ALTA Q&A

Anthony Wood and the Future of Streaming

Serial entrepreneur Anthony Wood founded five companies before launching Roku in 2002. (Roku means “six” in Japanese.)
MARC OLIVIER LE BLANC
Serial entrepreneur Anthony Wood founded five companies before launching Roku in 2002. (Roku means “six” in Japanese.)
Do you watch Netflix or Hulu on a smart TV? The CEO of Roku reveals how his company helps those services (and soon Disney and Apple, too) stream movies, sports, and TV programs.

The next time you click your remote and go to Netflix, there’s a good chance that Anthony Wood will have made it possible. Wood, the founder, chair, and CEO of Roku, is a pioneer in the industry of streaming, bringing all manner of programming—movies, live sports, television reruns, and more—into your living room via a free streaming service, stand-alone devices like the Roku Express, co-branded smart TVs, and the operating system inside internet-connected televisions from Sharp, Hitachi, and Philips, to name a few.

A serial entrepreneur, Wood was the founder, in the late 1990s, of ReplayTV, where he invented a technology that allowed users to skip ads and pause live television: the digital video recorder, a completely disruptive innovation that is now ubiquitous. He also briefly served as vice president of internet TV at Netflix, helping the company transition from solely offering mail-order DVD rentals to offering streaming as well. Wood sat down with Alta editor and publisher Will Hearst to discuss the future of streaming. (Disclosure: Hearst was a board member of ReplayTV and owns shares in Roku, a publicly traded company.)

WILL HEARST: There’s been a huge shift in the way people consume media, especially video. It’s still on a screen. It’s still narrative stories, documentaries. But it’s no longer just TV screens. There’s a massive shift to mobile. Roku chose the television, and that gives you special focus. I’m curious how you look at the television versus the phone.

ANTHONY WOOD: Right. As a business, we picked the big-screen TV. We built an operating system, or a platform for televisions. We have apps to pick channels, available on phones or laptops and on Roku devices. But our focus is the big screen. If you look at the data on streaming, what you’ll find is, laptop and phone streaming are mostly incremental. People watch more TV now than they used to, and the vast majority of their viewing, at least in the U.S., is on big-screen TVs.

HEARST: Really?

WOOD: Once there were mainframes. Each had their own operating system. Then there were PCs, and Windows became the licensed OS for PCs, and then Apple had its proprietary solution. Then when phones became platforms in their own right, Android became big because it was purpose-built for phones, while Windows’ transition to phones never caught on. Then if you look at televisions with a built-in operating system, which is what we do, Roku is by far the number one licensed solution.

HEARST: That seems like a clever strategy. It seems the TV manufacturers are thinking it’s easier to use a good OS, even if it’s made by someone else.

WOOD: The TV market in the U.S. is a fixed-size market. Roughly 40 million TVs a year are sold in the U.S. It doesn’t change much. When a television gets placed at retail, it means some other television lost placement at retail. When Roku starts working with a television company, we offer them the Roku operating system—free, essentially. It offers them a lot more content than their current software, because content companies can’t afford to support every different television.

HEARST: Apple has a device, Apple TV. Do you worry about Apple as a competitor?

WOOD: I’ll break my usual policy and speculate slightly. Many people get streaming built into their TVs. For example, the Roku operating system comes with many TVs. More than one in four smart TVs sold in the U.S. now run the Roku operating system. Then, some people do buy a streaming player or a streaming device, and in that market, Roku’s streaming players are number one in the U.S.; number two is Amazon.

Google has Chromecast, and then Apple…I think they’re number three. Apple TVs are primarily purchased by people who love Apple and want an Apple product that’s compatible with their ecosystem. People who buy Roku tend to want a $29 streaming player, which is a lot less expensive, and they’re more serious streamers. They’ve cut the cord.

Either they’ve cut the cord, or they just never signed up for it. And the other half have a mix of pay TV and streaming. I think Apple, traditionally, hasn’t gone after the cord cutters or the streamers like Roku has.

