Roku Aiming to Build Operating System into TVs
Roku will eventually build its operating system into TVs, migrating it from the set-tops and Streaming Stick devices that currently house the technology, CEO Anthony Wood said Wednesday at the Needham investment conference.
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Roku has reached agreements with 14 companies during the past year including Apex, Coby, Elements, Haier, Hisense, Best Buy’s Insignia, TCL and others, to introduce TVs compatible with Streaming Stick via an MHL connector. The device will either be bundled with or sold separately from about 700 CE products this year, Wood said. The “second phase” of Roku’s strategy will be building software into the sets, said Wood, declining to disclose the timing for the transition.
"That is our goal -- to be the operating system,” Wood said. Roku’s OS will be aimed at Chinese suppliers that lack the software skills and Japanese companies that are “behind and will give up” on software development in the next few years, Wood said. Samsung and LG Electronics will likely continue with their own development, given the investment the companies have made in software, Wood said. “The Japanese companies are sort of stuck in the middle in that they don’t have enough expertise” in software development and are struggling financially, Wood said.
The Streaming Stick is part of an effort to “establish a relationship” with OEM suppliers so that eventually adding an operating system would be a “natural progression,” Wood said.
Sales of Roku’s set-tops are approaching five million units and the service has about four million “active” customers, those that have used it in the past 30 days, Woods said. The average Roku customer uses the service and its 700 channels about 12 hours per week, he said. Roku’s sales hit about $140 million in 2012, up from $100 million the previous year and $50 million in 2010, Wood said. In 2012, Roku users streamed a billion hours of video, up from 400 million hours a year earlier, Wood said. Roku, which claims a 40 percent share of the streaming set-top market, has a $20 to $30 edge on Google TV in bill of materials cost, Wood said. Apple’s Apple TV also has a 40 percent share of the streaming set-top market, he said.
Roku’s hardware, which is marketed through Amazon, Best Buy, Costco, Fry’s Electronics, RadioShack, Target and Walmart, sells for $49 to $99 and carries a 22 percent profit margin, Wood said. The company is “nearing” breakeven after raising $47 million last year in a round that included News Corp. and British Sky Broadcasting as investors, Wood said. Roku hasn’t decided whether it will file for an IPO or launch another funding round, Wood said. Roku launched its first national advertising campaign during the holiday season, resulting in a 26 percent lift in sales in the markets where the ads appeared, including New York and Los Angeles, Wood said.
In addition to hardware suppliers and retailers, Roku will seek further alliances with cable operators similar to its deal with Time Warner Cable, Wood said. The Time Warner agreement allows the cable company’s subscribers to stream up to 300 live TV channels via Roku, effectively replacing the cable set-top on some TVs. Time Warner subscribers who own Roku boxes will pay no extra fees for the TWC TV service. The pact marks the first time TWC TV is available for streaming on a consumer device connected to a TV. Roku announced a variety of new channels at CES last week including Blockbuster Now, Fox, iHeart, Spotify and Vevo.