leveraging the capabilities that we built at Roku into our operating system.
Thank you. Our next question comes from Laura Martin with Needham and Co.
Hi, guys. Can you hear me okay?
Hey, Laura. Yes.
Can you guys hear me okay? Okay, great. Maybe a couple. So I think first, Scott, we just went through our first upfront and we got final numbers today that the upfront for everybody was up 5%, but I'm interested in what your learnings were from being in the TV upfront this year and whether You can give us more granularity on your process and anything you're willing to share on the upfront. 2nd, probably Anthony, Apple is saying that the China tariffs are not affecting them.
Can you just let us know if any of these TVs are on any of these lists so far? And whether you think the Chinese tariffs the and then my last question is normally you give us over the last couple of quarters you've given us, of your added users, what like you've said, half are Roku TV. I assume that this huge over delivery on the player side means that that was lower, meaning units accounted for more. But could you sort of size for us How much the units added to, this quarter versus Roku TVs on the user side? That'd be great.
Thanks, guys.
Hey, Laura. This is Anthony. I'll go for it because that's a pretty straightforward question. So in terms of the tariffs. This time, we're not seeing any financial impact from the tariffs.
They don't appear to affect any of our products. It's something that's changing and we're monitoring it carefully. So we'll keep an eye on it.
Laura, with regards to your question about the upfronts, I don't have any specific things to mention here except to say that they went very well. This is really the first time in our ad sales business history where we were participating in the upfront planning window. And I think the big takeaway for us is this is really the 1st year in which advertisers are proactively planning for OTT as part part of their annual TV spending plan. Roku now uniquely delivers 10% of adults 18 to 34. So if you're planning against that critical demo.
You've got to include OTT in your planning process. And we were very active across town In equipping these teams with the tools to think about the portion of their budgets that should be spent against OTT. I would characterize our activity in the upfront as very successful. Anthony, do you want to hit the question?
I think Steve, do you want to take that? Sure. Yes. Hi, Laura. I'll do the users.
Yes, so, yes, in terms of the mix between licensing and player, Players had a particularly strong quarter. Yes, it certainly can be lumpy. But given that, the mix for licensing versus player kind of Went slightly under 50%, but we don't think that's a consistent trend. And so we still think the majority kind of going forward New accounts will be generated from license sources.
Thank you. Our next question comes from Mark May with Citi.
Hey, everyone. Thanks for taking my questions. I had 2, if I could. First on players, given the upside in player revenue, can you talk about if the player channel You moved back into kind of a greater than 50% position in terms of source of new active accounts this quarter And kind of how you're thinking about that. And secondly, you talked about mix shift in the ad revenues to channels where your gross margins are closer to 50%.
As it relates to the Roku channel, since it's O and O, Is it fair to say that that is one of your higher margin channels and much higher than that 50%? Just trying to get a sense of how that's impacting the platform margins? Thanks. Yes. Hi, Mike.
This is the platform margins. Thanks.
Yes. Hi, Mark. This is Steve. You may not heard it, but As part of the answer to the last question, yes, I did mention that Players had a particularly strong quarter, both in terms of retailers, retailer demand and content promotion, partner promotions. That did drive the licensing to player new Down where licensing was a little under 50%, but we don't think that's a consistent trend going forward, more of a blip just given how strong the player business was.
Player business can be lumpy. And so, that's something that we wouldn't recommend extrapolating in our as we mentioned in our remarks, We think the player business kind of on a revenue basis will be roughly flat sequentially in year over year in Q3 and then a modest growth year over year in Q4. Q4. In terms of the mix shift in ad revenues, I would really look at it in terms of within the platform segment, the video advertising business on average is roughly a 50% business or slightly better. And then other pieces of the platform In terms of audience development or the content distribution side, those tend to be much higher margins.
So I wouldn't necessarily specified TRC versus non TRC video ads. It's more of how the video ad business overall runs.
Yes. Mark, I would this is Scott. I would just add to that, that while Our margins are healthy in TRC. It's also an incredibly strategic channel for us for the reasons I mentioned earlier. It's a channel that we fully control.
We can create new ad products and new experiences. It's a vehicle for us to go In the channel, it's also got incredible strategic value to us as a platform.
Thank you. Our next question comes from Ralph Schackart with William Blair.
Thanks for taking the question. Two questions, if I could. First, just curious what drove the reacceleration General Monastery acceleration in streamed hours. So just general market continued movement to OTT or did The Roku Channel have sort of pronounced impact there? And then to Steve, would you mind just clarifying what you talked about for EBITDA margins?
I know you talked about increased OpEx For the facility and reinvestments, but did you say that you were potentially going to look to run the business at breakeven in 2019?
