HOW^TOPLAYIT^BYANTOINE^ GARA;^SHERRYTESLER/THENEW^YORKT^ IMES/REDUXDECEMBER 31, 20 19CONTRARIANTECHDISRUPTORSments into account,” Wood now says.
Undaunted, Wood founded Roku in 2002. He
cold-called Netfl ix’s Reed Hastings and asked
him to lunch. Hastings took the meeting. “I guess
he’d heard of me because of Replay,” Wood says.
Hastings invited Wood to join Netfl ix as vice
president of Internet TV in 2007 and guide Net-
fl ix’s streaming player, code-named Project Grif-
fi n, through production. After 10 months, Wood
left, at which time Netfl ix spun Project Griffi n
into Roku and became an early investor (it sold
out a few years later).
Roku sold its fi rst set-top boxes in 2008. This
time Wood kept prices low—the fi rst went for
$99.99. Today its cheapest device sells for less
than a third of that. As of 2018, Roku had nabbed
a 41% market share of streaming media devices—
more than Amazon Fire TV, Google Chromecast
and Apple TV. The business is still growing but
competition is heating up while prices drop.
To stay relevant, beginning in 2014 Roku part-
nered with several TV makers, including China’s
TCL and Hisense and Japan’s Hitachi and Sanyo
Electric, to build its operating systems into TV sets.
According to Roku, its software is in one in three
smart TVs sold in the U.S. during the fi rst nine
months of 2019. But other TV makers are jumping
in: Samsung, the world’s leading TV manufactur-
er, announced in May that all of its new smart TVs
would come with the Apple TV app built in.
Roku also faces rivals in the ad world. Media
conglomerate Viacom bought the free, ad-support-
ed streaming service Pluto TV for $340 million in
March. NBC is launching Peacock, its own stream-
ing service with advertising, next April.
Wood says he welcomes all entrants. “The excit-
ing thing for me about the streaming wars is that
humongous companies like Disney are all going
in on streaming,” Wood says. “That’s only good
for us.” But he might want to press pause on that
button. These big media players may be allies to-
day but foes tomorrow. “Everyone has realized
the living room is too important,” wrote Pivotal
Research CEO Jeff rey Wlodarczak in a September
report titled “Is Roku Broku?” “And the big boys... are likely to make Roku growth much more
diffi cult.” Wood had better start thinking of his
next pivot soon.
a TV ad is through Nielsen ratings, which could
tell you roughly how many people have watched
it,” Wood says. “Our measurement is very precise,
where we can tell a company that out of every-
one who saw your ad, 5% went to your website and
bought something,” he explains. “We’re bringing
the sort of technology that’s already been around
for a while on the internet to the TV world.” Roku
does this with in-house measurement tools, but also
with 11 partners including New York-based Nielsen
in order to tell advertisers like clients Jaguar Land
Rover and Baskin-Robbins how their ad campaigns
performed against which demographics.
The shift is paying off. In 2015, 84% of Roku’s
$320 million in revenue came from hardware;
16%, or $50 million, came from advertising and
content. Now advertising is the fastest-growing
segment, and those numbers have nearly fl ipped.
Roku doubled down in October, announcing a
$150 million acquisition of dataxu, a Boston-
based tech outfi t that allows clients to plan and
buy video ad campaigns.
Investors are loving it. Roku’s stock has rocketed
up over 340% since the beginning of 2019, pushing
its founder’s net worth to $3.3 billion, a $2.6 billion
jump since January. It recently traded at a rich 17
times sales. “I have no idea why Roku is valued [so
high],” says Wedbush Securities’ Michael Pachter.
Wood’s plan to cater to advertisers comes from
an early failure. In the early 1990s, fi guring there
had to be a better way to record new episodes of
his favorite TV show, Star Trek: The Next Gener-
ation, than using VHS tapes, he came up with a
DVR. The initial product, marketed as ReplayTV,
was released in 1999 and cost around $1,000. Big
mistake. Rival TiVo sold its boxes for reportedly
under $500 and gobbled up market share.
Low on cash, Wood sold ReplayTV in 2001 to
Santa Clara-based consumer electronics fi rm Son-
icBlue for a reported $42 million and stayed to help
run it. To diff erentiate it from TiVo, Wood released
a version of ReplayTV with an ad-skipping feature.
Bigger mistake. The company was sued by every-
one from Paramount to MGM to Disney. Sonic Blue
went bankrupt. “We didn’t take industry require-48
FINAL THOUGHT
“IN GENERAL, OBSOLETE
TECHNOLOGY IS OBSOLETE
FOR A REASON. MONOCLES
ARE NO EXCEPTION.”
—Neil BlumenthalRoku Cont.HOW TO PLAY IT
According to
Billy Montana
With 5G on the
horizon, rich video
game content is a
great way to play
the streaming
boom, according
to Billy Montana,
portfolio manager
at $21 billion (as-
sets) Jackson
Square Partners.
A top holding:
New York City’s
Take-Two Interac-
tive. “The best
investment today
is in the content
owners,” he says.
“Take-Two has the
best intellectual
property in inter-
active entertain-
ment, a subcat-
egory of media
that should enjoy
secular growth for
the next decade.”
As platforms fi ght
for its franchises,
which include
Grand Theft
Auto, NBA 2K
and Civilization,
Montana expects
tolls charged by
Xbox and PlaySta-
tion will fall from
their current 30%
of Take-Two gross
revenues to 15%,
and points out
its pipeline is at a
record high.The Vault
TIVO’S TROUBLES
“Our plan is to run as fast
as we can,” vowed Michael
Ramsay, cofounder and CEO of TiVo. Almost a year
aft er debuting its litt le box at the Consumer Electronics
Show in Vegas, TiVo had gone public, reached a $1.4 bil-
lion market valuation—and lost nearly $32 million while
accumulating a few thousand dollars in revenue from
early subscribers. The challenges ahead for Ramsay
and TiVo were clear: “The technology of searching and
recording, which is not protected by patents... can
easily be copied.” —Forbes, November 29, 1999FORBES.COM