HEARST: Apple has also announced a new streaming service, which will launch this fall. Will the Apple service be carried on Roku?

WOOD: The Apple service will be carried on Roku. In fact, we were mentioned at their Cupertino launch event. We view Apple as an important partner, and we expect to be a large distributor of their content into the living room.

Roku Streaming StickCOURTESY OF ROKU
Roku Streaming Stick
DISNEY’S WORLD

HEARST: I remember hearing that the studios’ big idea was to withhold their content, like old movies, from Netflix. I thought: It’s too late. They don’t want your old movies. Reed [Hastings, CEO of Netflix] is now making originals, and his viewers are watching those shows. So the old movies just aren’t quite as valuable…. They either waited too long, or it’s a dumb strategy. Next thing you know, 21st Century Fox ends up being sold to Disney.

WOOD: So they also have the Fox library.

HEARST: Disney also has those legendary kids’ animation movies—something that’s evergreen—and ESPN with live sports…live event streaming is becoming part of the mix. They also have a powerful collection of movie brands, like Star Wars and now Avatar. That package of programs seems like enough to make a competitive service.

WOOD: Right. Disney announced at their recent Disney+ event that their service will be on Roku. We are excited about Disney entering the streaming market. As we are the number one streaming platform in the U.S., we think it will drive even more interest in streaming from viewers. It’s exciting that the large media incumbents are now all in on streaming. We’ve come a long way from 2008, when Roku players launched with just Netflix.

In our view, content is going to segregate into the content that’s part of paid services like Netflix and content that’s free. For instance, we have the Roku Channel, and it’s got a lot of old movies on it. And it’s free. People don’t expect to pay for old movies anymore. Whereas on services like Netflix, people expect to get originals, first-run TV shows, too.

HEARST: Their original shows are just so good. We’ve all had the experience where somebody comes up to you and says, “Did you see this show House of Cards?” and you ask, “Where is it?” and it’s on Netflix, or one of the streaming services. I can’t be in my community of friends if I don’t have certain minimum services.

WOOD: I’m watching Ozark right now on Netflix.

HEARST: It’s very good. Dark, but good.

WOOD: It’s really good. These large-scale subscription services, like Netflix, have so many more sign-ups that they can amortize the cost over so many more users, and it allows them to have a much larger selection.

HEARST: In round numbers, if you have 100 million users at $10 a month, you have $1 billion a month coming in. The young screenwriters who have ideas for shows, they used to dream of getting a studio deal. Now they go to Netflix or Amazon first. And they’ve taken their story and turned it into episodes, instead of pitching it as a movie. So Netflix has a free “first look” at everything, unless you are already established—which has changed the creative community.

WOOD: Yeah. I think that’s the reason TV is so good these days—because there are so many more serial dramas. Like you said, they’re essentially movies that are over 12 episodes.

HEARST: That’s the way Dickens wrote his books. A sequence of characters and events. You become interested in some characters, and you want to find out what’s next for them.

WOOD: People move to streaming for two reasons. One is it’s a much larger selection of content. There’s a lot of library content in the world, a lot is good, and a lot is making a resurgence. Take Friends, for example.

But the second reason is to save money. They don’t want to re-create the big cable bundle on streaming. So they will pay for a few subscription services where they expect premium content and maybe no commercials on those services.

But they are also expecting a lot of free content. So the way studios monetize their library is changing. It used to be they would do a syndication deal with a cable network. But the cable networks are all trying to figure out how to survive in the land of Netflix. As Netflix cuts back on old movies and switches to originals, the traditional cable networks are trying to survive in this transition.

HEARST: HBO started doing originals early, and it paid off for them, as opposed to just a new month’s catalog of movies. But I see the point. The catalog of old shows and movies is like a used car.

WOOD: They can be part of a base package. Free good movies and rerun TV shows. For example, streaming news is generally free. We have ABC News on the Roku Channel, and it’s a great product type, high production value, but it’s free.

There’s also lots of live content. Sometimes you have to pay for it. Everything’s available. And everything that’s available on cable is available on DirecTV Now or Sling TV, which are basically bundles of channels. They’re cheaper, because they make the base packages smaller, since they’re trying to compete in a streaming world.