Yes. Hey, Ralph. So this is Steve. Just in terms of the streaming hours, The streaming hours in the active accounts have been growing in kind of a similar range and they can bounce around each quarter. Active accounts were up 46% And the streaming hours were up 57%.
So, yes, I wouldn't note any material change in terms of acceleration of streaming hours per se. It's been relatively consistent relative to the growth rate of the active accounts. So It's been growing, faster than active accounts consistently, which speaks to increased engagement on the platform, but nothing more significant than that. In terms of the EBITDA for the facility, as we mentioned that we signed a new headquarters lease, we think that will have incremental OpEx and CapEx. Frankly, that's really business as usual as we've been continuing to grow and And our lease will be up soon and we're running out of space.
In terms of running a breakeven in 2019, I mean that's been a stated goal before. Quarter. So just reaffirming that, certainly we'll get into the more specifics on the 2019 guidance when we get to the February call. But that's kind of been a consistent plan is we think there's tons of growth opportunity and we're still early days in the transition to streaming and We have a lot of great investments. So, we're going to continue to manage the business to invest in these growth opportunities as the gross Profit growth
continues. Thank you. Our next question comes from Thomas Forte with D. A. Davidson.
Great. Thanks for taking my question. So I had two questions. The first is with I think it was the mid May launch of Live News. Can you talk about how user engagement is with that content versus the other content in the platform?
And then second, Now that you have additional hardware SKUs with the speakers, can you tell us what your strategy is on profitability? For example, do you intend to sell the speakers at breakeven similar to your other hardware, the players? Thanks.
This is Anthony. I'll take that. So in terms of news, news is doing well. On The Roku Channel, we haven't broken out the percentage, But it's meeting our expectations and doing well and adding to engagement. Engagement continues to grow on The Roku Channel.
It's Moved up to a top 5 channel and reach. So we're pleased with the progress. The strategy, of course, like I said before, is to keep adding more content sources. So we added news, and we're going to be adding more types of content as well, primarily long form And of course, free content and expanding reach with new off platform distribution and more geographies. In terms of the speakers, I'm really excited about our new speakers.
They're awesome. I'm using them at home I'm really enjoying them. They sound excellent. But it's not for us, the reason we're doing wireless speakers is, It's not really about generating hardware revenue. It's about making the Roku TV platform an even better TV platform, right?
So we believe the Roku TV OS and licensing platform that we license is the best smart TV platform in the industry, So we think we can make it better. And one of the things one of the ways we can make it better is making it super easy, bringing it to an ease of use to a new level When a customer wants to enhance the audio of their TV, I mean TVs are getting thinner. The result of that just from physics Sound quality gets worse, so people want to upgrade the audio quality of their TVs. They want to and they do that today with home theater systems or sound bars. And those systems can be expensive and they're certainly not easy to use or connect.
And so with the Roku TV wireless speakers, You just plug the speakers in, they pair it to the TV and now you've got better sound on your TV. It's just a much, much better experience and they sound great. So for us, it's about making The Roku TV platform even better, more appealing to customers. And we think that will result in more loyalty to The Roku Platform.
Thank you. Our next question comes from Mark Mahaney with RBC Capital Markets.
Thanks. I wanted to just ask about outreach efforts with advertisers or any color you can give us on other verticals, particular advertisers you'd call it that have really kind of are engaging a lot more with Roku, a lot more with OTT Advertising Opportunities. Just color on that side of the business and then how many people you have that are trying to go out to advertising and then any thoughts, final thing on that, on the use of the application of programmatic as an advertising solution? Thanks a lot.
Hey, Mark. Scott here. With regards to the kinds of advertisers we service, at the end of the day, we're a TV ad platform and so we're seeing activity across every vertical that's active in TV advertising, whether that's financial services or CPG or pharma, auto. If we over index, it would be in entertainment because at the end of the day, we're an entertainment platform. We're doing business with well over 50% of the top 200 national advertisers in Ad Age.
In every quarter, we crack new accounts. Most of that top 200 now are in renewal phases with us. With regards to how we go about Securing that business, we are a natively digital ad stack programmatic is core to our platform. The audience market which we spoke about a little earlier on this call is programmatic at its core. Data driven selling, programmatic based techniques are in our opinion a central component of the future of the way TV advertising is going to be traded.
But it's also true that the vast majority of the $70,000,000,000 that's spent in TV advertising today is bought and respective business as well. And to Laura Martin's question earlier also about our participation in the upfront, that's a central way in which we go Secure TV ad dollars as well.
Thank you. Our next question comes from Paul Golding with Macquarie Capital.
Hi, guys. Thanks for taking my questions. So starting off with the featured free functionality in the platform. I was wondering if you could speak to whether this is more of a display ad opportunity for you guys. It seems like these are pretty premium services that are going to be fed through it.
