Thea head of the popular digital set-top box company talks about bringing streaming media -- including music -- to your living room

Smart TVs and mobile devices are usually seen as the future of streaming media. But Roku is finding success through a small, aftermarket set-top box.

While the Saratoga, Calif.-based company is best-known for providing a way to watch Internet video on a TV, it's also giving consumers a new way to enjoy digital music in their living room.

Customers can choose apps-Roku calls them channels-and install them on the Roku home screen. Video streaming channels enable customers to watch Netflix, Hulu Plus and Amazon On-Demand on their TV. But its selection also includes a range of music channels: Internet radio leader Pandora, on-demand subscription services MOG and Rdio, and music locker MP3Tunes.

Among Roku's channels, Pandora is second only to Netflix in terms of hours streamed. The demand for music initially came as a surprise to Roku founder/CEO Anthony Wood. In retrospect, however, it became obvious why consumers would want to stream music through their TVs. "Their sound system is in their living room," he says.

Consumers want a simple and relaxing way to enjoy digital entertainment, he says, adding that "they don't want 'smart.' " Wood speaks from experience, having been an early developer of the digital video recorder. His company ReplayTV was eventually acquired in 2007 by DirecTV.

In an interview, Wood spoke with Billboard about the growth of streaming media and the importance of smart pricing and design to coax consumers into embracing a new entertainment platform.


When did the Internet-connected living room become a reality for the average consumer?

One of our first products was SoundBridge, which is a music streaming player. You can listen to Internet radio and your iTunes library. It did reasonably well but most customers who spend money on music players buy an iPod. [The original iPod was] not network-connected, but it's easier to download music and copy to your iPod. That caught on versus streaming, I think, because it's easy and frankly, there's a lot of pirated music.

For [streaming] video, that took off first on laptops. There was YouTube, of course, but that's not traditional, mainstream content. ABC.com was the first large television company to put their prime-time shows on the Web. They did it, I think, for two reasons. One was they thought it was perhaps additive-they would reach a market they weren't reaching with TV broadcasts. But also it was a hedge against piracy. ABC.com really kicked it off. I know Netflix looked at that and said, "Wow. Streaming. That's the future." Up until that point, they were doing experiments with downloading TV shows. Then Hulu came out-again for laptops.

Netflix is the one that really kicked off direct-to-living-room [streaming]. They worked with device manufacturers to integrate with devices. I think a huge chunk of their streaming is direct to TV.

Did the emergence of Netflix represent a tipping point for Roku?

Definitely. Roku sales have been growing every year-we started the company in 2002. When we came out with the Netflix [channel], it definitely moved our sales to a new level and it's been growing rapidly ever since. People will often say they don't want another box in their living room. This is not true. People don't mind another box as long as they get something of value. Game consoles and Blu-ray players are both popular.


Everything from your home screen to your remote control features a very simple design.

Yes, we work very hard to keep the user interface simple. A lot of times that means leaving out features. For example, there's no power button on our remote control. It was controversial but it actually makes it easier to use the product. You build your channel using a set of user interface elements we provide. That helps force you to keep your channel simple. But not always. Hulu Plus, for example, I would say is a more complicated channel than we would like but they want all their channels across different devices to look the same.


How did your rollout of a lower-priced set-top box in September affect your sales?

One of our strategies from the beginning was to offer great content. The other strategy we focused on was price. We started out at $99. We focus on price, value, content and ease of use.

We launched at $99 and have been lowering the price ever since. We came out with a $79 version after that, then a $59 version. Every time we lower the price, sales go up. It's definitely price-elastic. When the 2.0 version of Apple TV came out-their $99 player-that brought a lot of attention to the market, which actually helped our sales a lot. [Set-top boxes are] still a new category. A lot of people don't understand it, even with the popularity of Netflix. Apple entering the market really publicized it.


What are you doing to compete with Apple?

We compete with Apple on the quality of our product and price. We're less expensive. We start at $59, they start at $99. We also have a $99 product but it has 1080p [screen resolution], versus Apple's 720p product. Also, we have way more channels. They have Netflix, iTunes and YouTube, but they don't have any other content partners. We have an open TV platform. We have over 130 content partners; things like Pandora, Hulu Plus, Amazon Video On-Demand, MOG. You can't get those on Apple TV.


How has music performed so far?

Music has performed way better than I expected. It's very popular. Pandora is very popular. So is Internet radio [in general]. We have a couple different Internet radio channels. There's TuneIn, which has a directory of almost every Internet radio station in the world. MOG is doing well.

Music is almost a third of our streaming hours. Music video channels are pretty popular; indie music videos are also popular. And generally, Roku customers use their product a lot more than users of other devices. If you stream Internet content using an Xbox or Blu-ray player, you use it many fewer hours per week [to stream Internet content] than a Roku customer does.

How has the streaming media market changed in the past year?

The market has steadily grown. Netflix continues to add customers. That's driving the industry, but Hulu Plus, Pandora and other service providers getting into the market is also driving the industry. Also, the software is getting more mature. In terms of Roku, I would say we moved up to a new level. We were viewed as a great product, but . . . a lot of people thought, "Roku is a nice little company but they're probably not going to survive in the face of Google and Apple."

Then those products finally shipped and people could look at how they compared to Roku. And also we shipped new versions of our products and lowered prices. The result of all that was the industry now says, "OK, Roku is actually the leader. They have some big competitors but have been successful and will continue to be successful." A lot of uncertainly was removed about our future.

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