SAN FRANCISCO — Internet set-top startup Roku has been in talks with major U.S. companies that are interested in offering a stripped-down bundle of TV content, delivered over broadband, to reach consumers who don’t want to pay for traditional cable or satellite service, Roku founder and CEO Anthony Wood said.
“In the next 12 months in the U.S., you’ll start to see a virtual MSO, a pay TV package distributed over the Internet through devices like Roku,” said Wood, speaking at the Multichannel News/Broadcasting & Cable Next TV Summit here. “Companies are trying to figure out how to reach a different class of customer, maybe who don’t have cable TV.”
Roku, which sells low-cost set-tops for streaming Internet video, has been in discussions with several companies that “have aspirations” of being virtual MSOs, Wood said. He expects incumbent players that already have billion-dollar content deals to step up to the plate first.
“A lot of this is about getting access to the content, and that requires a lot of money and experience to structure it well,” he said. The emergence of a virtual MSO will likely drive “some reduction in the size of the bundles” for traditional pay TV providers, Wood added.
Roku currently offers more than 600 different channels, ranging from Netflix to HBO Go, and has sold more than 3 million set-tops to date. Its primary competitor is Apple’s $99 box, which provides access to services including Netflix, YouTube and iTunes, and has sold a similar number of units.
Apple TV is aimed at “people who are very Applecentric,” Wood said. “They have a hard time envisioning a non-Apple product.” While Apple provides a large content selection, much of that comes from Apple’s own iTunes store. “For them, Apple TV is more of an iPad player, whereas we’re trying to build a platform for television,” Wood said.
In July, Roku announced $45 million in funding led by News Corp., with participation from BSkyB and prior venture-capital investors Menlo Ventures and Globespan Capital Partners. The company said an “unnamed strategic investor” also joined the round; The Wall Street Journal reported it was Dish Network.
Wood said 10% of customers who buy a Roku never had cable, while about 20% of customers cut back on cable. Another 10% to 15% of customers canceled their cable service after buying the box.
“Some customers are just looking to save money,” he said. “But for the majority of our customers, it’s additive — they love TV and want a new way to get it. For a lot of people, they’re using DVD players less.”
On Thursday (Sept. 20), Roku announced that in October it will begin selling the $100, flash-drivesized wireless Roku Streaming Stick, which plugs into the back of an HDTV to deliver Internet content. The company also announced a deal with Walmart’s Vudu online-streaming service and said it has enhanced its mobile app to let users display their photos and play music on Roku devices (see Platforms).
Over-the-top set-top maker Roku is in talks with providers about delivering a strippeddown pay TV package over the Internet.