The man who gave us the DVR says Roku is the future of TV
"DVRs are a feature," Wood said. "That's why the best-selling DVRs are not made by TiVo or by my company Roku, they are made by the cable operators, it's a pretty straight forward feature to add...We built the first DVR with a team of five engineers in a year, so it's not hard."
That lesson was instilled in Wood as he began to develop a device to stream content to televisions with Netflix in a secret initiative called Project Griffin, after a character from the movie "The Player." After starting Roku--named for the No. 6 in Japanese, as it was Wood's sixth startup--in 2002 with a focus on products like digital commercial signs, Wood began working with Netflix Chief Executive Reed Hastings as Hastings was transforming Netflix to online video delivery from a DVD-by-mail business (http://www.marketwatch.com/story/15-years-after-ipo-netflix-has-changed-drasticallyand-is-worth-nearly-22000-more-2017-05-23).
Read: Hollywood has never seen competition like Netflix (http://www.marketwatch.com/story/hollywood-has-never-seen-competition-like-netflix-2017-10-18)
Wood had two jobs, developing a streaming device at Netflix, which declined to comment for this article, and running the original Roku business. Then, Hastings made the decision to integrate Netflix into TV sets in a more agnostic fashion, and Roku was truly born.
"Right when Griffin was going to ship, and I think it was [after Netflix signed] the LG deal (http://www.marketwatch.com/story/netflix-lg-team-up-to-bring-movies-straight-to-hdtv), and that was looking like a much more scalable way to acquire customers...[Hastings] made the decision 'We'll just integrate Netflix into other stuff, why doesn't Roku just ship the Project Griffin?'" Wood said.
Wood quickly spun out Roku's original business into a private company called BrightSign, "and then Roku focused solely on building a streaming player with Netflix as the foundation," he said.
With venture funding, Roku doubled in revenue in 2011 to hit $100 million through hardware sales, but in more recent years, the company has started to transform into the business Wood believes will actually be the future. Revenue from the platform nearly matched hardware sales in the second quarter, and Wood believes money derived from the streaming operating system, content licenses and advertising will eventually be the majority.
RBC Capital Markets analyst Mark Mahaney believes that shift will happen next year, and he estimates that advertising revenue by itself will account for about half of Roku's revenue by 2019.
"This is Roku's fastest-growing, highest margin segment," Mahaney said.
Roku advertises on the platform, and last month launched the Roku Channel, a movie channel on its platform supported by ad sales. Offering its own streaming content, though, could risk alienating Roku's long-term content partners--Hastings, after all, avoided a similar move by not releasing the Roku hardware under the Netflix umbrella.
"This starts to bring them into competition with some of the providers on their own boxes, they have not done this in the past," Colin Dixon, an analyst with nScreen Media, said. "I talk to small providers all the time and one of the things they value about Roku is that it is neutral."
See also: Five things we learned about Roku in IPO (http://www.marketwatch.com/story/roku-ipo-5-things-to-know-about-the-streaming-device-company-2017-09-05)
Wood counters that Roku needs free content to draw viewers who could then sign up for subscription services they discover through the platform. He said that the free category is the most popular on Roku, popular with cord-cutters who are looking to save money away from the cable bundle, and that the Roku Channel is a way to help people find content offered by those free services.
"There are 5,000 apps on Roku," he said. "The Roku Channel is a way to merchandise and promote content that's already on our platform."
The Roku Channel could be destined for a life beyond the Roku boxes as well. Variety reported (http://variety.com/2017/digital/news/roku-mobile-third-party-device-streaming-1202598964/) after MarketWatch's interview with Wood that Roku is looking at streaming content through its mobile app, which is now mostly used to control Roku devices from smartphones running Apple Inc.'s (AAPL) iOS or Alphabet Inc.'s (GOOGL) (GOOGL) Android operating system. Roku declined to comment on the report.
"DVRs are a feature," Wood said. "That's why the best-selling DVRs are not made by TiVo or by my company Roku, they are made by the cable operators, it's a pretty straight forward feature to add...We built the first DVR with a team of five engineers in a year, so it's not hard."
That lesson was instilled in Wood as he began to develop a device to stream content to televisions with Netflix in a secret initiative called Project Griffin, after a character from the movie "The Player." After starting Roku--named for the No. 6 in Japanese, as it was Wood's sixth startup--in 2002 with a focus on products like digital commercial signs, Wood began working with Netflix Chief Executive Reed Hastings as Hastings was transforming Netflix to online video delivery from a DVD-by-mail business (http://www.marketwatch.com/story/15-years-after-ipo-netflix-has-changed-drasticallyand-is-worth-nearly-22000-more-2017-05-23).
Read: Hollywood has never seen competition like Netflix (http://www.marketwatch.com/story/hollywood-has-never-seen-competition-like-netflix-2017-10-18)
Wood had two jobs, developing a streaming device at Netflix, which declined to comment for this article, and running the original Roku business. Then, Hastings made the decision to integrate Netflix into TV sets in a more agnostic fashion, and Roku was truly born.
"Right when Griffin was going to ship, and I think it was [after Netflix signed] the LG deal (http://www.marketwatch.com/story/netflix-lg-team-up-to-bring-movies-straight-to-hdtv), and that was looking like a much more scalable way to acquire customers...[Hastings] made the decision 'We'll just integrate Netflix into other stuff, why doesn't Roku just ship the Project Griffin?'" Wood said.
Wood quickly spun out Roku's original business into a private company called BrightSign, "and then Roku focused solely on building a streaming player with Netflix as the foundation," he said.
With venture funding, Roku doubled in revenue in 2011 to hit $100 million through hardware sales, but in more recent years, the company has started to transform into the business Wood believes will actually be the future. Revenue from the platform nearly matched hardware sales in the second quarter, and Wood believes money derived from the streaming operating system, content licenses and advertising will eventually be the majority.
RBC Capital Markets analyst Mark Mahaney believes that shift will happen next year, and he estimates that advertising revenue by itself will account for about half of Roku's revenue by 2019.
"This is Roku's fastest-growing, highest margin segment," Mahaney said.
Roku advertises on the platform, and last month launched the Roku Channel, a movie channel on its platform supported by ad sales. Offering its own streaming content, though, could risk alienating Roku's long-term content partners--Hastings, after all, avoided a similar move by not releasing the Roku hardware under the Netflix umbrella.
"This starts to bring them into competition with some of the providers on their own boxes, they have not done this in the past," Colin Dixon, an analyst with nScreen Media, said. "I talk to small providers all the time and one of the things they value about Roku is that it is neutral."
See also: Five things we learned about Roku in IPO (http://www.marketwatch.com/story/roku-ipo-5-things-to-know-about-the-streaming-device-company-2017-09-05)
Wood counters that Roku needs free content to draw viewers who could then sign up for subscription services they discover through the platform. He said that the free category is the most popular on Roku, popular with cord-cutters who are looking to save money away from the cable bundle, and that the Roku Channel is a way to help people find content offered by those free services.
"There are 5,000 apps on Roku," he said. "The Roku Channel is a way to merchandise and promote content that's already on our platform."
The Roku Channel could be destined for a life beyond the Roku boxes as well. Variety reported (http://variety.com/2017/digital/news/roku-mobile-third-party-device-streaming-1202598964/) after MarketWatch's interview with Wood that Roku is looking at streaming content through its mobile app, which is now mostly used to control Roku devices from smartphones running Apple Inc.'s (AAPL) iOS or Alphabet Inc.'s (GOOGL) (GOOGL) Android operating system. Roku declined to comment on the report.
2
