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Roku CEO Anthony Wood Talks IPO, Advertising and the Future of Streaming (Q&A)

Streaming device maker Roku enjoyed a stellar IPO this week, with stocks trading at around double the initial share price on Friday after closing up 67% on its first day of trading Thursday. However, Roku CEO Anthony Wood preferred to talk about the future of the company in an interview with Variety — a future that banks on cord cutting and ad-supported streaming.

Roku’s stock has been performing very well after its debut this week. You must be feeling pretty good about that?

I’m happy with the first few hours of stock price. But we are not focused on the stock price, we are much more focused on continuing to build the Roku platform business to scale. We’ve got 15 million active accounts, growing 40% year-over-year. But there is a lot more than 15 million households in the world, and our goal is to power every TV in the world. So we got a long ways to go still.

You founded Roku all the way back in 2002, years before cord cutting, binge-watching an all that. Did you have a sense of what was ahead for your company?

It was always the goal to build a streaming platform. When we first got started, it was a little early for that, and we started with products around the edges. We did streaming audio players, we did some digital signage players. In 2008, we shipped the first Netflix player. The goal at that point for sure was to build that into a platform. And that’s just what we have been doing consistently and methodically. Adding features like the app store, starting to license to TV manufacturers, building out monetization features.

Most people still think of Roku as a hardware company first. Tell us more about your actual business model.

Our business model is focused on growing active accounts, and then monetizing those active accounts through our platform business. The way we grow active accounts is we sell streaming players, we license to TV companies and we license to operators.

So you have three avenues for getting into consumers’ homes. Which one of these is the biggest growth driver?

They are all excellent ways for us to grow active accounts, they are all going to be important for quite a while. But the TV licensing is where we see the fastest growth coming from, and it will soon be the largest contributor of new accounts.  The first half of this year, 1 in 5 smart TVs shipped in the U.S. ran Roku’s OS. They were Roku TVs. And we expect that just to keep growing. I think almost all TV companies are going to end up licensing an OS. And right now, we are the leader in that by a huge margin.

The S-1 Roku filed ahead of the IPO showed that your ad revenue is growing significantly. However, you can’t run ads against some of your most popular channels, like Netflix, YouTube, Pandora. How do you want to address this challenge?

First of all, I do want to point out that we do monetize every customer. For example, when a Roku customer turns on their device, they start at the Roku home screen. We have ads on the home screen, and it’s a great place to influence what content viewers watch. So we monetize that. And we do have a pretty standard business deal with Netflix. The way we monetize subscription content including Netflix is when we sign up new subscribers, we get a rev share for the life of the customer.

We don’t have a direct ad-serve relationship with YouTube. But YouTube is a popular channel with our customers. We are an open platform, we try to carry all content. But we do participate in one way or another in the monetization of the majority of the ad-supported inventory on our platform. Ad-supported content is the fastest-growing type of Roku content. 40 percent of viewing on Roku has ads in them.

Also, we launched something recently called the Roku channel, which is a great way for content owners to publish their content on Roku without writing an app. Roku sells the ads, it has high CPMs through our ad sales team, and shares the revenue back with them. And I think over time, most (library) content in the world will come to Roku on demand through the Roku channel.

What other trends are you seeing in consumer behavior? Where is the industry moving?

As consumers increasingly cut the cord and move to streaming, they are not looking to pay the same amount that they paid for their pay TV bundle they just cancelled. They are looking for better value. The behavior that we expect is that consumers will sign up for a few subscription services, but then they will layer on a lot of ad-supported content. And as streaming becomes even more mainstream, consumers are looking for more free content. Free is one of the most searched-for terms on Roku.com.

For a while, there was a lot of content that you couldn’t get through streaming services. But that’s for the most part gone now. For the most part, you can get almost any piece of content you want streamed one way or another. There is still some coming, and more options coming. And probably more fragmentation of bundles coming.

 

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