STREAMING TO YOU

HEARST: A few years ago, it was almost impossible to get on Apple TV—unless you were established already. They had a “hits only” mentality. So it was a walled-garden environment. Whereas when I go to the Roku site, I can create my own channel. I’ve got to promote it, and get customers to sign up, but I can obtain self-serve distribution.

WOOD: True. We created an app store, a store for streaming channels. But the idea was to open up content publishing to anyone, where anyone can publish something to the TV. We have reached the point now where there’s well over 5,000 streaming channels available on Roku. The new problem is there’s so much content, it’s hard for consumers to find everything.

HEARST: I use your search for titles sometimes, and if I see it’s on Amazon Prime, I say, “Great, I’ll watch it there.”

WOOD: Our universal search is very popular. You can search for a movie or a TV show, or actor, and it’ll tell you which channel is showing it. One of the things that we’re trying to do with the Roku Channel is, not to re-create a bundle, but to bring more and more content into one user interface, with recommendations. The difference being, most of it will be free and we’ve made it easier for consumers to find content.

HEARST: I still need to take out a paper and pencil to figure out what I’m paying for. And sometimes I’m paying Roku, which is sort of the box office, but I watch CuriosityStream and the Great Courses. I signed up for them online, but I watch 99.9 percent on Roku.

WOOD: So you’re a good streamer.

HEARST: It would be a great favor to people like me to have a sort of control panel that presents: “These are the things you’ve signed up for.”

Personally, I don’t care whether I pay Anthony Wood or I pay the provider, but I would like to have Roku be my remote control. I know I can move the apps around, customize my lineup, but it would be nice to have a consolidated picture, and then I could go, “Oh my God, I’m spending $99 a month. I’ve got to get rid of that Surfing Channel.”

WOOD: Yes, that would be awesome. In fact, it’s a direction we’re heading. It’s harder than you might think. There are all these different companies…

HEARST: All the politics and contracts and lawyers?

WOOD: Yup, exactly, but that is the direction we’re heading, and I think we’ll get there.

Anthony Wood, the founder, chair, and CEO of Roku, is a pioneer in the industry of streaming, bringing all manner of programming into your living room.MARC OLIVIER LE BLANC
Anthony Wood, the founder, chair, and CEO of Roku, is a pioneer in the industry of streaming, bringing all manner of programming into your living room.
SELF-SERVE ADVERTISING

HEARST: What about advertising? I can go onto Facebook, and let’s say I want to reach left-handed scotch drinkers who live in Marin who own a Rolex… I can get all of them, or at least all of them that are on Facebook, which is almost all of them.

I know television is a long way from that kind of specificity, but self-serve is a part of what makes Facebook ads powerful. I don’t know whether that’s in your game plan, but it seems to me the world wants these features: self-serve for viewers, self-serve for producers, and self-serve for advertisers.

WOOD: Most people don’t realize that Roku is essentially an advertising company. That’s where we generate the bulk of our gross profit. It comes from ads.

HEARST: Is all your ad inventory on the Roku Channel? Or do you sell across other channels?

WOOD: We sell across the whole Roku platform. When content is distributed through the platform, there’s an economic deal with Roku. For example, if you sign up for Showtime on Roku—

HEARST: Which I did. I don’t take Showtime on my cable box.

WOOD: Good job. Roku gets a share of that revenue, when you sign up on Roku. And if the channel has ads in it, then Roku generally gets access to some of that ad inventory.

If you’re familiar with the cable ad model, the cable system distributes national networks. They get two minutes on the hour to sell. It’s the same idea. We get inventory from our channels. Then we aggregate all that ad inventory and sell it to our advertisers, and we do very extensive targeting, just like you’re describing. However, the television world is a little bit behind the digital world.

We sell to TV ad buyers. One of the big reasons buyers should move to something like Roku is that their viewers are moving to streaming, right? So for example, over 10 percent of 18-to-34-year-olds watch all their television on Roku. So if you want to reach them with the television ads, you have to advertise on Roku.

