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TV & Video Are Hooking Up

A new offering from Roku could make smart TVs mainstream.
Roku Streaming Stick

Internet television, by the numbers

Number of U.S. households that own a television: 114.7 million

Portion of U.S. households that own smart TVs: 10 percent

Number of videos streamed on Netflix and Hulu per month: 1.3 billion

Number of Roku players sold in the U.S.: 3 million

Average amount of content streamed per Roku customer: 12 hours a week

--Forrester Research, Nielsen, Roku

Anthony Wood predicts that four years from now, the bulk of television viewing will come through the Internet. And his new product could help put Internet TV over the top.

Wood's company, Roku, which is based in Saratoga, California, sells set-top boxes that stream online movies and shows to customers' TV sets. This fall, Roku is launching the Streaming Stick, which Wood hopes will lead the charge to make Internet TV--and his company's technology--ubiquitous.

Although Internet-connected, or smart, televisions have been on the market for years, they haven't caught on as quickly as anticipated. One obstacle is that people hang on to their televisions for six to eight years. Plus, Internet-connected TVs are often more expensive and complicated to use. Even among those who purchase smart TVs, only about half use them to connect to the Internet, according to Forrester Research.

With the Streaming Stick, which costs as little as $50, you can create a smart TV on the cheap. About the size of a thumb drive, the Streaming Stick plugs into a special port on the back of some new televisions. It works a lot like other Roku players: It uses a Wi-Fi connection to stream online movies and entertainment from services such as Netflix and Hulu. What's different is that the Streaming Stick will be bundled with new TVs. Roku has announced that the device will be included with Best Buy's line of Insignia televisions, and similar partnerships with retailers and manufacturers are on the way.

Wood, a former engineer, has a knack for bringing tech innovations to the market. Roku is his sixth company. He also founded ReplayTV, which developed and sold one of the first digital video recorders, a technology he later sold to DirecTV. Another of Wood's companies, iBand, developed the precursor to Dreamweaver, Adobe's Web design software. But Roku, founded in 2002, is poised to become Wood's biggest success. Last year, the company, which now has 175 employees, exceeded $100 million in sales.

Still, Roku faces some stiff competition. When it comes to Internet-connected set-top boxes, Apple leads the market in global sales. At the end of 2011, 4.2 million Apple TVs had been sold, compared with Roku's three million devices. And Google launched its own set-top media player, the Nexus Q, in July. By packaging the Streaming Stick with new TVs, Wood hopes to box out the competition.

Roku also competes by keeping prices low--last year, the company introduced the Roku LT, a $50 player that costs half as much as Apple TV--and by forging strong relationships with media companies. Roku players now include some 550 free and premium video, music, and game channels from partners such as HBO, Disney, Pandora, and Major League Baseball. The Roku, which adds about one new channel a day, is starting to resemble a cable box.

Wood ultimately sees Roku as a content distribution platform, rather than just a hardware company. In the near future, he says, Roku might pave the way for a "virtual MSO," or multisystem operator, that would operate alongside Comcast and Time Warner Cable. But he's aware that doing so would require a delicate balancing act: disrupting the current cable system while staying in the good graces of networks and studios. "There's more innovation happening in TV right now than probably any time in history," he says. "Our challenge is releasing new products that appeal to both customers and the industry."

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