So I'm not sure if this is an inventory opportunity as well or just simply user interface opportunity for engagement. And then a quick follow-up on the tariff question earlier. I I was wondering if there was anything you could speak to around suppliers and diversification of geography of supply of OSTVs and players or any color around that. And then my last question is around Roku Pay and whether there's anything to be said right now around new developments or functionality for easing the SVOD or OTT subscription payment processing through that.
This is Anthony. Let me just talk a little bit about feature free. So one of the things we believe about The Roku platform is it's the best platform for free content. Obviously, all the paid services are available and they're popular, but people want value when they switch to streaming and that means people like free content. And of course, our ad business is the core driver of our gross profit.
And We're big fans of free ad supported content as well. The feature free feature is the new main menu option that aggregates All the free content not all of it, but a lot of the free content that's available on Roku makes it easy for customers to find. There's lots of free content on Roku, but there's 5,000 channels on Roku. And it's a viewer might not know where to go to look for free content. So The primary goal is to aggregate that into one spot from a UI experience, make it easy for consumers to find it.
If they find something they want to watch, they click on it and then it deep links into that app. So it runs the app and then launches that channel. So, it's a combination of editorial it's an editorial based feature, the So we decided what goes into the future free, and we obviously want to help consumers. I mean, we want a good content in there, but we also want content that we have good economic relationships in there with as well. So it's kind of a combination there.
In terms of tariffs, I don't have much more to say about tariffs except that they don't currently affect us. I mean our TVs, we have a lot of different TV manufacturers and they're not all built in China. We have TVs built in different places around the world as well. And then I'll let Scott talk about Roku Pay.
Roku Pay hi, Paul. Roku Pay remains a major area of investment for us. Our view is that it removes the friction for consumers to sign up for services, buy movies on our platform and it's also great service for our content partners who are interested in acquiring users on our platform. And so it remains a key area of investment on the technology and talent side of things, and really central to our subscription business and also Our audience development business where our publishers basically buy advertising from us to drive people into that pay funnel.
Star then one key on your touchtone telephone. Our next question comes from Vasily Karasyov with Cannonball Research.
Good afternoon. Thank you very much. I was wondering if we could drill into the video advertising revenue in the quarter. If you could help us size up the either the size of the video revenue or year on year growth And what drivers were most important, volume versus pricing? And also, would you be willing to tell us what percentage of streaming hours were actually ad supported, I.
E, monetizable for you, excluding that exclude SVOD and YouTube. So any color around those variables would be super helpful. Thank you very much.
Hi, Vasily. This is Scott here. We have not broken out video ad revenue specifically, but what I'll say is that the ad business runs about It floats up and down about 2 thirds of our platform revenues and the video ad portion of that is our largest ad business. Your question with regards to volume or pricing. Pricing remains strong and growing.
The big driver of our growth is really volume and selling into new accounts and getting existing advertisers to spend more with us. We also don't disclose the exact portion of our viewership that's AVOD. I'll just say there that it as you can see by our investment in TRC and Feature 3 that ad supported viewing remains one of our strongest growing segments. It's really fertile area of investment for us, and a big part of how we're making such progress on engagement and monetization in the platform.
Thank you. Our next question comes from Alan Gould with Loop Capital.
Thank you. I've got two questions, please. First, what kind of response are you getting from the content producers that are Supplying programming to Roku or The Roku Channel as the channel is getting more successful? And also, do you have the rights to take the program in cross platforms and cross geographies or you just have different programs on The Roku Channel depending on the geography? And my second question is, I would assume we're getting close to the shipments of the new TVs for the holiday season.
I believe you're at about a 25% market share of TVs are now Roku powered. What do you think that's going to look at the what do you think that market share will be at the holiday season?
Scott, you want to take the TRC and I'll take the TV question.
Yes. The response, Alan, on From Content Partners in their partnership with us on TRC has been great. The important thing to know is that there's mountains and mountains of IP out there of great programming that's being under monetized. And, The Roku Channel because of its success has Become a really powerful vehicle for content partners to reach consumers and monetize in our platform. Our success there is a big part of how we are Now exporting TRC to other platforms.
Our content partners want to partner with us in that endeavor. You had a question about geographies. Yes, I mean, as you go into other geographies, the licensing teams or paradigms tend to shift. But within the U. S, our cross platform deals tend to be singular deals.
Regarding TVs, the TV business is really doing well and we're growing market share there. Other than the outlook we've given, we don't have any particular outlook for the second half of the year. But I would say that just Our TVs are getting great reviews. The TCL 6 Series is an awesome TV, just one CNET Editor's Choice. Roku TVs are the top selling TVs on Amazon dotcom that our fundamental thesis that all TV manufacturers will license an OS has not changed.