HEARST: So there’s a lag between audience share and advertising-dollar share?

WOOD: That’s our first step, getting the old-school world of Madison Avenue to move to the newfangled world of streaming. Then once they’re there, there are all kinds of targeting capabilities.

One of my favorite targeting campaigns was an ad for a battery company. We targeted that battery ad to Roku players that had low batteries in the remote control.

HEARST: That’s a great story.

WOOD: Most ads are still bought with Nielsen demographics. So we also target demographics, or we target basic categories advertisers are familiar with, and then we also get more advanced. Like, if you’re a car company and you want to target people who are in the market to buy a car and who make over $100,000 a year, we do that as well. Self-serve is something we offer. I think you’re right in the implication that more TV ads will be bought that way 10 years from now.

HEARST: You were identified in the ReplayTV days as a developer of ad skipping, which is another one of your inventions that I used regularly.

You were a pioneer, but you got into trouble for that. For a viewer, it was great: If an ad seemed like an interruption, I could skip. It made a better experience. Services like Netflix have no ads at all. Zero. So if you’re in streaming world, that’s one of the features of Netflix. But now Anthony Wood has become an ad salesman. So what changed?

WOOD: You’re being mean, Will! [Laughs.] OK, yes, that is ironic. I think my views on how to make money in business evolved over the years. It’s hard to make money when you pick fights with the incumbents in the industry. So I think it’s possible to make another better TV-viewing experience. That’s the theme.

The digital video recorder was the first step towards streaming. I always thought that the DVR was a stepping-stone. It allowed you to watch TV on your schedule, which is what streaming does. There were features around skipping ads in part because, in the bundle, the ad load had gotten so high. It was intolerable to most consumers at that point.

HEARST: I do agree, and TV executive friends of mine secretly agree.

WOOD: My position has evolved. Skipping all ads makes it hard to build a profitable business…but we wanted to make the Roku Channel free. Today, it’s got half the ad load of traditional TV. So we think that’s a good compromise, a more reasonable number of ads. The revenue actually is very similar, because the CPMs [costs per thousand impressions] for the ads are higher, because they’re targeted ads.

HEARST: When you were interviewed at a recent Morgan Stanley conference, you made the point that consumers don’t want six services that are each $15 a month. So there has to be some rebundling. In most parts of the world, it’s just too expensive. So there has to be an ad-supported model, because that’s the only way you can get this breadth of content at a price that people can afford. They’re going to have to undergo advertising.

WOOD: The reality is that it’s expensive to create TV shows, and someone has to pay for them. What the internet does is unleash competition and allow for experiments, new kinds of content, and new business models to be tried out. That’s what we’re seeing. I think the result of competition is the ad loads are coming down.

HEARST: You also said Roku can offer better efficiency with lower ad loads, because you know more about viewers and what their real preferences are. I sometimes give the example to people that we’re watching the same show at the same time, but we’re seeing two different ads.

WOOD: That’s right. Every ad is personalized. I do think profit margins are being reduced in content distribution, and when the internet comes to new industries, there’s more competition. Margins come down. Prices come down for consumers, and I think that is also happening.

ORIGINAL DÉJÀ VU

HEARST: When Netflix started making originals, it completely changed the game. Can you see Roku getting into content—making originals, or maybe investing in originals or becoming a movie studio as opposed to a technology company?

WOOD: My standard answer is “We have no plans to get into originals, but who knows what’s going to happen when we have 100 million subscribers.” That said, I will say that our relationship with content is evolving. If you look at our Roku Channel, we do license content now. We never used to license content. We used to only just distribute channel apps. We still distribute apps, but we also now license content. And we allow content owners to distribute through their Roku Channel directly. They can syndicate their content, and in some cases, we actually go and license the content.

HEARST: So your openness was a way to undo that gatekeeping?

