Roku CEO Wood: Virtual cable MSOs 'inevitable'

with Anthony Wood, Founder and CEO of Roku

Wood (Image source: Roku)

Anthony Wood founded Saratoga, Calif.-based Roku in 2002 and has since helped the company bring Roku set-tops into 5 million homes. He formerly served as VP of Internet TV at Netflix (Nasdaq: NFLX), where he invented what is now known as the Roku streaming player. Wood is also the founder of ReplayTV, which was sold to DirecTV (Nasdaq: DTV) in December 2007. He spoke to FierceCable editor Mariko Hewer about the TV Everywhere trend, content streaming from the cloud and partnering with cable operators.

FierceCable: Some smaller cable operators have floated the idea of exiting the subscription video business and focusing on selling high-speed Internet to subscribers. Would Roku be interested in partnering with such operators?

Anthony Wood: Yes. We've done trials with smaller cable operators in that area, and I do think it's a viable business model to just focus on different tiers of broadband. I think there's this idea that will come to pass which the industry calls a virtual MSO, the idea that a consumer can find a video package through a national provider over the Internet. Such a package doesn't exist today, but I think it's inevitable that it'll happen, and in that world, I think a viable business model for a smaller operator would be to focus on broadband and perhaps re-selling other peoples' video packages.

FierceCable: Roku has said before that it isn't a product for cable cord-cutters and that most of your users still subscribe to cable or satellite. But isn't Roku also popular with cable cord-cutters?

Anthony Wood: Roku customers fall into different camps. The majority of our customers are additive; [the Roku box] is replacing the DVD player, primarily. But there is a segment of our customers that does not have cable, and for those customers, it's the primary way they watch TV. My take is that cable cutting is not a big phenomenon; it is happening in a small way, and those customers that do it go online and do research and find that Roku is a great source of Internet-delivered entertainment, so I think a lot of them do end up buying Roku. But it's not the majority of our customers.

FierceCable: Some small cable operators are beginning to lease Roku set-tops to subscribers for $5 monthly. Are you talking to larger MSOs about doing the same?

Anthony Wood: We have all kinds of discussions with MSOs; I'm not aware of any discussions about leasing right now. I think there are some rights issues-- for example, it's my understanding that Netflix might not have the rights to be on an MSO-leased box. But that's an area where I'm not an expert.

FierceCable: How much activity have you seen from Time Warner Cable's (NYSE: TWC) TWC TV app for Roku?

Anthony Wood: We haven't released numbers, but the numbers I see track to show that every week it grows as more people start to use it.

FierceCable: When can we expect to see other cable operators launch similar apps?

Anthony Wood: TV Everywhere and authenticated offerings are one of the biggest trends we see this year. We have announced things like Fox Now, which is an authenticated cable network. We can't pre-announce anything, but I think it's in all the operators' interests to make their services more valuable by making them available on the devices people are using today to watch TV--everything from Rokus to tablets.

FierceCable: You recently announced that it took Roku five years to sell 5 million set-tops. How long do you think it will take to hit the 10 million set-top mark?

Anthony Wood: We don't give any forecasts to future sales, but I can say that sales continue to grow strongly.

FierceCable: Boxee is trying to differentiate itself from Roku and other streaming devices by offering cloud-based storage. Would you also look at adding antennas or storage to a Roku device?

Anthony Wood: We don't have any plans to do that… the trend we see is content streaming from the cloud, and the Roku is a cloud streaming player with apps like HBO Go, Netflix and Time Warner Cable TV. That's the trend we're focused on. We're not focused on an antenna, which has problems in that it doesn't work in many locations [and] which can be a bad consumer experience. One of our goals with Roku is, you just plug it in and it works. We're focused on a great experience for the future, which is partially here now and rapidly arriving. That's the world where all content is on-demand.

FierceCable: Verizon (NYSE: VZ) has said that it plans to stream YouTube videos and other Web video content directly to its FiOS set-tops. How much of a threat could those kinds of pay TV providers pose to Roku?

Anthony Wood: We think the long-term trend for cable operators is they will get out of their proprietary box business and start integrating their services into open boxes like Roku. I think they're looking at different options for great customer value. I think the biggest thing they could do would be to integrate their streaming into devices that their customers are starting to use in large numbers. Our view of the world is that, over time, cable operators' services will be integrated into devices like Roku, not the other way around.

FierceCable: Would you consider making a deal with Verizon or AT&T (NYSE: T) if they approached you about integrating their services with yours?

Anthony Wood: Of course. We want to make all the content our customers want available on our open platform.

FierceCable: Most of the new connected TVs from companies like Samsung and Sony allow viewers to access content from Netflix, Amazon (Nasdaq: AMZN) and other Web video suppliers. If a customer buys a connected TV, why would they also need a Roku?

Anthony Wood: Fifty-six percent of our customers have other ways to stream. They have a smart TV [or] maybe they have a game console, but they vastly prefer Roku [because of] the user experience and the quality of our content selection. We do think there's a big opportunity to integrate Roku into streaming TVs because the fact is, most streaming TV solutions today are just not very good. We do have an effort to work with TV manufacturers to bring Roku to streaming TVs.

FierceCable: Roku has said before that you don't target cable cord-cutters. Do you think that's helped you strike deals with cable networks and operators like Time Warner Cable and HBO?

Anthony Wood: Yes. We've made it clear to our content partners that we really want to work with the industry. We understand distribution methods are changing, but there's a lot of money in television, and our goal is to increase the amount of money our partners can make. We've tried very hard to work with the industry; that's why companies like News Corp. (Nasdaq: NWSA) and BSkyB are investors in Roku and are on our board.

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Roku CEO Wood: Virtual cable MSOs 'inevitable'