Roku has been at the forefront of the video-streaming movement. Founded in 2002, the maker of a popular line of streaming-media players and adapters and a software platform that powers an expanding variety of smart TVs hardly qualifies as a startup anymore.
Amid fierce competition from Apple, Google and Amazon, Roku has managed to ship more than 10 million devices in the U.S. alone while pulling down more than $250 million in revenue last year. Through the third quarter of 2014, Roku represented 29% of sales in the OTT device market, followed by Google Chrome-cast (20%), Apple TV (17%) and the Amazon Fire TV box (10%), according to Parks Associates.
Roku’s platform was also responsible for about 3 billion hours of streamed content last year, up from 1.7 billion hours in 2013. Adding to its legitimacy as a TV-consumption platform, Roku is also coming off a new audience measurement deal with Nielsen.
Heading it all up is CEO Anthony Wood, who previously founded and ran ReplayTV, the digital video recorder pioneer that is now part of DirecTV. Next TV editor Jeff Baumgartner recently caught up with Wood to discuss what’s on Roku’s agenda, what’s (still) wrong with TV Everywhere, the virtual MVPD trend and whether Roku plans to develop its own content. An edited transcript follows.
Next TV: What are your top priorities?
Anthony Wood: Our biggest priority is always focusing on building the scale of our business, so it’s distributing our platform more widely. There are three areas that we focus on: We sell our players and sticks; we have our Roku TV reference design that we license to global OEMs [original equipment manufacturers]; and then we have our Roku Powered program that we license to operators and telcos.
We also put a lot of focus in making sure that we have the best platform for consumers, but also a great platform for partners.
And then making money — we generate revenue through hardware sales and we’ve also got a growing advertising business.
NTV: How important is advertising to your business now?
AW: We have an advertising business, and it’s growing. We’re putting a lot of effort into growing it and expanding both the sales team and the technology underpinnings for the inventory. The basic thesis is pretty simple, which is that I believe that all TV is going to be streamed and that we’re in the middle of that transition.
That also means all TV advertising is going to be streamed. I believe we are today and will remain the largest TV streaming platform for connected TVs. That means we’re going to be a big ad platform.
We have content partners that need to make money. We need to make sure we’re a great ad platform for them. So everything is sent from performance on streaming and switching ads without interruptions to working with whatever ad server they want to use. We also have the Nielsen deal to credit their ads. We also do a lot of work for ourselves for our own ad business.
NTV: Roku now has a handful of Roku TV partners (Sharp, TCL, Hisense, Haier and Insignia, Best Buy’s house brand). How has that part of your business performed in the early phases?
AW: That business will definitely be a big contributor to our growth. We’ve got five OEMs we’ve announced. There will be 20 different Roku TV models available at major retailers in the U.S. by the middle of the summer. Sales are good; we haven’t released numbers.
It’s been great for partners. It’s a relatively low-cost solution, compared to their other options. This year is the first year that 50% of TV sales in the U.S. are Internet-connected TVs. There are all of these homegrown solutions and I expect that to change. I really do believe that almost all TV manufacturers, except for maybe one or two exceptions like Samsung, will over the next handful of years switch to a licensed solution.
NTV: TV Everywhere is still struggling, to a degree, with adoption and awareness. How have TVE apps been performing on your platform?
AW: They definitely get used. Some of them get used a fair amount. WatchESPN and HBO Go are very popular. But I would say, to be honest, they would be used a lot more if the industry would make the authentication process easier.
You have to individually authenticate each app. It’s a long, arduous process. There are things that can be done to simplify that and if the industry decides to do that, they would get used a lot more.
NTV: With the launch of Sling TV, which has an app for Roku, and PlayStation Vue, the virtual MVPD era is well underway. What does this say about the condition of the traditional pay TV market?
AW: I believe that all TV is going to be streamed, and this is just a natural step in that direction. The main benefit of streaming is it gives consumers more choice. They get choice of what they want to pay for, and they have a lot more content to choose from. I think TV Everywhere is just another stepping stone, just like Sling TV, where everything is streamed. Someday, you’ll probably be able to buy your local pay TV service as IP as well.
NTV: There have been some rumors that a new Roku player model will support 4K. Can you talk a bit about your product roadmap and how 4K will factor in beyond the initial work that’s underway with your TV OEM partners?
AW: We don’t talk about future products before they’re announced. But I will say this — we are believers in 4K. We think that it’s going to be a very popular format — both 4K resolution and also higher dynamic range. Content companies are starting to support it, but there’s not a huge amount of content support yet.
I do think that streaming will be the way 4K is delivered, primarily. I don’t think DVD-standard changes to deliver 4K are going to be particularly popular. You see companies like Netfl ix and Amazon all announcing that they’re doing their originals in 4K. So we think it’s coming. The retailers are behind it. We’ve announced our 4K reference design for TVs.
NTV: Last fall, you launched the Roku Powered program, whereby you essentially become the set-top box platform — from the software to the hardware — for pay TV partners. Have you had any interest from U.S. MVPDs?
AW: There’s a lot of interest worldwide for that program. We’ve announced three partners (Sky UK, Sky Italia and Sky Deutschland) so far. There are others we haven’t announced yet, but there’s a big pipeline of deals.
It is definitely the case that there’s more interest from international operators, especially satellite [service providers] and telcos. There’s some interest in the U.S., but nothing we’re ready to announce.
NTV: The U.S. pay TV market has always been tough.
AW: One factor is that in many markets throughout the world, the biggest competitor is actually free, over-the-air television. In the U.K., Sky’s biggest competitor is not a company like Comcast or DirecTV, it’s the BBC and free-over-the-air TV. That’s one of the reasons that, internationally, there’s a lot less angst about launching IPbased services.
NTV: What are your thoughts about this seeming resurgence of interest in over-the-air TV in the U.S.? It’s like what’s old is new again as we see products integrate over-the-top with over-the-air. Might we see a product like that from Roku?
AW: We do make Roku TV, which does have a [digital over-the-air] tuner in it, so we do have software solutions for over-the-air today. And we are seeing fairly high usage of this tuner on our Roku TV platform, higher than the average TV usage of tuners.
We’ve said before that roughly half of our customers don’t have pay TV. We do overindex on cord-cutters and cord-nevers, or whatever you want to call them. Our basic philosophy is that we make TVs, and that’s where we’re putting our effort on tuners.
There are third-party products that work with Roku, like Simple.tv and Tablo, that have over-the-air tuners with built-in DVR features, so we have an ecosystem that supports this.
NTV: Is there any interest in developing your own content service, maybe even your own virtual MVPD?
AW: It’s not something we’ve seriously considered. That could change someday, but today our business model is to be a content distributor for others to aggregate content. Whereas all of our competitors, like Apple and Amazon Fire TV and Google Chromecast, they do have their own services and they preference that content over a third party’s. And you can’t get Amazon content on an Apple TV, for example.
We’re the only one that has Amazon Video and Google Play and all of the other movie stores. When you [produce] new content, you naturally want it distributed as widely as possible. For those reasons, we don’t have any current plans to do it, but who knows what will happen in the future.
NTV: Rumors that Roku might pursue an IPO continue to bubble up from time to time. What can you say about Roku’s financial plans?
AW: We don’t talk about future financing plans. But we’re well capitalized. We have plenty of cash.
NTV: A couple of years ago, I came across an old Replay TV box in someone’s house that was still operational. Do you still have one kicking around?
AW: No, mine broke. And when it broke it was roughly the same time when Roku started getting a lot of content. In my house, we watch all our TV on Roku. We don’t have a DVR. We do have a cable subscription, but we don’t use it very much.