WOOD: If studios want to build a direct-to-consumer channel and distribute on Roku…I think we are good partners for them. We want to help them with that. Most studios are content companies. They’re good at making content. They’re very good at that, but they’re not good at all the other aspects of the direct-to-consumer service: acquiring subscribers, reducing churn, managing customer service and customer relationships, building software, building a good user interface.

HEARST: Building software, they’re terrible at that. They don’t do it in-house. They always outsource that. They just go get some technology.

WOOD: That’s right, but now they’re trying the Roku Channel. They may have already tried Amazon channels, which are similar, and wow, they get much better results with us. They get a lot more subscribers. The economics are better, and the economics are better for us, too. There’s a lot of content in this world. It will either end up distributed directly, on big platforms like Roku, or it’ll end up in part of one of these mega-bundles like Netflix or the new Disney+ or something similar like that.

HEARST: Yeah, well, mega-bundles are going to have to come, because there are no tech barriers, so there will be too many imitators. There will have to be some consolidation. So in a way, Roku is sitting there waiting for the consolidation.

WOOD: We’re here to help. That’s right.

More than one in four smart TVs sold in the U.S. now run the Roku operating system. COURTESY OF ROKU
More than one in four smart TVs sold in the U.S. now run the Roku operating system.
BUILD IT FIRST

HEARST: You are a very successful serial entrepreneur. What advice would you give to young entrepreneurs?

WOOD: I get asked that question, and it’s very hard to answer well. I would say that there’s a lot of focus these days on entrepreneurs raising money, asking how to pitch the business, but no matter how good they pitch, most investors are not going to invest in an unproven idea from someone who’s new to their career. My advice would be you need to build something. In the tech business, you need to build something and make some progress. Focus on that rather than trying to raise money.

Then, once you’ve got something growing, if you want to raise money to accelerate it or take it to the next level, then it’ll be possible, because you’ll have something to show to investors.

I would also say that most people aren’t successful the first time they try. There are exceptions like Bill Gates and Mark Zuckerberg. But they’re the exceptions. Most successful entrepreneurs, if you look at it, they’ve had several attempts.

HEARST: That’s true.

WOOD: So be persistent, which is hard. Sometimes you don’t have the right team, you don’t have the right abilities, whatever, so you’re unlikely to be successful.

HEARST: A famous writer was asked what advice he gives young writers. He said, I usually say: You’re not good enough, you probably should go back into the family business, you should get out of this thing, and if they don’t tell me to go screw myself, they probably don’t have the strength that it will take to undergo the rejection, to really believe that this is what they want to do with their life.

WOOD: That’s good advice. You know what the name Roku means? Roku means “six” in Japanese.

HEARST: It’s your sixth company?

WOOD: Yes, and in hindsight, looking back on my career, I would say that I have two main skills. First of all, I have an engineering background. I love technology. I taught myself to program computers when I was 13. I understand technology. I love it. I understand what it can do and what it can’t do. Then second, I have good judgment on what people want to buy.

After that, I think one of the most important things in a successful company is the right timing. There are not a lot of original ideas. They’re very rare. There’s someone who does it at the right time and does it well, with good execution. So the combination of what’s possible, what consumers will pay for, and good timing has been my formula for success.

LOS ANGELES, 2019

HEARST: What’s your favorite movie?

WOOD: Hard to say. Blade Runner is one of my favorites.

HEARST: Blade Runner, huh? The original Blade Runner, not the new one?

WOOD: Yeah, the original.

HEARST: I saw it was on the Roku Channel not long ago. Every movie’s on Roku somewhere.

WOOD: One question for you. You say Alta magazine is about California and the West. How far does the West go in your opinion?

HEARST: My definition would be west of the 100th meridian, roughly west of the Rocky Mountain Front Range, but also including those parts of Canada and Mexico. That’s the Far West.

WOOD: Is Texas in the West?

HEARST: It may not make the geographic 100th-meridian definition, but culturally it is.

WOOD: Just checking. I’m from Texas.

This interview has been edited for clarity and brevity. Alta editor and publisher Will Hearst interviewed Hollywood executive Lucy Fisher in Alta, Spring 2019.