Roku looks beyond the box

  @FortuneMagazine November 1, 2012: 5:19 AM ET
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Roku's $99 Streaming Stick plugs into TV sets.

(Fortune)

Anthony Wood is not your typical Silicon Valley pitch man. The mild-mannered CEO of streaming-media startup Roku has a penchant for slow, pause-laden speech. He tends to pluck his corded suspenders when he's finally made his point. But this gentle demeanor hasn't stopped Wood, 46, from besting much larger rivals, including Google (GOOG, Fortune 500) and Sony (SNE).

Roku, based in Saratoga, Calif., makes puck-shaped devices that beam media -- television shows, movies, and sports -- from the Internet onto TVs. Since the first Roku player made its debut in 2008, the company has built up 650 channels, from Netflix (NFLX) to NBA Game Time, and sold over 3 million players. Combined, Roku and Apple's (AAPL, Fortune 500)similar box, Apple TV, command about 95% of the market for Internet TV streaming devices, the company claims. Earlier this year Roku raised a $45 million round of funding from backers including Menlo Ventures and News Corp. (NWSA, Fortune 500)

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Roku's chief executive, Anthony Wood

Wood has an impressive track record. In the mid-1990s he wanted to find a better way to record reruns of his favorite TV show, Star Trek: The Next Generation. VHS tapes weren't cutting it. So he invented a programmable set-top box with a small hard drive that gave show listings and could even pause live TV. It was the first digital video recorder, or DVR. He founded ReplayTV, a company eventually bought by DirecTV (DTV, Fortune 500). DVRs have become nearly ubiquitous and are poised to reach some 338 million households globally by 2018.

In 2007, Wood was recruited by Netflix CEO Reed Hastings to build the "Netflix player," a box that beamed content directly to TVs. Hastings eventually nixed the idea in order to coax other companies into making hardware with built-in Netflix support. Wood, with a $6 million investment from Hastings, released the design on his own as the first Roku streaming-video device. Roku, Japanese for "six," is Wood's sixth company. "Anthony isn't a virgin to the business," Hastings tells Fortune. "He's succeeded at multiple different companies. That's very rare."

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Now Wood is contemplating getting rid of the box altogether. Roku's newest product, the Streaming Stick, looks like a USB memory drive and plugs directly into the back of newer TV sets, turning them into "smart" televisions. The gadget streams content like a typical Roku player and allows features to be added in the future. Wood calculates that TV makers will bundle the device to sell more sets without significantly driving up their costs. The $99 Streaming Stick went on sale in October.

Nobody knows what will happen with online television. Content providers and technology firms are placing wildly different bets. And examples of stinging failures abound. Google's recently released $299 digital-media-streaming device, the orb-shaped Nexus Q, was widely panned. ("They blew it," says Wood.) And once-hot startups such as Boxee have had to change course.

Roku has avoided such pitfalls, in part by aggressively undercutting competitors. (Its devices start at just $49.) But the company is not yet profitable and has spent a lot to advertise. Presented with those challenges, Wood shrugs, noting that Roku has already managed to adapt quickly. "Whatever happens," he vows, "we'll be ready."

This story is from the November 12, 2012 issue of Fortune. To top of page



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