We believe that to be the case and that the if you our market share in the first half was 1 in 4 smart TVs in the U. S. That means 3 in 4 are not Roku TVs. And those are almost all what we would call homegrown operating systems. And I do believe that the dynamic of Roku TV having a better cost structure and much more content and a better user experience It's going to result is resulting in more and more OEM switching to a licensed OS of which Roku is the number one licenser of OS in the U.
S. And we expect to remain in that position. So I think the market share is going to continue to grow as TV manufacturer switched to licensed OSs.
Thank you. And our next question comes from Rich Greenfield with BTIG.
Hi. Thanks for taking the question. I've got a couple. First, when I see on The Roku Channel things like Cheddar Programming or People TV. I assume that those are channels that are content that is more than willing to benefit from the advertising opportunity that Roku presents given the amount of usage that you're getting off of that channel.
But when I see things like The Matrix Trilogy, which is kind of the highlight today on The Roku Channel, are you buying that content or essentially paying upfront for that content from Warner Brothers. Like how does that work when we're seeing kind of really high profile movie content Showing up front and center in The Roku Channel. Are the economics different and I think essentially tied to the last question that Alan asked? Like do you have access to the Roku channel up in Canada or and across all devices or does it vary based on Forum and Country, etcetera. And then I have a quick follow-up.
Hey, Rich, this is Anthony. I'll let Steve Sorry to answer your question on the ROCE channel. But first, I just want to note that not a single person on our call has congratulated me on our quarter Good day. So I'm not sure what's
going on. I'm not sure
we're hoping it would be rich.
That was amazing.
But anyway, Scott, you Great quarter, Anthony. Yes. Thank you.
Rich, the answer is, it's a mix of models. It's evolving. It's still early days. Certainly, that's the case for international. I mean, we really just launched TRC in another geography In Canada, it's part of a new push abroad for us to take some of the same ad capabilities That, we built here in the U.
S. To other geographies. Our economic models are a mix of licensing, rev shares. And then many of our content partners with apps on our platform are Now also syndicating content into The Roku Channel. So they have like a Cheddar.
They have
Like a Tubi TV as well, things like that.
Yes. Well, just since you brought up Cheddar, there is a Cheddar app on Roku, but then there's a Cheddar live stream within the Roku channel. And our view is that At the end of the day for IP owners, what's going to matter to them is traffic and monetization and that partnership with us around a property like The Roku Channel is to the supercharge the audience and earnings that they see on the platform.
And so but we should assume that there is some amount of capital that you're committing towards actual licensing of content, a minimal amount but some level of capital.
This is Anthony. We do directly license some content. But I think, like for example, The Matrix, titles like that show up on The Roku Channel, I think it's well, I know it's just a reflection of the increasing scale of The Roku channel and the ability to operate with the same economic model, but offer more popular content.
We've got a little less than a year Under our belt, we're getting more and more confident in predicting what users are going to consume, what's going to resonate with them. We're getting more and more expert at not just that prediction, but actually promoting and driving traffic around it and that's why you'll see us get Boulder with great titles like the Matrix Trilogy.
And then just a quick follow-up or a separate question. So one of the most interesting apps that I've seen launch over the last few years has been something called Locast, which is launched on Android, basically is providing free over the air television in New York and Dallas. They don't have a Roku app yet, but it would seem like a great way for you to offer on Roku devices and Potentially even on The Roku Channel, a wide array of high quality premium content. Is that something you're interested in, in looking at other ways? I mean, I know, Areo, I think, had a channel on Roku at one point before that was shut down.
But how do you think about kind of new forms of over the air television making its way onto your platform.
Most of what I know about Locast is From reading your note on it, Rich. But I won't comment on future apps coming onto platform. We do remain an open platform and I think we've demonstrated interest in all kinds of programming Coming onto the platform. I don't think we're in a position to comment specifically on their strategy or its merits.
This is Anthony. There's no reason Locast can be on the Roku platform and We're curious to see how it does.
Thank queue. Ladies and gentlemen, thank you for participating in the question and answer portion of today's call. I would now like to turn the call over to Mr. Anthony Wood for any closing remarks.
Thanks. I'd like to close by saying we are pleased with this quarter's results and the positive outlook for the rest of 2018. We're making great strides in growing active accounts, engaging avid TV viewers and helping content publishers and brands reach them. I'm particularly excited about our rate of innovation. This quarter alone, we introduced the audience marketplace, feature free Roku TV wireless speakers and expanded The Roku Channel.
Thanks for all your support and for joining today's call, and I look forward to seeing you again next quarter. Happy streaming.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may