Netflix might buy Roku, but should they?

The Future. The internet (and Roku’s stock) lit up on Wednesday following a rumor that Netflix might acquire Roku. If it happens, the acquisition could answer both companies’ revenue problems, as Netflix fights its way into the ad space and Roku seeks wider distribution for its offerings. On the other hand, fiscal strain and opposing philosophies could make the deal crash and burn, that is, if it’s even happening.

Everybody talks
The buzz kicked up after Business Insider reported Roku employees were discussing a possible acquisition after the video-streaming company prevented them from selling their vested stock. Neither Netflix nor Roku have confirmed the rumor.

• The Netflix angle. Netflix’s shared subscriber numbers have dropped lately, and the streamer has been looking to supplement revenue by building out an ad business — precisely what Roku already has.
• The Roku angle. Roku, meanwhile, has been investing heavily in original content, a bet that’s largely paid off. But it could be a bigger payoff if Roku’s distribution skyrocketed —and who better to make that happen than Netflix, who could feature Roku’s content on its platform ad-free?
• A huge acquisition costing both money and time might make the purchase ill-advised– or unrealistic as both companies have been spending lots of cash either aggressively expanding or trying to erase a deficit.

Not to mention Roku CEO Anthony Wood, who’s famously strong-willed and invested in growing Roku rather than selling it.

Survival of the biggest
Still, there are plenty of reasons to believe that Netflix and Roku are at least in discussions. Recent years have been full of huge acquisitions, like Amazon’s purchase of MGM and the bidding war between the big dogs of streaming over exclusive rights to stream sports games.

The explosive proliferation of content and viewing platforms of the past decade seems to be entering a new phase — consolidation. The field has become so large and competitive that players like Netflix can no longer count on subscriber growth (which had to stop sometime), and instead have to either trim the competition or pad their margins with ads.

We may be entering a new era of commercial breaks.